South Dakota S‑Corporation Taxes: What You Need To Know

South Dakota does not impose a corporate income tax or a personal income tax. For S‑corporation owners, that means no separate state income tax filing on pass‑through earnings and no state wage withholding on shareholder‑employee compensation. Instead, South Dakota funds government operations primarily through transaction‑based taxes administered by the Department of Revenue (DOR), including state and municipal sales/use taxes and certain industry‑specific excise taxes. The DOR’s Sales and Use Tax Guide makes clear that “South Dakota does not have a corporate, unitary, or personal income tax; however, businesses may be subject to one or more of the following taxes,” which include state and municipal sales/use tax, contractor’s excise tax, tourism tax, and others (see the taxes and rates table) (Sales & Use Tax Guide PDF: Tax Basics and South Dakota Taxes and Rates, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

Key state benefits for S‑corp owners

• No corporate income tax or franchise tax: There is no separate South Dakota state income tax regime for corporate profits or pass‑through income. That also means there is no state pass‑through entity (PTE) tax and no state income tax return for the S‑corporation or its shareholders (Sales & Use Tax Guide PDF: Tax Basics, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• No state personal income tax withholding: Because South Dakota has no personal income tax, employers do not withhold state income tax from wages (the business may still have federal withholding and federal/state employment tax obligations unrelated to state income tax) (Sales & Use Tax Guide PDF: Tax Basics, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Streamlined transaction tax system and online services: The DOR provides online registration, electronic filing and payment (EPath), rate lookups, and education resources to simplify sales/use tax and excise tax compliance (DOR Online Services page, https://dor.sd.gov/online-services/ and Sales & Use Tax Guide PDF: Online Resources, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Modest business filing fees and simple annual maintenance: The Secretary of State (SOS) charges $150 to file domestic articles of incorporation electronically (paper filings cost more), and the annual report fee is $55 if filed online ($70 by paper). Late annual reports incur a $50 fee (SOS Filing Fees: Business Corporations and Annual Report sections, https://sdsos.gov/general-information/filing-fees.aspx).

Formation and annual maintenance (Secretary of State)

• Formation filings and costs:

  • Domestic business corporations: Articles of Incorporation filed online: $150; by paper: $165 (SOS Filing Fees: Business Corporations—Domestic Articles of Incorporation, https://sdsos.gov/general-information/filing-fees.aspx).

  • Domestic LLCs (if you choose LLC taxation and later elect S‑status at the federal level): Articles of Organization filed online: $150; by paper: $165 (SOS Filing Fees: Limited Liability Company (LLC) — Articles of Organization, https://sdsos.gov/general-information/filing-fees.aspx).

• Annual report and fees (applies to corporations and LLCs):

  • Annual Report filed online: $55 (paper: $70). The SOS also lists a $50 late fee for delinquent annual reports (SOS Filing Fees: Annual Report and Late Fee, https://sdsos.gov/general-information/filing-fees.aspx).

• Optional expedited service: The SOS offers a $50 expedited processing service upon request (SOS Filing Fees: General Services—Expedited Service, https://sdsos.gov/general-information/filing-fees.aspx).

Practical implication: Pick your entity type (corporation or LLC) for legal/liability reasons, complete SOS formation, and calendar the annual report to avoid the $50 late fee. If you form an LLC and plan to be taxed as an S‑corp federally, remember that’s a federal election; South Dakota doesn’t impose a state income tax either way (SOS Filing Fees overview, https://sdsos.gov/general-information/filing-fees.aspx).

