South Dakota Tax Rates

This post provides an overview of the primary taxes levied at the state level in South Dakota. The state is highly ranked for its business-friendly tax climate due to the absence of key major taxes. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

South Dakota is one of a handful of states that does not impose an individual income tax.

  • State Rate: The state income tax rate is a flat 0.0%.
  • Wages and Retirement: This means that wages, salaries, capital gains, interest, dividends, and retirement income (including pensions and Social Security benefits) are not subject to state income tax.
  • Local Income Tax: South Dakota does not impose a local or county income tax.

Corporate and Business Taxes

South Dakota is highly attractive to businesses as it does not impose a corporate income tax or several other common business taxes.

  • Corporate Income Tax: The state corporate income tax rate is 0.0%.
  • Other Exemptions: South Dakota does not levy a personal property tax, business inventory tax, or a franchise tax.
  • Bank Franchise Tax: The only exception is a special franchise tax levied on the net income of financial institutions (banks).
  • Contractor’s Excise Tax: The state imposes a 2% excise tax on the gross receipts of prime contractors and subcontractors for real property improvement contracts (construction projects).

Sales and Use Tax

Sales tax is the state’s largest source of revenue, combining a low state rate with local additions.

  • State Rate: The general state sales tax rate is 4.2% on the retail sale of most tangible personal property and most services. (This rate was temporarily reduced from 4.5% effective July 1, 2023).
  • Local Taxes: Local jurisdictions (municipalities) may impose an additional local general sales tax of up to 2.0%. They may also impose a separate 1.0% Municipal Gross Receipts Tax (MGRT) on specific items like lodging, alcoholic beverages, and admissions.
  • Combined Rate: The average combined state and local sales tax rate is around 6.11%, but the rate can reach up to 8.2% or higher in some cities when including the MGRT.
  • Exemptions: Key exemptions include groceries (unprepared food for home consumption) and prescription drugs.
  • Use Tax: A state use tax of 4.2% plus the applicable local rate applies to taxable items purchased outside of South Dakota but used, stored, or consumed in the state if state sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in South Dakota are collected exclusively at the local level by school districts, counties, and cities. The average effective property tax rate is slightly above the national average.

  • Assessment: Property is assessed at its full and true market value. For tax calculation purposes, the taxable value of the property is set at 85% of its full and true value.
    $$\text{Taxable Value} = \text{Full Market Value} \times 0.85$$
  • Tax Calculation: The tax is determined by applying the local mill rate (set by local budgets) to the taxable value.
  • Property Tax Reduction Act: This act limits the annual growth of property tax levies by local taxing entities.
  • Exemptions: All personal property (such as business equipment, vehicles, and inventory) is exempt from property taxation.

Unique and Miscellaneous Taxes

  • No Estate or Inheritance Tax: South Dakota does not impose a state-level estate tax or inheritance tax.
  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, set at approximately 30 cents per gallon for gasoline.
  • Tourism Tax: A 4.2% Tourism Tax is levied on certain lodging and amusement services, dedicated to the promotion of tourism in the state.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.