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A Focus On South Dakota’s Tax And Business Climate



This month takes us to the Mount Rushmore state of South Dakota. South Dakota is the 5th least populous state in the U.S., with a population of 865,454 people in 2016. It is also the 5th least densely populated state in the country. South Dakota is in the north-central United States, and is considered part of the Midwest by the U.S. Census Bureau. It is also part of the Great Plains region, which covers most of the western two-thirds of the state. West of the Missouri River the landscape becomes more and more rugged, consisting of rolling hills, plains, ravines, and steep flat-topped hills called buttes. In the south part of the state, east of the Black Hills, lies the Badlands of South Dakota. Erosion from the Black Hills, marine skeletons that fell to the bottom of a large shallow sea that once covered the area, and volcanic material, all contribute to the geology of this area.

The Dissected Till Plains, an area of rolling hills and fertile soil that covers much of Iowa and Nebraska, extends into the Southeastern corner of the state. Layers deposited during the Pleistocene epoch, starting around two million years ago, cover most of eastern South Dakota. These are the youngest rock and sediment layers in the state, the product of several successive periods of glaciation which deposited a large amount of rocks and soil, known as till, over the area.

The Black Hills is home to 2 historical monuments carved right into towering granite peaks: Mount Rushmore, the iconic depiction of four revered U.S. presidents, and Crazy Horse Memorial, a tribute to the storied Native American tribal leader. The state welcomed 13.7 million tourists in 2015, who flocked to these sites.

Business Climate

The service industry is the largest economic contributor in South Dakota. This sector includes the retail, finance, and health care industries. Citibank, which was the largest holding company in the United States at one time, established national banking operations in South Dakota in 1981 in order to take advantage of favorable banking regulations. Government spending is another important segment of the state’s economy, providing over 10% of the gross state product. Ellsworth Air Force Base is the second largest single employer in the state.

Agriculture has historically been a key component of the South Dakota economy. Although other industries have expanded in recent decades, agricultural production is still very important to the state’s economy, especially in rural areas. The five most valuable agricultural products include cattle, corn, soybeans, wheat and hogs. Agriculture related-industries such as meat packing and ethanol production also have a considerable economic impact on the state. South Dakota is the sixth leading ethanol-producing state in the nation.

Another important sector in South Dakota’s economy is tourism, as mentioned above. Many travel to view the attractions of the state, particularly those in the Black Hills region, such as historic Deadwood, Mount Rushmore, and nearby state and national parks.

Tax Climate

South Dakota does not levy an individual income tax nor does it also levy a corporate income tax. It is one of only four states in the nation (along with Nevada, Washington and Wyoming) that also do not levy a corporate income tax. And while Nevada and Washington have other taxes to compensate for the loss on revenue, South Dakota does not, and is therefore, arguably, the most tax friendly state in the nation. The state is also one of just seven which do not impose a personal income tax. The others are Alaska, Florida, Nevada, Texas, Washington and Wyoming.

The state does, however, impose a bank franchise tax on various financial institutions. The tax is based on net income and is accessed at rates varying from 6% to .25%.

The state sales tax rate is 4.5%, which ranks 37th in the nation. Additionally, the local sales tax rate is 1.89% to make a combined sales tax rate of 6.39%. This combined rate ranks 31st in the nation. As a comparison, California’s state sales tax rate is 7.25%, plus municipal taxes often at 1-2%.

Other taxes that are of interest to consumers are the gasoline tax and cigarette tax. South Dakota’s gasoline tax is 30 cents per gallon and ranks 24th in the nation. The state cigarette tax rate per 20-pack is $1.53, which ranks 25th in the nation.

On March 22, 2016, the governor of South Dakota signed legislation instituting an economic nexus standard that requires sales tax collection and remittance for any entity exceeding an annual sales threshold of $100,000 or 200 separate transactions in the state. South Dakota joins a few other states in passing a law which contradicts the famous 1992 Supreme Court decision in Quill which required physical presence in a state (rather than simply annual sales) before a state can require a retailer to collect sales tax. We’ll be watching these laws to see if a company ultimately challenges them and they are ruled unconstitutional.

South Dakota is fairly aggressive in its taxation of technology products for sales tax purposes. All digital products in South Dakota are subject to taxation. Prewritten software and custom software that are downloaded electronically are taxable. Software-as-a-Service is also taxable.Tax Incentives and Credits

South Dakota has no state income tax so the state does not offer state tax credits.

Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in South Dakota or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

Random Facts

  • It is the 17th largest state in the Union.
  • Eastern South Dakota has many natural lakes, mostly created by periods of glaciation.
  • The Mammoth Site near Hot Springs is a privately owned attraction in the Black Hills. A working paleontological dig, the site has one of the world’s largest concentrations of mammoth remains.
  • Billy Mills, from the town of Pine Ridge, competed at the 1964 Summer Olympic Games in Tokyo, becoming the only American to ever win a gold medal in the 10,000-meter event for running.

Monika founded Miles Consulting Group in 2002. The firm focuses on multi-state tax consulting—helping their clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for over 11 years in Big 4 Public Accounting and 1 year in industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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