South Dakota's lithium tax inches closer

In what may be a watershed moment for U.S. state laws regarding critical mineral mining, South Dakota Rep. Kirk Chaffee has taken a second swing at taxing lithium, and this time it may stick. Last year, a similar effort to classify lithium as an energy mineral passed the state House but was rejected in the Senate.

The current bill, for which Chaffee is the main sponsor, classifies South Dakota's future lithium as a precious metal and imposes a 10% tax on mining profits, with deductions for costs including transport, marketing, and refining.

The timing isn't arbitrary; with mining claims rapidly spreading through the Black Hills, a tax implemented before mining starts would follow the precedent set in California back in 2022, where a lithium tax plan was approved by Gov. Gavin Newsom despite industry concerns.

Pro-tax lawmakers on the House Agriculture and Natural Resources Committee wished to establish ground rules ahead of potential mining. Alongside the Izaak Walton League, Sierra Club, and South Dakota Association of County Commissioners, lobbyist Brett Koenecke spoke as a resident of Custer in favor of the bill.

"If you're going to take something from us, you should pay for that," said Koenecke. "There is something happening. I'm not against the something, but I do think we ought to put a tax on it for the benefit of, especially the counties, and probably the state as well."

As a precious metal tax, 20% of the revenue would go to the county where the mining occurs, and 80% would go to the state, with counties capped at $1 million per company and all additional revenue going to the state.

Chaffee expects much of the lithium mined in the U.S. will be sold overseas, arguing that the bill was more of a tax on China, "the gorilla" in the global lithium battery market with its nearly 80% share.

Opposing the bill, president of South Dakota Mineral Industries Association Kwinn Neff cited the U.S. Geological Survey's classification of lithium as a critical mineral necessary for economic and national security, rather than a precious metal rooted in rarity and market demand, and that the distinction was important for shaping legislative policies.

Neff added that the industry doesn't oppose a tax, but 10% is too high and too soon, with only one company currently doing exploration work, while a tax on net profits could suppress potential growth.

"Claims are nothing to be alarmed about," Neff said. "Any citizen in America can stake a claim for $240."

The bill passed the committee 12-0 with one member excused and is now on its way for a vote in the full House.