No, South Dakota does not have a state income tax. Wages, self-employment earnings, investment gains, pensions, and Social Security benefits are all free of state income tax, and the state has no corporate income tax or estate or inheritance tax either.1South Dakota Department of Revenue. South Dakota Department of Revenue – Individuals – Taxes2South Dakota Department of Revenue. Taxes South Dakota funds itself through sales tax, property tax, and a handful of excise taxes instead.
What South Dakota Doesn’t Tax
Three taxes that show up in most states simply don’t exist here:
- Personal income tax on wages, self-employment income, investment income, retirement income, or Social Security benefits.1South Dakota Department of Revenue. South Dakota Department of Revenue – Individuals – Taxes
- Corporate income tax on business profits.2South Dakota Department of Revenue. Taxes
- Estate and inheritance tax. Voters repealed the state inheritance tax effective July 1, 2001, and no estate tax replaced it.1South Dakota Department of Revenue. South Dakota Department of Revenue – Individuals – Taxes
That combination is unusual even among no-income-tax states. Washington, for example, has no income tax but does impose an estate tax.
Sales and Use Tax
Sales tax is where South Dakota makes up much of what other states collect through income tax. The statewide rate is 4.2%, and it applies to most retail purchases of goods, electronically transferred products, and a wide range of services.3South Dakota Department of Revenue. Sales and Use Tax
Groceries are taxed. A 2024 ballot measure that would have exempted food purchases did not pass, so the full rate still applies at the checkout line.
Cities can add their own taxes on top. Municipalities may impose a general sales tax of up to 2%, plus a 1% municipal gross receipts tax, meaning combined rates in some cities reach roughly 7.2%. Most areas fall below that ceiling.4South Dakota Department of Revenue. Sales and Use Tax
Use tax mirrors the sales tax at 4.2%. If you buy from an out-of-state retailer that doesn’t collect South Dakota sales tax, you owe use tax on the purchase. Most large online sellers now collect it automatically because of the state’s $100,000 remote seller threshold, but smaller purchases from out-of-state vendors can still slip through.3South Dakota Department of Revenue. Sales and Use Tax
One thing to watch: the 4.2% rate is a temporary reduction. The legislature cut the rate from 4.5% in 2023 for a four-year period. Unless lawmakers extend the cut, the rate reverts to 4.5% when the window closes.
Property Tax
Property taxes fund local governments, schools, and counties. The average effective property tax rate on owner-occupied homes runs about 1.00% of value, placing South Dakota near the middle nationally.5Tax Foundation. Property Taxes by State and County A $300,000 home would generate roughly $3,000 in annual property tax, though actual bills depend on county and municipal mill levies.
Assessment Freeze for Seniors and Disabled Homeowners
South Dakota offers an assessment freeze that stops a qualifying homeowner’s assessed value from climbing. If your home’s market value goes up, you keep paying tax on the earlier, lower assessment. To qualify, you must meet all of these:6South Dakota Department of Revenue. Assessment Freeze for the Elderly and Disabled
- Be at least 65 years old, or disabled as defined under the Social Security Act.
- Have owned and lived in the home for at least five years, and resided there at least 200 days in the prior calendar year.
- Have household income under $56,595 for a single-member household, or $66,885 for a multi-member household.
- Have a home with full and true value of $514,500 or less, unless you already qualified in a prior year.
Applications go to the county treasurer by April 1 each year. A surviving spouse can qualify if the other requirements are met.6South Dakota Department of Revenue. Assessment Freeze for the Elderly and Disabled
Excise Taxes
A handful of purchases carry flat excise taxes on top of, or in place of, sales tax:
- Gasoline is taxed at 30 cents per gallon.7Tax Foundation. Taxes In South Dakota
- Cigarettes are taxed at $1.53 per pack of 20.8South Dakota Department of Revenue. Cigarette and Tobacco
- Motor vehicles that must be registered for road use carry a 4% excise tax on the purchase price. This replaces the standard sales tax on the vehicle, so you pay one or the other, not both.9South Dakota Legislature. South Dakota Codified Law 32-5B – Motor Vehicle Excise Tax
- Real estate transfers carry a fee of $0.50 for every $500 of value, paid by the seller. On a $300,000 sale, that comes to $300.10South Dakota Legislature. South Dakota Codified Law 43-4-21
Two specialized business taxes also apply in narrow situations. Banks and other financial institutions pay a graduated franchise tax on net income instead of a corporate income tax, and construction contractors owe a 2% excise tax on gross receipts.11South Dakota Legislature. South Dakota Codified Law 10-43 – Income Tax on Banks and Financial Corporations12South Dakota Legislature. South Dakota Codified Law 10-46A – Realty Improvement Contractor’s Excise Tax
Federal Taxes Still Apply
Living in a no-income-tax state doesn’t change your federal obligations. South Dakota residents file federal returns and pay federal income tax, Social Security tax, Medicare tax, and federal capital gains tax at the same rates as anyone else.
There is one federal trade-off. Residents of states with income taxes can deduct those taxes on their federal return, up to the $10,000 SALT cap. South Dakota residents can’t take that deduction, because there’s no state income tax to deduct. For most people the zero state tax still wins by a wide margin, but it narrows the gap somewhat for high earners comparing South Dakota to a state with moderate income tax rates.