Steps to Pay Your South Dakota Small Business Taxes
Paying your South Dakota small business taxes on the federal, state, and local levels is an essential part of keeping your business legally compliant. But knowing what taxes apply to your business specifically can cause anxiety for even experienced entrepreneurs. That’s why we’ve put together a short guide to South Dakota’s state business taxes, who they might apply to, and when and how to file them, and which of our products and services can help make things easier at tax time.
If you’re looking for more complete compliance help, we have you covered there, too. When you use our Worry-Free Compliance Service, we’ll keep your business documents on your dashboard, keep track of your business’s required filing deadlines such as annual reports, and remind you when those deadlines are approaching.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
Step 1: Establish your South Dakota business’s corporate income tax obligations
South Dakota is one of a handful of states that doesn’t require corporate or individual income taxes. The Tax Foundation ranked South Dakota as #2 on the 2021 State Business Tax Climate Index, which measures how well states structure their tax systems. Although your South Dakota business won’t need to file state income taxes, you’ll still need to pay federal income taxes.
Corporations (and LLCs that elect corporate taxation) will file an annual corporate income tax return with the IRS. The IRS treats limited liability companies (LLCs) that don’t elect corporate taxation, partnerships, and sole proprietors as “pass-through entities.” Owners of pass-through entities report business income on their individual tax returns.
Step 2: Determine your South Dakota business’s employment taxes
Because South Dakota doesn’t have an individual income tax, you won’t need to withhold state taxes from your employee’s paychecks. If your business has employees, you still need to withhold federal income tax, including social security and Medicare. To determine the employee’s withholding rate, you’ll collect a W-4, where the employee can claim exemptions. Then, you’ll compare the employee’s gross wages to the withholding chart to calculate the amount to withhold from each check.
Although you don’t need to withhold state income taxes, your business needs to pay Reemployment Assistance Tax (formerly Unemployment Insurance Tax) for its employees. This tax covers unemployment benefits if you need to lay off your employees. You’ll report the wages you paid to each employee to the South Dakota Department of Labor quarterly by the last day of the month. You only need to pay unemployment taxes on employees’ wages until they reach the annual taxable wage base. For 2021, the annual taxable wage base is $15,000.
Your tax rate will depend on the industry you operate in, how long you’ve been in business, and (after the third year) your history of wages reported and reemployment assistance claims. The Reemployment Assistance Tax Division will inform you of your base rate by October for the upcoming tax year. You can calculate how much tax you’ll pay by multiplying the employee’s gross wages by your tax rate plus an investment fee and administrative fee. The Division can add a surcharge if the account falls below $11 million, but this hasn’t happened since 2010.
Unemployment Tax Rates for New Businesses
For a non-construction business in its first year, the business has a base rate of 1.20%. For its second and third years, the base rate is 1.00%. New businesses pay a 0.55% investment fee and no administrative fee.
Unemployment Tax Rates for Established Businesses
For a business that has operated for more than three years, the rate depends on its reserve ratio. You can determine your reserve ratio by comparing the amount in the state’s reemployment assistance account with your taxable payroll for the prior three fiscal years ending on June 30th. Base rates for established businesses can range from 0.00% to 9.45%. The investment fee can range from 0.00% to 0.53%. If your reserve ratio is less than 2.25%, add an administrative fee of .02%.
Step 3: Establish your South Dakota business’s additional state tax obligations
Your South Dakota business tax rate depends on your business’s activities. If the state requires your business to pay one of these taxes, you’ll apply for a license before engaging in the activity. You should also be sure to check if your county or municipality requires an additional tax.
If your business sells tangible property or services, you’ll need to apply for a sales and use license. This license allows you to collect a 4.5% sales tax on your business’s sales. You’ll remit the sales tax you collect to the Department of Revenue. You’ll file a return and pay by the 20th day of each month. If you pay electronically, you have until the 25th of the month to pay the total tax due. Municipalities may charge an additional 1 to 2% sales tax. If your business purchases items for its use and doesn’t pay sales tax, you’ll need to pay a 4.5% use tax to the state.
Franchise and Excise Taxes
Some states charge a franchise tax for the privilege of doing business in the state. South Dakota doesn’t have a franchise tax, except for banks. Excise taxes are taxes charged on the sales of certain goods. The most significant excise tax in South Dakota is the Realty Improvement Contractor’s Excise Tax.
Prime contractors (as defined by the Standard Industrial Classification Manual of 1987) will pay a 2% excise tax on the total contract price, including all labor and materials. In addition, businesses making certain sales related to tourism may pay a 1.5% tax. You’ll also pay an additional tax if you sell cigarettes and tobacco. Finally, municipalities may charge a gross receipts tax on alcoholic beverages, eating establishments, lodging accommodations, and admissions to places of amusement, athletic, and cultural events.
Step 4: Prepare to file and pay your South Dakota business taxes
When tax time approaches, you may wonder how to file small business taxes in South Dakota. The best way to file is to go online. The South Dakota Department of Revenue accepts tax returns through its online filing and tax payment portal EPATH. If your business has a license that requires a tax, you must file and pay your taxes by the due date — which is typically the 20th of the month. The state charges a penalty of at least $10 for late filings. If you don’t pay within 60 days of the due date, you could face criminal penalties.
When it comes to filing, you’ll need to get your business records in order, which makes tracking your business’s income and expenses extra important. You’ll need your invoices, receipts, accounting records, and legal documents to calculate your tax due. To help you with this task, we created the ZenBusiness Money App. When you download our app, you can send invoices, collect payments, and manage your business’s finances all from your phone.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Do I need an accountant?
Taxes are complex. And although not required, most small businesses need professional accounting help to make sure their taxes are done correctly. An accountant will understand your business’s finances. They’ll know what taxes you need to pay and what exemptions or credits you can take. Don’t take the chance of severe consequences for failing to file or making erroneous calculations on the fillings you submit. Hiring a professional tax preparer can benefit your business all year long, not only at tax time.
How we can help
We know that tackling taxes can be rough. In addition to our expert formation services, we offer essential tools for tracking your business finances and records. With our ZenBusiness Money App, you can easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can a South Dakota small business make before paying taxes?
A business that sells goods or services must collect sales tax on every sale it makes. South Dakota doesn’t have an income tax.
- What percentage does a South Dakota small business pay in taxes?
The percentage of taxes your business will pay depends on the business activities it engages in and its location. If your business sells goods or services, you will pay a 4.5% tax to the state and a possible 1 to 2% tax to the municipality.
- How does a South Dakota small business pay taxes?
You can pay online through the South Dakota Department of Revenue online filing and tax payment portal EPATH.
- Do I have to file taxes for my small business in South Dakota?
If your business has a license (such as a sales and use tax license), you have to file a return even if you have no income for that period.