South Dakota Sales Tax Nexus
South Dakota Risk Profile
The Trigger: $100,000 in annual gross sales.
(Note: South Dakota repealed its “200 transactions” rule on July 1, 2023. It is now a revenue-only state.)
Physical Nexus: Standard triggers apply, including offices, employees, and inventory (including FBA). Because South Dakota has no state income tax, they are particularly aggressive in enforcing sales tax registration for anyone with physical inventory in the state.
Effective Date: November 1, 2018 (Post-Wayfair).
Look-back Exposure: Generally 3 years. As the state that won the Supreme Court case for economic nexus, South Dakota’s Department of Revenue is highly sophisticated and proactive in identifying remote sellers.
Danger Level: HIGH (The Service Tax Trap)
South Dakota does not follow the “exempt unless listed” rule for services. Instead, almost ALL services provided in the state are taxable unless there is a specific exemption. This makes South Dakota a high-risk state for service-based businesses and SaaS providers.
The Trap: Grocery Taxability
While many states exempt or reduce the rate for groceries, South Dakota taxes them at the full state rate. Additionally, the state rate was recently adjusted to 4.2%; failing to update your tax engine to this specific rate can result in consistent under-collection and audit liabilities.
South Dakota State Tax Nexus Summary
South Dakota is the state responsible for the landmark Wayfair Supreme Court decision. As such, they have some of the most established and strictly enforced economic nexus rules in the country.
Sales Tax Nexus
Remote sellers and marketplace facilitators establish nexus in South Dakota if they meet the following threshold in the current or previous calendar year:
- Economic Threshold: $100,000 or more in gross sales delivered into South Dakota.
- Update: As of July 1, 2023, South Dakota no longer uses a transaction count (formerly 200 sales) to determine nexus.
Physical nexus is triggered immediately by having a physical presence, such as an office, remote employees, or inventory stored in a South Dakota warehouse or fulfillment center.
South Dakota Income Tax
South Dakota does not have a state corporate or individual income tax. Out-of-state businesses do not have an income tax filing requirement, even if they establish sales tax nexus.
Taxability of Services and Digital Goods
South Dakota has a very broad tax base. Unlike many other states, most services are taxable in South Dakota unless specifically exempted by law. Additionally, the state taxes digital products, streaming services, and Software-as-a-Service (SaaS).
Conclusion
Because South Dakota taxes groceries and most services at the full state rate, it is a high-compliance state for remote sellers. We recommend a full taxability review to ensure you are capturing all required revenue categories at the correct current state rate of 4.2%.
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