The South Dakota business climate is Number One in the nation for entrepreneurs according to the Small Business Survival Index. Our overall tax burden is also the best in the country according to Forbes Magazine and the Pacific Research Institute. 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:
The following briefly reviews the most common business costs and taxes the new and expanding entrepreneur encounters in South Dakota.
Sales tax in South Dakota is a combination of a 4 percent 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.
Approximately 74 percent of the cities and towns in South Dakota have a tax 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 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:
Local real property taxes in South Dakota vary from 1 to 4 percent of the actual value of the structure, with most rates falling between 2 and 3 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 85 percent of the market value of a property.
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:
Employers are asked to notify the Unemployment Insurance Division about:
The unemployment insurance tax in South Dakota ranges from .00 to 9.5 percent of the first $13,000 in wages paid to each employee during a calendar year. New construction firms pay 6.55 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 1.95 percent.
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: