South Dakota Has No Income Tax: Sales, Property, and Excise

South Dakota has no state income tax. Wages, self-employment earnings, capital gains, interest, dividends, rental income, retirement distributions, and business profits are all free from state-level income taxation, and residents do not file a state income tax return. South Dakota is one of eight states that skips the tax entirely and funds itself through sales taxes, property taxes, and a set of excise taxes.¹

What “No Income Tax” Actually Covers

There is no personal income tax and no general corporate income tax in South Dakota. No tax brackets, no state withholding on your paycheck, no annual state return.¹

Federal tax still applies. Your employer continues to withhold federal income tax, Social Security, and Medicare from every paycheck. “No state income tax” and “no income tax” are not the same thing, and the difference matters when you’re budgeting take-home pay.

Retirement Income Is Not Taxed

Because the state taxes no income at all, every category of retirement income is untaxed at the state level: Social Security benefits, pensions, 401(k) withdrawals, IRA distributions, and annuity payments. That is broader relief than states that exempt Social Security alone but tax other withdrawals, and it is one reason South Dakota ranks well for retirees.¹

Sales and Use Tax

Sales tax is how South Dakota pays for most of its state government. The statewide rate is 4.2%, applied to most goods and many services.² Municipalities can add up to 2% on top, plus a separate 1% municipal gross receipts tax on things like alcohol, restaurant meals, lodging, and admissions.³ Depending on where you shop, the combined rate often lands around 6.2% or a bit higher.

The 4.2% state rate is itself a temporary reduction from 4.5%. The cut is set to expire in mid-2027 unless the legislature acts to extend it.

Groceries Are Taxed

South Dakota is one of the few states that charges full sales tax on groceries. The 4.2% state rate applies, and local taxes add to it. Groceries bought with SNAP or WIC benefits remain exempt under federal rules.²

Prescription Drugs Are Exempt

Prescription medications dispensed by a physician, dentist, optometrist, or other licensed provider are exempt. Over-the-counter drugs are taxed at the normal rate.⁴

Use Tax on Out-of-State Purchases

If you buy from a seller that does not collect South Dakota sales tax, you owe use tax at the same 4.2% rate. This most often comes up with online purchases from smaller retailers not licensed in the state, and the buyer is responsible for remitting it.²

Property Tax

Property tax is levied locally, by counties, municipalities, and school districts, not by the state. The effective rate on owner-occupied homes averages around 1% of assessed value, placing South Dakota near the middle nationally. With no income tax in the mix, property tax carries a larger share of the overall tax burden than it would elsewhere.

Assessment Freeze for Seniors and Disabled Homeowners

South Dakota freezes the assessed value of a home for qualifying owners. You must be at least 65 or disabled as defined under the Social Security Act, have owned and occupied a single-family home in the state for at least five years, and have lived in the home for at least 200 days of the prior calendar year. Income and property value limits apply.⁵

Applications go to your county treasurer by April 1 each year and must be renewed annually. Unmarried surviving spouses of previously qualified homeowners can continue receiving the freeze.⁵

Excise Taxes

Several excise taxes apply to specific products and industries. Most won’t change your day-to-day budget the way sales or property taxes do, but they show up at the pump, the register, and in contractor bids.

Motor fuel: gasoline and undyed diesel are taxed at $0.28 per gallon.⁶
Cigarettes and tobacco: $1.53 per 20-stick pack of cigarettes, and 35% of the wholesale purchase price for other tobacco products.⁷
Contractor’s excise tax: 2% on the gross receipts of prime contractors doing construction or realty improvement work in the state. Gross receipts include the tax collected from the consumer, so the cost gets built into what you pay for construction.³
Tourism tax: 1.5% on gross receipts for hotels, campgrounds, vehicle and recreational equipment rentals, spectator events, visitor attractions, and recreational services. Most categories are taxed year-round; visitor-intensive businesses are subject to the tax only from June through September.⁸

Bank Franchise Tax

There is one carve-out from the no-corporate-tax rule. Financial institutions pay a bank franchise tax that starts at 6% on net income up to $400 million and drops in tiers as income rises, down to 0.25% on net income above $1.2 billion. The minimum tax is $200 per return, and every financial institution doing business in South Dakota at any point during the year must file.⁹¹⁰

No Estate or Inheritance Tax

South Dakota does not impose a state estate tax or inheritance tax. The state permanently repealed its estate tax in 2014. Only the federal estate tax applies, and only to estates above the federal exemption threshold. Paired with the absence of an income tax, that makes the state a common choice for long-term wealth and residency planning.

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South Dakota Department of Revenue. Taxes
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South Dakota Department of Revenue. Sales and Use Tax
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South Dakota Department of Revenue. Exempt Entities
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South Dakota Department of Revenue. Health Services, Drugs, and Medical Devices
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South Dakota Department of Revenue. Relief Programs
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South Dakota Department of Revenue. Motor Fuel
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South Dakota Department of Revenue. Cigarette and Tobacco Retailers
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South Dakota Department of Revenue. Tourism Tax
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South Dakota Department of Revenue. Bank Franchise Tax
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South Dakota Legislature. South Dakota Code 10-43 – Income Tax on Banks and Financial Corporations