When you’re thinking about opening a business in South Dakota, or you’re contemplating expanding your service area into the state, it’s important to learn about the sales tax laws there and how they will impact you. While there are many similarities between the sales tax laws in South Dakota when compared with those in other states, there are also some details that are specific to South Dakota that you’ll need to be aware of to ensure you stay compliant at all times.
Like most states, South Dakota has a blanket state sales tax rate of 4.5% that applies everywhere. This is supplemented in most parts of the state by local taxes that bring the total effective rate up to between 5.5% and 6.5%. A few local jurisdictions in the state like Pine Ridge and Blackhawk don’t add their own tax, which means customers in that area will only pay the 4.5% state rate.
South Dakota is a destination-based state when it comes to sales tax, which means that the applicable rate will be that at the place the customer takes possession of the product purchased or the location of services rendered. If you have a physical store, that means your customers will all pay the rate that is in effect at the store’s location. If you’re shipping products to your customers, however, the applicable rate will be that of the delivery address.
South Dakota can only compel retailers and service providers to collect and remit sales tax on purchases by customers within the state if the seller has a significant presence, or nexus, there. Of course, if you operate a physical store or office in the state, you will be considered to have nexus, and other qualifying conditions include:
There are currently no Amazon fulfillment centers in South Dakota, so if you use fulfillment by Amazon, you won’t have to worry about a nexus being triggered by your goods being stored in one of their warehouses. South Dakota did recently pass an economic nexus law, however, and so that is something to be aware of if you are a remote seller making sales to South Dakota customers.
South Dakota’s economic nexus law requires any out-of-state business to collect and remit sales tax to the state if, in the previous calendar year:
Under existing precedent resulting from the 1992 Supreme Court case Quill Corp v North Dakota, this economic nexus law is unconstitutional, and the state quickly brought the matter to court. Currently, oral arguments are scheduled in South Dakota Supreme Court for late August of 2017, and it’s likely that the ultimate fate of the lawsuit will be decided at some point in the United States Supreme Court.
That’s because the South Dakota economic nexus law, on one level, was aimed at challenging the decision in Quill. That decision held that North Dakota could not require and out-of-state seller with no physical presence in the state to collect and remit sales tax. The state had claimed that the use of proprietary software provided by the seller and used by North Dakota customers to place their orders gave the company nexus, but the court disagreed.
Technology has dramatically reshaped the way retail sales are carried out since that decision was handed down, however, and so many states have been looking for ways to recoup sales tax revenue lost due to the growth in online sales. Although South Dakota’s economic nexus law is barred from taking effect until the court case is resolved, it’s important to be aware that that may change, and it’s something to keep an eye on if you’re a remote seller operating in the state.
Most sales of tangible personal property, including groceries, are taxable in South Dakota, as are the vast majority of services. Some notable exemptions include:
All types of digital products and software are taxed, including custom software, and that is true regardless of whether the product is delivered electronically or on physical media. Shipping and handling charges are also taxable as long as the product being shipped is taxable. Certain organizations or individuals may qualify for exemption certificates in order to purchase tax-free items that would normally be taxed, but they will need to obtain an exemption certificate from the state ahead of time and present it at the time of purchase.
If you are obligated to collect and remit sales tax in South Dakota, you will have to register with the state. This can be done online through the state website or in person. Because South Dakota is also a full member of the Streamlined Sales and Use Tax Agreement (SSUTA), you can also register for a sales tax license through the SSUTA website. However, registering in that way requires you to register with all member states at once, and that may or may not make sense for you depending on your situation.
Regardless of how you register, there is no fee, and you may begin making taxable sales in South Dakota as soon as you receive your license in the mail. When you obtain your license, you will also be assigned a filing frequency by the state based on your expected sales, and this can be monthly, bi-monthly, semi-annual, annual, or seasonal. Returns can be filed either online or through the mail.
South Dakota recently updated its due dates for sales tax returns and payments. As of July 2017, returns are due on the 20th of the month following the close of the period in question for those filing both electronically and non-electronically. Payments made electronically need to be received by the 25th of that same month, while payments for returns filed by mail must accompany those returns. If any of these due dates falls on a weekend or holiday, the returns and payments will be considered timely if received by the next business day.
Late filing of your South Dakota sales tax returns or late payment of the tax due will result in penalties imposed by the state. The penalty for a failure to pay within 30 days of the due date is 10% of the tax due for every month you are delinquent, with a minimum charge of $10. Interest also accrues at a rate of 1.25% per month, with a minimum of $5 for the first month.
Whether you’re selling only in South Dakota or in multiple states, keeping track of your sales tax collection, returns, and payments can be a challenge. The various rates in local jurisdictions, combined with the fact that the regulations surrounding the collection of sales tax in each state can change at any time means that you have to stay vigilant to ensure you’re always completely compliant. Of course, there are plenty of other aspects of your business you’d rather be focusing on, and fortunately, TaxTools is a piece of software that can allow you to do just that.
With TaxTools, you can be sure your sales are accurately tracked, that sales tax is collected from your South Dakota customers at the appropriate rate, and that all returns are filed on time. TaxTools keeps abreast of all changes to local and state sales tax laws, and it can provide up-to-date reports on all of your taxable sales with applicable location information any time you need them. This program also integrates smoothly with all ecommerce platforms, so you won’t have to change anything about the way you do business.
So if you’re ready to learn how TaxTools can help streamline your sales processes and help your business grow, click here to sign up for a free trial today.