No income tax in South Dakota: the sales tax and the property bill instead

A South Dakotan files Form 1040 and nothing else. There is no state income tax return, no state withholding, no state estimated payment and no state refund, and there is no corporate income tax, no tax on trusts and no estate, inheritance or gift tax. The state collects in two places instead. The first is the register: a 4.2% state sales and use tax on nearly every sale of goods and services, plus a municipal tax of up to 2% in most towns, so the rate at the counter is usually 6.2%. The second is the county treasurer: a property tax on the home, assessed at market value, taxed on 85% of it, and billed in two halves due April 30 and October 31. Both are deductible on the federal Schedule A. Neither produces a return.

The two taxes are in motion. The state sales tax was cut from 4.5% to 4.2% in 2023 with a sunset, and the 2026 Legislature declined to make the cut permanent. The rate goes back to 4.5% on July 1, 2027, and the returning three-tenths of a point is dedicated by law to lowering the school levy on owner-occupied homes. That trade, a slightly higher sales tax for a much lower school tax on the house, is the shape of South Dakota tax for the next several years, and it rewards homeowners who have filed the one form that makes their home “owner-occupied” in the county’s records.

The sales tax: 4.2% on almost everything, 4.5% from mid-2027

The Department of Revenue describes the base plainly: sales tax applies to the gross receipts from selling, renting or leasing products or services, and to products delivered electronically. The breadth is the point. Where many sales taxes stop at goods, South Dakota’s reaches services: the plumber, the accountant, the lawn crew, the haircut, the gym membership, the streaming subscription. Groceries are taxed at the full rate. A household that spends $40,000 a year on taxable goods and services in a 2% town pays about $2,480 in sales tax at today’s combined 6.2%, and about $2,600 at the 6.5% that applies from July 1, 2027.

Cities may add a general municipal sales tax of up to 2%, and the Department’s July 2026 municipal tax guide shows Sioux Falls, Rapid City, Aberdeen, Brookings and Pierre all at the 2% maximum. Cities may also impose a 1% municipal gross receipts tax on four things: alcohol, restaurant and other eating-establishment meals, lodging, and admissions to amusement, athletic and cultural events. A restaurant dinner in Sioux Falls therefore carries 7.2% today, 4.2% state plus 2% city plus the 1% gross receipts tax, and 7.5% from July 2027. Municipal rates change only on January 1 or July 1.

A third layer arrives in 2027. Under SB 96 (2026), a county commission may adopt a county sales tax of up to 0.5%, subject to referral to the voters, starting as early as January 1, 2027. Every dollar it raises must go to reduce property tax on owner-occupied homes, and the Department’s program summary says it will appear as a credit on the county portion of the tax bill. Which counties adopt it, and when, is for the reader to check with the county (verify).

Use tax at the same rate is owed on anything bought without South Dakota tax and used here, an online order or a purchase in a lower-tax state, with credit for tax paid elsewhere.

Two purchases are taxed differently. A motor vehicle pays no sales tax; it pays a 4% motor vehicle excise tax on the purchase price when it is titled, collected by the county treasurer. And a construction project pays the contractor’s excise tax, 2% of the contractor’s gross receipts, which the contractor builds into the price of a kitchen remodel or a new roof.

The property tax: the county values it, the county bills it

South Dakota has no state property tax. The county director of equalization assesses every parcel at its full and true value, which is market value, as of November 1. The Department of Revenue then equalizes the roll so that taxable value is 85% of full and true value; a home worth $230,000 is taxed on $195,500. Each taxing district, the county, the city, the school district, the township and any special districts, sets a levy in dollars per $1,000 of taxable value, and the county treasurer bills the sum. Taxes for a year are payable the following January 1, and nothing is delinquent if half is paid by April 30 and the rest by October 31.

One levy, and only one, depends on who lives in the house. The school district general fund levy has three rates: for taxes payable in 2026, $5.211 per $1,000 of taxable value on “other” property, $1.125 on agricultural land, and $2.518 on an owner-occupied single-family dwelling. A homeowner gets the owner-occupied rate only by applying, once, with the county director of equalization by March 15. For taxes payable in 2027, HB 1051 (2026) rewrites those maximums to $4.867, $1.051 and $0.669. The owner-occupied school levy falls by almost three-quarters; the “other” levy barely moves. A homeowner who never filed the owner-occupied form is about to leave a great deal of money on the table.

These are statutory maximums; a district may levy less, but must keep the three rates in proportion. The 2027 figures are from the enrolled text of HB 1051; the Department’s 2027 levy certification will confirm them.

The rest of the 2025 and 2026 changes work on the whole bill. SB 216 (2025) caps the growth of the countywide total assessed value of owner-occupied homes at 3% a year, plus new construction, for taxes payable 2027 through 2031, and limits each taxing district’s property tax revenue growth to the lesser of 3% or an inflation index. SB 245 (2026) created the homeowner property tax reduction fund, moved $55,896,576 into it on July 1, 2026 for the 2027 bills, and from August 1, 2027 routes revenue equal to 0.3 percentage points of the state sales, use and related taxes into it every year, which is what pays for the $0.669 levy. The full list of relief programs, and the applications and deadlines behind each one, is in Property tax relief in South Dakota.

What “no income tax” does and does not save

It saves exactly what a state income tax would have taken on the household’s income, and nothing else. The federal return is unchanged by the address. The IRS taxes a Sioux Falls wage earner, a Rapid City retiree and a Brookings farmer the same way it taxes anyone, and the 2025 federal law’s new deductions for tips, overtime, seniors and car-loan interest apply to a South Dakotan on the federal return with no state counterpart, because there is no state return for a counterpart to live on.

The federal line that moves is the state and local tax deduction. In a state with an income tax, most of a household’s SALT deduction is that tax. In South Dakota the deduction is property tax plus either state income tax, which is zero, or state and local sales tax. A South Dakotan who itemizes always elects sales tax: the IRS optional tables estimate it from income, family size and the local rate, and the actual tax on a vehicle or other large purchase is added on top (verify whether the 4% motor vehicle excise tax qualifies as a sales tax for the election). The cap for 2026 is $40,400; few South Dakota households are near it. The more common result is that without state income tax in the SALT line, itemizing does not beat the standard deduction, which for 2026 is $16,100 single and $32,200 joint, before the additional amounts for age.

Two other things the state does not tax deserve a sentence each. There is no South Dakota tax on a trust’s income, which, together with the state’s perpetual trust law, is why families from elsewhere place trusts here; a South Dakota resident’s own trust gains nothing extra, since the resident was not paying state income tax anyway. And there is no estate, inheritance or gift tax: the inheritance tax was repealed in 2001 after a 2000 constitutional amendment (verify citation), and the estate tax, which was tied to a federal credit, ended with that credit in 2005. An estate in South Dakota deals only with the federal estate tax, which in 2026 reaches estates above $15 million per person.