Transaction taxes you must plan for

State and municipal sales/use tax

• State rate and municipal add‑ons: South Dakota’s state sales and use tax rate is 4.2%. Many municipalities impose an additional 1%–2% municipal sales/use tax. The combined rate depends on where the customer receives the product or service (sourcing) (DOR Individuals Sales & Use Tax page, https://dor.sd.gov/individuals/taxes/sales-use-tax/ and Sales & Use Tax Guide PDF: South Dakota Taxes and Rates; Municipal Tax, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Taxability and use tax: The sales tax applies to the gross receipts of retail sales (including leases and rentals) of taxable products and services. If sales tax is not charged, use tax applies to the purchaser’s use of the product or service in South Dakota at the same rate. Use tax is due in the filing period in which the product/service is received. The guide lists many common use‑tax triggers (e.g., out‑of‑state purchases brought into SD, inventory withdrawals for business use) (Sales & Use Tax Guide PDF: Sales Tax; Use Tax; Examples of Use Taxable Items, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Gross receipts base: Gross receipts include the full amount received (cash, credit, property, services), with no deduction for costs or expenses. Delivery charges are generally taxable if the underlying sale is taxable. The guide explains what is included and excluded from “gross receipts” (e.g., third‑party reimbursed discounts) and how to handle “tax included” pricing (Sales & Use Tax Guide PDF: Gross Receipts; Delivery Charges, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Sourcing: Sales tax applies where the customer receives the product or service; if the product is delivered and the delivery address is unknown, tax applies based on the customer’s address on file (Sales & Use Tax Guide PDF: Location of Sale Examples, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Remote sellers and marketplace providers: As a Wayfair state, South Dakota requires remote sellers without physical presence to register and collect sales tax if they exceed $100,000 in gross sales into South Dakota in the previous or current calendar year (no transaction count threshold). Marketplace providers meeting similar thresholds must collect on behalf of their sellers. The guide cites SDCL ch. 10‑64 thresholds and provides registration and filing expectations (Sales & Use Tax Guide PDF: Remote Sellers; Marketplace Providers, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf). This regime is supported by the U.S. Supreme Court’s decision in South Dakota v. Wayfair, which upheld South Dakota’s economic nexus standard for sales tax collection (Wayfair opinion, https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf).

• Municipal Gross Receipts Tax (MGRT): Some cities impose an additional 1% tax on certain activities (e.g., lodging, amusements, admissions) in addition to municipal sales tax. Report MGRT separately by city code on your sales tax return (DOR Individuals Sales & Use Tax page: Municipal Gross Receipts Tax and Sales & Use Tax Guide PDF: Municipal Gross Receipts Tax, https://dor.sd.gov/individuals/taxes/sales-use-tax/ and https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

Contractor’s excise tax (for construction and realty improvements)

• Rate and base: South Dakota imposes a 2% contractor’s excise tax on the gross receipts of prime contractors engaged in construction services or realty improvement projects in South Dakota. Contractors cannot deduct amounts paid to subcontractors when computing taxable gross receipts (Contractor’s Excise Tax Guide PDF: Contractor’s Excise Tax and Gross Receipts, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

• Prime vs. subcontractor rules: For most projects (SDCL 10‑46A), prime contractors owe the excise tax on gross receipts and must issue prime contractor exemption certificates to subcontractors so subs don’t pay the excise tax (subs still owe sales/use tax on materials). For qualified utility projects (SDCL 10‑46B), both prime and subcontractors owe the excise tax on their gross receipts, and primes cannot issue exemption certificates to subs (Contractor’s Excise Tax Guide PDF: Prime Contractor’s Exemption Certificate; Qualified Utility Projects, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

• Owner‑furnished materials: Prime contractors generally must include the fair market value of owner‑furnished materials in gross receipts (and owe use tax if the owner didn’t pay sales/use tax), except for qualified utility projects where owner‑furnished materials are excluded from the prime’s excise tax base (Contractor’s Excise Tax Guide PDF: Owner‑Furnished Material; Utility Projects, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

Practical implication: If your S‑corp operates in construction, you’ll register for contractor’s excise tax, understand whether the job is under SDCL 10‑46A or 10‑46B, issue or refuse exemption certificates accordingly, and track owner‑furnished materials and municipal tax on materials (Contractor’s Excise Tax Guide PDF, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

Registration, filing, and tools (Department of Revenue)

• When you must register: The DOR guide lists triggers for licensing—such as selling taxable products/services, hiring employees, exceeding $12,000 gross income, or meeting remote seller/marketplace thresholds. You can apply online and manage filings through EPath (Sales & Use Tax Guide PDF: Online Resources; Remote Sellers; Marketplace Providers, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf and DOR Online Services page, https://dor.sd.gov/online-services/).

