South Dakota ranks among the top states to start a new venture. Its unusual tax climate is the reason South Dakota was ranked the second-most tax-friendly state for businesses by the Tax Foundation. It’s also likely why the Mount Rushmore State has the highest rate of entrepreneurs who start a business by choice (rather than by necessity).
So, if you’re thinking about starting a business in South Dakota, here’s what you should know about the state’s business taxes:
What business taxes do you pay in South Dakota?
The state business taxes a company pays are typically determined by factors like its structure, employer status, and business activities. South Dakota is unique because it doesn’t charge the following taxes:
- Personal income tax
- Corporate income tax
- Franchise tax
- Income withholding tax
- Personal property tax
Instead, South Dakota businesses only pay sales tax, reemployment assistance tax, and any industry-specific or local taxes that apply to them. However, keep in mind that depending on the kind of business you own, you’ll likely still have to pay federal income taxes and employment taxes to the IRS as usual.
Now let’s take a closer look at the taxes that businesses in South Dakota must pay, as well as how to file each one.
Sales and use tax
Companies that sell physical products or certain taxable services must collect South Dakota sales tax at the point of purchase and send it to the state’s Department of Revenue (DOR). Certain remote sellers and marketplace providers may need to pay sales tax as well, even if they don’t have a physical presence in the state.
If your business purchases goods outside of South Dakota for use within the state, you may be required to pay use tax as well.
South Dakota’s sales tax rate is 4.2% in 2023. The state’s use tax rate is also 4.2%.
Because the state sales tax only applies to certain goods and services, you may want to confirm with the Department of Revenue or your tax professional whether you’re required to collect sales tax in South Dakota.
How to file and pay
If your business must collect sales tax, first you’ll need to register for a sales tax license through the Department of Revenue’s online tax application website.
Sales tax returns and payments are due by the 20th day of the month following the tax period. So, for example, returns and payments for April are due on May 20. Tax returns are due each month, even if you don’t have any sales or taxes to report.
All registered businesses will receive a tax return form to fill out and return for each filing period. Completed returns should be mailed to the address below:
South Dakota Department of Revenue
Mail Code 5055
445 E Capitol Avenue
Pierre, SD 57501-3100
Alternatively, you can file and pay taxes online through EPATH, the state’s online tax filing system. Businesses that pay electronically have until the 25th of the month to do so (but note that this deadline extension doesn’t apply to the tax returns).
Reemployment assistance tax
Many states impose an unemployment insurance tax on employers to cover unemployment benefits for eligible workers who leave the company. In the state of South Dakota, this tax is known as the reemployment assistance (RA) tax.
Businesses in the state typically pay RA taxes if they meet one of the following conditions:
- Had at least one employee for 20 different calendar weeks in the current or previous calendar year
- Paid $1,500 or more in wages in the current or previous calendar quarter
- Pay federal unemployment taxes or unemployment taxes in another state
In their first year in operation, new employers pay 1.2% of the first $15,000 of each employee’s wages—this rate drops to 1% in their second and third years. New construction employers follow a similar schedule, but with different rates: They pay 6% in their first year, and 3% in the second and third year. All new employers are also subject to a 0.55% investment fee.
After your third year as an employer, you’ll receive a notice from the Reemployment Assistance Tax Division each October that informs you of your tax rate for the upcoming year. This rate is based on your company’s payroll history and reemployment assistance claims.
How to file and pay
To pay reemployment taxes, you’ll need to register your business with the South Dakota Department of Labor online portal. You’ll use this same portal to file wage reports and pay any taxes.
Employers submit quarterly reports and tax payments to the Department of Labor by the last day of the month following the end of the quarter (April 30, July 31, October 31, and January 31).
Visit the Department of Labor website for more details on the South Dakota reemployment assistance tax.
Some businesses pay additional state taxes beyond the ones mentioned above depending on their industry, products or services sold, and business activities. These taxes include:
- Alcohol tax
- Contractor’s excise tax
- Eating establishment tax
- Equipment rental tax
- Motor vehicle tax
- Tobacco tax
- Tourism tax
- Vending machine tax
Local governments in South Dakota may impose their own taxes on companies within their jurisdictions as well.
For instance, municipalities can charge up to 2% in local sales taxes, resulting in an average combined state and local sales tax rate of 6.4%. You can look up the sales and use tax rates for specific municipalities within South Dakota with the sales tax rate lookup tool.
Because the taxes described in this section are determined by the location and nature of a business, you should talk with your accountant or tax advisor to determine which ones you need to pay.
South Dakota business tax breakdown by business type
To help you keep track of your business taxes, below we’ve included a chart that breaks down each business entity type’s state and federal income tax obligations.
Keep in mind that pass-through entities like sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs) don’t pay federal income taxes themselves. Instead, the tax liability passes on to their business owners, who pay them on their personal tax returns at the standard federal rates.
|Business type||Sales and use tax||Reemployment assistance tax||Federal income taxes|
|C corporation||Yes, if applicable||Yes, if you hire employees||Yes|
|S corporation||Yes, if applicable||Yes, if you hire employees||Yes (pass-through)|
|LLC||Yes, if applicable||Yes, if you hire employees||Yes (pass-through)|
|Partnership||Yes, if applicable||Yes, if you hire employees||Yes (pass-through)|
|Sole proprietorship||Yes, if applicable||Yes, if you hire employees||Yes, by way of individual income tax|
File your South Dakota small business taxes with Gusto
Staying on top of your business taxes is crucial, but as a business owner, it’s certainly not something you want to spend all your time on.
That’s where Gusto comes in. Because tax laws change quite often, we’ll notify you of any changes that might affect your business so you don’t get hit with hefty fines or penalties. Whether you’re starting a new business or expanding your current one, we’ll provide you with resources to set up and file your taxes in every state.