Business Start-Up Packet
Step 9: South Dakota State Taxes
The South Dakota business climate is Number One in the nation for entrepreneurs according to the Small Business Survival Index. Our per capita state taxes are the 49th lowest in the country. This section reviews the few business taxes and costs your company will have to pay in South Dakota.
The South Dakota entrepreneur has a competitive edge over all his/her business counterparts in the United States. The South Dakota business person enjoys:
• No corporate income tax
• No personal income tax
• No personal property tax
• No business inventory tax
• No inheritance tax
The following briefly reviews the most common business costs and taxes the new and expanding entrepreneur encounters in South Dakota
Sales and Use Tax
Sales tax in South Dakota is a combination of a 4% state tax and a general, municipal tax, which varies from 0 to 2 percent. Any business, organization or person engaged in retail sales, including the selling, leasing and renting of tangible personal property, products transferred electronically, or the sale of services (as long as they are not specifically intended for resale) is required to obtain a sales tax license and collect and remit the applicable tax.
• Motor vehicles are not subject to state and local sales taxes. They are subject to a three percent motor vehicle tax on the purchase price.
Municipal Sales Tax
Approximately 74 percent of the cities and towns in South Dakota have a tax that is in addition to the state tax. The amount of the municipal tax varies from city to city. Generally speaking, gross receipts that are subject to the state tax are also subject to the municipal tax. Municipal taxes are collected by the Department of Revenue; one tax return takes care of both state and municipal sales taxes.
Use Tax
Use tax applies when sales tax has not been paid on goods or services that are taxable in South Dakota. The use tax rate is the same as the sales tax rate, both for the state and the municipalities. Use tax is normally incurred when:
• You travel to another state, purchase a product and send it or have the business deliver it into South Dakota.
• You purchase a product from a mail order catalog.
• You purchase a service from an out-of-state company, but use the service in South Dakota.
• You purchase a service or product from a transient business that does not collect sales tax.
• You consume or use a product that was purchased wholesale.
• You are a service provider who uses or consumes services or tangible personal property in the performance of your service.
Real Property Taxes
Local real property taxes in South Dakota vary from one to four percent of the actual value of the structure, with most rates falling between two and three percent. However, five-year property tax abatements are available on new structures or additions to existing ones.
County commissions may, at their discretion, forgive from 0 percent to 100 percent of the property taxes on a new structure or an addition to an existing one. This abatement may be available on all industrial, commercial and non-residential agricultural structures with a value over $30,000. The property tax liability after construction cannot be less than the tax liability prior to construction.
Real property taxes are determined by taking the local mill levy and applying it to eighty-five (85) percent of the market value of a property.
Unemployment Insurance
The South Dakota Unemployment Insurance program is administered by the Unemployment Insurance Division of the Department of Labor. The program is financed by employers through payroll taxes and it provides insurance or benefits to people who become unemployed.
The Unemployment Insurance Division notifies employers about:
• Each employer's experience rating,
• Any decision made affecting an experience rating account,
• Amounts drawn from accounts by employees,
• Potential unemployment insurance benefit charges, and
• Any error detected during processing of reports.
Employers are asked to notify the Unemployment Insurance Division about:
• Purchase or sale of a business or a portion of a business,
• Wages paid to each individual employed,
• Total wages paid, and
• Any possible errors, especially errors which may result in payment of incorrect benefits.
The unemployment insurance tax in South Dakota ranges from .00 to 7.7 percent of the first $9,500 in wages paid to each employee during a calendar year. New construction firms pay 6.7 percent of the taxable wage base for the first years then 3.55 percent the next two years if the employer maintains a positive account balance. For all other new employers in South Dakota, the rate is 1.75 percent for the first year. The second and third year's rate will not be increased above the 1.75 percent ceiling and may be reduced to 1.55 percent if the employer maintains a positive account balance. Thereafter, the rate is based on experience.
South Dakota's average unemployment insurance rate is 0.9 percent - the lowest in the country.
For more information on the South Dakota Unemployment Insurance program, contact:
Department of Labor
Unemployment Insurance Division
Box 4730
Aberdeen, SD 57402-4730
(605) 626-2312
http://www.state.sd.us/applications/LD01DOL/frameset.asp?navid=&filtertype=1
Workers Compensation
The South Dakota Workers Compensation Act is administered by the division of Labor and Management of the Department of Labor. Workers Compensation is an insurance program that pays medical and disability benefits for work-related injuries and diseases.
Most employers obtain coverage by purchasing an insurance policy, but some employers pay benefits from their own funds. These employers are called "self-insurers" and they are certified and regulated by the Department of Labor.
The South Dakota Workers Compensation Act permits all employers to provide coverage for their employees. The following employees are exempt from the act:
• Domestic servants, unless working for an employer for more than 20 hours in any calendar week and for more than six weeks in any 13 week period.
• Farm or agricultural laborers.
• One whose employment is not in the usual course of the trade, business, occupation or profession of the employer (independent contractor).
• Certain elected officials of the state or any subdivisions of state government.
• Workforce participants.
For more information on the South Dakota Workers Compensation program, contact:
Department of Labor
Division of Labor and Management
Kneip Building
700 Governors Drive
Pierre, SD 57501-2277
Phone (605) 773-3681
Fax (605) 773-4211
www.sd.gov/dol/dlm/dlm-home.htm
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