• Filing returns: Use EPath to file sales/use tax and contractor’s excise tax. The guide provides filing frequency, due date, and sourcing guidance and a “Sales Tax Rate Lookup” tool to determine state/municipal rates by location (DOR Online Services page and Sales & Use Tax Guide PDF: Online Resources; Municipal Tax, https://dor.sd.gov/online-services/ and https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

Employer‑level considerations

• No state personal income tax withholding: With no personal income tax, South Dakota does not require state wage withholding (federal and unemployment insurance rules still apply, but those are outside DOR’s sales/use scope) (Sales & Use Tax Guide PDF: Tax Basics, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• FUTA credit reduction (federal background): Employers nationwide should be aware that FUTA tax credit reductions can apply if a state has outstanding federal UI loans; IRS guidance explains how credit reductions work and where they are reported (Schedule A of Form 940). This is federal compliance background; it doesn’t change that South Dakota has no state income tax withholding requirement (IRS FUTA Credit Reduction page, https://www.irs.gov/businesses/small-businesses-self-employed/futa-credit-reduction and IRS About Form 940, https://www.irs.gov/forms-pubs/about-form-940).

Practical compliance checklist for South Dakota S‑corps

• Form the entity with the Secretary of State; budget $150 for online Articles of Incorporation (paper $165). Calendar the annual report ($55 online; $70 paper) to avoid a $50 late fee (SOS Filing Fees—Business Corporations; Annual Report; Late Fee, https://sdsos.gov/general-information/filing-fees.aspx).

• Register with the DOR (EPath) if you will sell taxable goods/services, exceed $12,000 gross income, have nexus (including remote seller threshold of $100,000), or engage in construction subject to contractor’s excise tax. Use DOR’s online resources to apply and learn filing logistics (Sales & Use Tax Guide PDF: Online Resources; Remote Sellers; Marketplace Providers, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Set up sales/use tax compliance:

  • Determine taxability of your offerings.

  • Apply correct state + municipal rates (source to where the customer receives the product/service).

  • Collect and remit sales tax; accrue use tax where needed (e.g., out‑of‑state purchases brought into SD) (Sales & Use Tax Guide PDF: Sales Tax; Use Tax; Municipal Tax, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• For construction/realty improvements, classify each job under SDCL 10‑46A or 10‑46B; apply the 2% contractor’s excise tax on gross receipts accordingly; manage prime/sub exemption certificates; and track owner‑furnished materials and materials tax on purchases (Contractor’s Excise Tax Guide PDF: Prime vs. Sub; Owner‑Furnished Material, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

• If you are a remote seller or use a marketplace, monitor whether you cross the $100,000 sales threshold into South Dakota; register timely and comply (or confirm the marketplace collects on your behalf and follow DOR instructions for your return reporting) (Sales & Use Tax Guide PDF: Remote Sellers; Marketplace Providers, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf and Wayfair opinion, https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf).

• Maintain good records of gross receipts (including delivery charges), exemptions, and municipal rate determinations. Remember that “gross receipts” is broadly defined and that “tax included” pricing must be backed into proper taxable base computations on your return (Sales & Use Tax Guide PDF: Gross Receipts, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

Bottom line for S‑corp owners in South Dakota

• Benefit: No corporate or personal income tax; no state wage withholding (Sales & Use Tax Guide PDF: Tax Basics, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Requirement: Expect to comply with sales/use tax (state + municipal) based on where customers receive goods/services and to file via EPath (including accruing use tax when vendors don’t collect) (Sales & Use Tax Guide PDF: Sales Tax; Use Tax; Municipal Tax; Online Resources, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

• Requirement (industry‑specific): Construction/realty improvement work is subject to a 2% contractor’s excise tax, with distinct prime/sub rules and special treatment for qualified utility projects (Contractor’s Excise Tax Guide PDF, https://dor.sd.gov/media/pz5ndlch/2023-7-contractors-excise-tax-guide.pdf).

• Administrative: Keep up with SOS annual reports ($55 online) and consider expedited service where timelines matter; fees are modest and predictable (SOS Filing Fees: Annual Report; Expedited Service, https://sdsos.gov/general-information/filing-fees.aspx).

By leaning into South Dakota’s transaction tax framework and straightforward business filing regime, S‑corp owners can operate with clarity: register and file for sales/use (and contractor’s excise tax if applicable), apply municipal rates correctly, take advantage of online DOR tools, and enjoy the benefit of no state income tax on entity income or wages (Sales & Use Tax Guide PDF: Tax Basics; Municipal Tax; Online Resources, https://dor.sd.gov/media/1gxpk4ck/2024-7_sales-use-tax-guide.pdf).

This essay is not tax advice. Always consult a qualified tax professional for your specific situation.