South Dakota Business Taxes at a Glance
South Dakota has no personal income tax and no general corporate income tax. Its main source of state revenue is sales tax, and that tax reaches further than in most states, including many services. Contractors pay a separate excise tax on their receipts, cities add their own taxes, and banks pay a franchise tax. BOMCAS helps South Dakota businesses get these right and keep their federal returns in order.
A Sales Tax That Covers Services
In most states, sales tax applies mainly to goods. In South Dakota, it applies to tangible goods and to most services, unless a specific exemption applies. Professional services such as health care and some others are exempt, but many business, personal, and repair services are taxable.
Before relying on the assumption that a service is not taxable, check it against the Department of Revenue's guidance. We review each client's revenue streams, help register for a sales tax license, prepare returns, and keep the records needed to support exempt sales.
Municipal Sales Tax and Gross Receipts Tax
Most South Dakota cities add a municipal sales tax, collected by the state along with the state tax. Many cities also impose a municipal gross receipts tax on lodging, alcoholic beverages, prepared food, and admissions. A restaurant, hotel, or event venue may owe both. Rates vary by city, and businesses that sell in several cities report each one separately on the return.
Contractor's Excise Tax
South Dakota imposes a contractor's excise tax on the gross receipts of prime contractors performing realty improvement projects. It is in addition to the sales or use tax on materials. Subcontractors are generally not liable when they hold a prime contractor's exemption certificate, but they still need documentation. Some utility and public projects follow special rules, and owners can sometimes take responsibility for the tax.
Construction clients need contract-by-contract records of receipts, materials, and certificates. We set up job costing that follows these rules, prepare the returns, and reconcile them with the books.
The Wayfair Case and Remote Sellers
South Dakota is the state behind South Dakota v. Wayfair, Inc., the 2018 U.S. Supreme Court case that allowed states to require out-of-state sellers to collect sales tax based on economic activity rather than physical presence. Every state with a sales tax followed with its own rules. South Dakota requires remote sellers above its threshold to register and collect, and marketplace facilitators collect on behalf of their sellers. We help remote sellers decide whether they have to register and keep up with filings.
Bank Franchise Tax and Financial Services
Although South Dakota has no general corporate income tax, financial institutions pay a bank franchise tax on their net income. The state also has a large trust industry and credit card operations. For smaller firms that serve these industries, we provide bookkeeping, payroll, and federal tax support. The bank franchise tax itself is generally handled by the institution's tax department.
Use Tax on Business Purchases
When a South Dakota business buys taxable goods or services from a vendor that does not charge South Dakota tax, the business generally owes use tax directly. This is common with software subscriptions, online equipment purchases, and services bought from out-of-state providers. Because so many services are taxable in South Dakota, use tax exposure is often larger than owners expect. We review purchases during the monthly close and report use tax on the regular return.
Agriculture
Agriculture remains a large part of South Dakota's economy. Farm and ranch clients need:
- Livestock and crop inventory records
- Federal farm income reporting, including income averaging where it helps
- Sales tax exemptions for agricultural inputs, with proper documentation
- Depreciation schedules for machinery and buildings
Tourism and Hospitality
The Black Hills, national parks, and summer events bring heavy seasonal business to western South Dakota. Lodging, campgrounds, visitor attractions, and similar businesses also pay a state tourism tax on top of sales tax. Lodging, campgrounds, and attractions may owe the state tourism tax, municipal gross receipts tax, and sales tax at the same time. We help these businesses register and file correctly and plan for their seasonal cash flow.
Payroll Without Income Tax Withholding
South Dakota employers do not withhold state income tax. They register with the Department of Labor and Regulation for reemployment assistance tax, which is the state's unemployment insurance, and file quarterly wage reports. Federal withholding and payroll taxes apply as usual. We run payroll and reconcile quarterly filings.
Establishing Residency in South Dakota
South Dakota is a common home base for full-time travelers and people using mail-forwarding addresses, because it has no individual income tax. Getting a South Dakota driver license requires proof of an address and a short stay in the state, but that alone may not end residency in a former state. A state you left may look at where your home, family, business, and time are. We help new residents understand the records that support a change of domicile and file final returns in the former state.
Books Tracking Location, Tax, and Exemption Certificates
Because sales tax is the main state tax, South Dakota bookkeeping should separate taxable and exempt revenue, record sales by city, and track contractor's excise tax by project. We set up the chart of accounts and monthly close to produce these numbers, and we reconcile tax collected with tax reported every period.
Contact BOMCAS About South Dakota
Service businesses collecting sales tax, contractors paying contractor’s excise tax, and new residents closing out a former state can contact BOMCAS for a remote review. City-level pages for South Dakota, organized by service, will be published under this section. Return to the BOMCAS home page or see our United States services. Nothing here is advice for a particular taxpayer, and the details depend on your situation.
Talk to BOMCAS About Your South Dakota Taxes
Have a question about your South Dakota filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.