South Dakota does not impose an individual income tax

# Summary

South Dakota does not impose an individual income tax. There is no South Dakota individual income tax return and no withholding on wages.

One carve-out applies and is easy to miss, because it is not organised as an income tax on individuals: South Dakota's bank franchise tax — which the Department of Revenue itself calls an income tax — reaches individuals who are in the lending business. See "Where an individual can still owe a South Dakota income tax" below.

For an individual earning wages, salary, investment income, or business income outside the lending trades, the plain answer holds: no South Dakota income tax, and nothing to file.

# South Dakota Department of Revenue statement

The Department states the position on its individual "Taxes" page, under the heading "Income Tax":

"South Dakota is one of seven states that does not impose a state income tax."

The page directs federal questions — federal returns, W-2s — to the Internal Revenue Service.

The Department makes the corresponding statement for entities on its Business Tax page: "South Dakota does not impose a corporate income tax." Read together, the two pages cover income taxation at both the owner and the entity level, subject to the bank franchise tax described below.

# Where an individual can still owe a South Dakota income tax

South Dakota's bank franchise tax is not limited to banks, and it is not limited to entities.

The Department's Tax Fact on Financial Institutions states who is caught:

"Financial institutions including banks, production credit, trust companies, savings and loan associations, mutual savings banks, mortgage lenders and brokers, money-lending businesses, and any person in the business of buying loans, notes, or other evidences of debt are subject to the bank franchise tax."

and what the tax is:

"The bank franchise tax is an income tax imposed in lieu of other taxes"

The statutory definition confirms the reach to natural persons. SDCL § 10-43-1(4) defines "Financial institution" to include "any person licensed in this state pursuant to chapter 54-4, the installment repayment small loan and consumer finance law; and any person in the business of buying loans, notes, or other evidences of debt except those persons registered as broker-dealers pursuant to chapter 47-31B."

SDCL § 10-43-2 then imposes the tax: "An annual tax is hereby imposed on each financial institution doing business in this state or licensed to do business in this state during any part of its tax year." SDCL § 10-43-4 measures it "upon the net income assignable to this state at the rate of six percent on net income of four hundred million dollars or less," with lower rates in brackets above that.

So an individual carrying on a consumer lending or loan-buying business in South Dakota is subject to a 6 percent tax on net income. "South Dakota has no individual income tax" remains a correct statement of the general rule and a wrong answer for that person.

Two exclusions worth noting: persons registered as broker-dealers under chapter 47-31B are outside the definition, and a money transmitter licensed through the Division of Banking "does not owe bank franchise tax."

# What South Dakota does impose

This page is limited to the individual income tax. From the Department's published rate table, South Dakota's principal taxes are:

• State sales and use tax at 4.2 percent, applying to all sales or purchases of taxable products and services.
• Municipal sales and use tax at 1 to 2 percent, where the purchaser receives or uses the product or service in a municipality imposing it.
• Contractor's excise tax at 2 percent, imposed on the gross receipts of all prime contractors engaged in construction services or realty improvement projects.
• Motor vehicle excise tax at 4 percent on the purchase of most motor vehicles.

Property tax is levied locally rather than by the state. The bank franchise tax described above applies to financial institutions and is imposed in lieu of other taxes, subject to the exceptions the Department lists — taxes on a financial institution's real property and leased sites, tangible personal property not normally used in the extension of credit, and the retail occupational sales or use tax on tangible personal property.

# Filing consequences

There is no South Dakota individual income tax return, and no South Dakota income tax withholding, estimated payment, or extension regime for individuals.

Federal obligations are unaffected; the Department directs federal return questions to the IRS.

An individual within the bank franchise tax definition files under SDCL chapter 10-43 instead. Liability arises on the first day of each tax year under § 10-43-4, and the Department's Special Tax Division administers the tax.

# Coverage and verification

Tax years covered: 2025.

Verified on 2026-08-13 against the South Dakota Department of Revenue's individual "Taxes" and Business Tax pages as then published, the Department's Tax Fact on Financial Institutions (July 2023 edition, the edition then current on the Department's site), and SDCL chapter 10-43 as published in this library.

No change to South Dakota's treatment of individual income was identified for tax year 2025.

# Sources

South Dakota Department of Revenue, Taxes (individuals) — https://dor.sd.gov/individuals/taxes/

South Dakota Department of Revenue, Business Tax — Corporate Income Tax — https://dor.sd.gov/businesses/taxes/

South Dakota Department of Revenue, Tax Fact: Financial Institutions (July 2023) — https://dor.sd.gov/media/q34fhrne/financial-institutions.pdf

SDCL §§ 10-43-1, 10-43-2, 10-43-4, as published in this library.