Sales and Use Taxes in South Dakota

April 13, 2006

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In South Dakota the retail sales and service tax is imposed on the privilege of engaging in business as a retailer. The sales and service tax applies to sales at retail in South Dakota of tangible personal property, consisting of goods, wares, or merchandise, to consumers or users. The tax is also imposed on the gross receipts of any person engaging in the practice of any business in which services are rendered. All services are taxable except those specifically exempted. (An example of tax exempt services are professional services relating to health.)

In addition, South Dakota imposes an excise tax upon the gross receipts of all prime contractors. The contractor must be engaged in realty improvement contracts with a building contract valued at over $100,000. The excise tax rate is 2 percent.

Sales and use tax rate. The South Dakota sales and use tax rate is generally 4 percent. (In addition, make sure you contact your local governments in South Dakota because they are allowed to assess a local sales and use tax.) A 3 percent sales tax applies to farm machinery and attachment units, other than replacement parts, and irrigation equipment used exclusively for agricultural purposes. The 3 percent reduced rate also applies to persons engaged in oil and gas field services.

Tax-exempt items. South Dakota has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from South Dakota sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In South Dakota the sales tax is imposed on the privilege of engaging in the business of a retailer. A retailer may add the tax to the price of the product or service sold.

Use tax. The use tax is imposed on the privilege of using, storing, and consuming tangible personal property purchased for use in South Dakota as well as the use of taxable services in South Dakota. However, if your property is more than seven years old at the time it's brought into the state it's exempt from the use tax. The age of the exempt property is determined by its date of manufacture, if documented, or by the date of purchase by the person bringing the property to South Dakota. The use tax is not imposed on sales when the gross receipts from the sale have been included in the measure of the sales tax.

Responsibility for collecting use tax. The liability for the use tax is imposed on persons using, storing, or otherwise consuming in South Dakota tangible personal property until the tax is paid directly to a retailer or the Secretary of Revenue. Any person who uses, stores, or otherwise consumes any property or services on which the use tax has not been paid is liable for the tax.

Obtaining tax permits in South Dakota. In South Dakota you must file with the Department of Revenue an application for a permit from the Secretary of Revenue. A permit is required for each place of business. A permit is valid only for the person in whose name it is issued and at the designated business location. Permits are valid until canceled or revoked.

Leases. In South Dakota rentals of tangible personal property are subject to the sales and use taxes. Property that is sold after it has been leased is subject to sales tax.

The following discussions address additional sales and use tax issues that many small business owners face: