Understanding South Dakota Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in South Dakota.
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.
Leases are taxed. 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.
Most services are taxed. 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.
Prime contractors' receipts are taxed. 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.
State Tax Rate Is Generally Four Percent
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. However, there is a different excise tax imposed on gross receipts from the sale and use of farm machinery, attachment units, and irrigation equipment used exclusively for agricultural purposes. This tax is four percent. In addition, these transactions are exempt from municipal tax.
Retailers Bear Responsibility for Paying 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.
Absorbing the tax is permitted. In South Dakota a seller can choose whether to add the tax to the price of the product or service sold. The law against refunding or offering to refund all or any part of the amount collected, or offering to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser in South Dakota has been repealed.
Tax Permits Required 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.
Many Items Are Exempt from Tax
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. An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Sales for Resale Are Not Taxed
Purchases intended for resale are excluded from the definition of retail sale in South Dakota. The burden of proving that a sale is for resale is on the seller who must obtain a certificate of resale from the purchaser. If a purchaser has provided the seller with a resale certificate, the purchaser is responsible for informing the seller when items covered by the certificate are not being purchased for resale and therefore are subject to tax.
Resale exemption certificate requirements. In South Dakota, the only acceptable forms for resale certificates are Form ST-110 (Certificate of Resale), a substitute form that the Department of Revenue has previously approved, or the Multistate Tax Commission's uniform sales and use tax certificate. The resale certificate must include the following information:
- the purchaser's name and address;
- the purchaser's sales tax license number;
- a description of the types of tangible personal property and services being purchased for resale; and
- the purchaser's signature.
Blanket Resale Certificates Are Valid for One Year
Sellers may accept blanket certificates from a purchaser if the purchaser repeatedly purchase the same type of property or service for processing or resale. A blanket exemption certificate may be accepted for a stated period of time, but not more than one year.
Physical Presence Triggers Tax Liability
South Dakota does not have a statute that specifically taxes out-of-state mail order and catalogue sellers. You will be responsible for paying this tax only if you have physical presence within South Dakota. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in South Dakota? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter South Dakota for purposes of taking and transmitting orders from South Dakota? If your employee or independent contractor goes into South Dakota to take or transmit orders, your business may have physical presence in South Dakota. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter South Dakota for purposes of delivering property? Frequent deliveries in South Dakota by your trucks will give you physical presence in South Dakota.
Vendors May Use a Sales Tax Bracket System
The bracket system may be followed by sellers in computing the sales tax. The 4 percent tax is computed on each dollar and/or fraction of a dollar according to the following table:
|Amount of Sale ||Tax |
|$0.00 to $0.12 ||no tax |
|0.13 to 0.37 ||$0.01 |
|0.38 to 0.62 ||0.02 |
|0.63 to 0.87 ||0.03 |
|0.88 to 1.12 ||0.04 |
|and so forth |
How to Recoup Excess Tax Payments
A claim for recovery of overpaid tax must be filed by a taxpayer on forms prescribed by the Secretary of Revenue within three years from the date the amount was due. A retailer is also allowed to claim a credit for returned goods for the amount of the sale on the sales and use tax return. South Dakota provides for a limited refund of sales taxes paid by any qualified low income resident who is 65 years of age or older and any disabled resident.
South Dakota Imposes Use Tax on Out of State Purchases
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. Also, property brought into the state on which a sales or use tax has been paid in another state equal to or in excess of the South Dakota tax is not subject to tax in South Dakota.
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.