WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in South Dakota is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in South Dakota include physical property, like furniture, home appliances, and motor vehicles.
The purchase of prescription medication and gasoline are tax-exempt.
South Dakota is unique in the fact that almost all services are taxable. The only major service that is exempt from being taxed is construction.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
South Dakota requires businesses to collect sales tax on the sale of digital goods or service.
HOW TO REGISTER FOR SOUTH DAKOTA SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Personal identification info (SSN, address, etc.)
- Business identification info (EIN, address, etc.)
- Business entity type
- Business description
- Date started doing business in South Dakota
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Rapid City, South Dakota. Since books are taxable in the state of South Dakota, Mary charges her customers a flat-rate sales tax of 6.500% on all sales. This includes South Dakota’s state sales tax rate of 4.000%, and Rapid City’s sales tax rate of 2.500%.
The state of South Dakota follows what is known as a destination-based sales tax policy. This means that long-distance sales within South Dakota are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Sioux Falls, South Dakota. A customer living in Aberdeen finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 4.000% state tax rate for South Dakota, plus 2.500% for Aberdeen’s city tax rate. At a total sales tax rate of 6.500%, the total cost is $372.75 ($22.75 sales tax).
South Dakota businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your South Dakota seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
South Dakota requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Quarterly filing: If your business collects between $200 and $1,000 in sales tax per month then your business will most likely be required to file returns on a quarterly basis.
- Bi-monthly filing: if your business collects between $500 and $1,000 per month in sales tax per month, then your business will most likely be required to file every other month.
- Monthly filing: If your business collects more than $1,000 in sales tax per month then your business will most likely be required to file returns on a monthly basis.
Note: South Dakota requires you to file a sales tax return even if you have no sales tax to report.
All South Dakota sales tax return deadlines fall on the 23rd day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
- Q1 (Jan. - Mar.): Due April 20
- Q2 (April - June): Due July 20
- Q3 (July - Sept.): Due October 22
- Q4 (Oct. - Dec.): Due January 22
Bi-monthly filing: the 20th day of the following month, or the next business day, e.g. March 20 for the months of January and February, or October 22 for the months of August and September.
Monthly filing: The 20th day of the following month, or the next business day, e.g. April 22 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
South Dakota charges a late filing penalty of 10% of total tax due, with a minimum penalty of $10.
The state assesses the unpaid tax with a compounded interest rate of 1% per month for any unpaid tax or penalty.