South Dakota does not impose an income tax on partnerships or partners

# Summary

South Dakota imposes no income tax on partnerships and no income tax on a partner's distributive share. Both halves are covered: the Department states that South Dakota "does not impose a corporate income tax" and, for individuals, that it "is one of seven states that does not impose a state income tax."

Because there is no individual income tax, there is no South Dakota composite return, no nonresident withholding on distributive shares, and no pass-through entity tax election — there is no South Dakota income tax for such a regime to collect or to credit against.

The exception is the financial sector, and it catches partnerships specifically. SDCL chapter 10-43 defines "Corporation" to include limited partnerships and limited liability companies, so a lending or trust business organised in partnership form is taxed under that chapter at 6 percent of net income. See below.

# South Dakota Department of Revenue statements

On the entity side, the Department's Business Tax page states, under "Corporate Income Tax":

"South Dakota does not impose a corporate income tax."

On the owner side, the Department's individual Taxes page states, under "Income Tax":

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

Together these dispose of the ordinary pass-through question: the partnership is not subject to an entity-level income tax, and the partner is not subject to a state income tax on what flows through.

# Partnership form is not a shield in the financial sector

The bank franchise tax in SDCL chapter 10-43 is drafted to be indifferent to entity form, and the definition is easy to read past.

SDCL § 10-43-1(1) provides: "'Corporation,' joint stock companies, limited partnerships, limited liability companies, and associations organized for pecuniary profit."

Within this chapter, therefore, a limited partnership and an LLC are "corporations." A trust company, mortgage lender, consumer lender, or loan-buying business organised as an LP or LLC is inside the chapter on the same footing as one organised as a corporation.

SDCL § 10-43-1(4) reaches further still, to "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." "Any person" covers a general partnership and a natural person as readily as an LP.

Where the chapter applies, SDCL § 10-43-2 imposes the annual tax on the institution and § 10-43-4 measures it at six percent of net income assignable to the state, on net income of four hundred million dollars or less.

The practical rule: for a South Dakota partnership outside the lending, trust and consumer-finance trades, there is no state income tax at either level. Inside those trades, entity form gives no protection and the entity pays an income tax on its net income.

# Filing consequences

There is no South Dakota partnership income tax return, no state Schedule K-1 equivalent, and no filing obligation arising from a partner's distributive share.

A nonresident partner of a South Dakota partnership owes no South Dakota income tax on that partnership income. A South Dakota resident partner of an out-of-state partnership owes no South Dakota income tax on it either, though that partner may owe income tax to the state where the partnership does business, which this determination does not address.

A partnership or LLC that falls within SDCL § 10-43-1 files a bank franchise tax return with the Department's Special Tax Division instead, and its liability arises on the first day of each tax year.

Sales and use tax, contractor's excise tax and other transaction taxes apply to partnerships on the same terms as to any other business.

# Coverage and verification

Tax years covered: 2025.

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

The statements about the absence of a composite return, nonresident withholding, and a pass-through entity tax follow from the absence of a South Dakota income tax rather than from a provision disclaiming them; no South Dakota authority establishing any such regime was found.

This determination is recorded with status "not-imposed-with-exception" because SDCL § 10-43-1(1) brings limited partnerships and limited liability companies inside the bank franchise tax when they carry on a financial business.

# Sources

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

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