South Dakota does not charge state income tax on wages, salaries, or investment income
South Dakota is one of nine states with no state income tax. That means you will not owe South Dakota income tax on money you earn from a job, self-employment, dividends, capital gains, or retirement withdrawals — regardless of how much you make or where you live in the state.
If you work in South Dakota but live in another state, you still owe income tax to your home state. If you live in South Dakota but work in a state with income tax, you may owe tax to that state depending on its rules, though South Dakota will not tax you on the same income. The key is where you are a resident for tax purposes, which is usually determined by where you spend most of your time and have your permanent home.
This does not mean South Dakota has no taxes at all. The state funds itself through sales tax, property tax, and other levies. Understanding what you do and do not owe is important for planning your finances and filing your federal return correctly.
Key Takeaways
- South Dakota collects no state income tax on wages, self-employment income, investment gains, or retirement withdrawals.
- You still owe federal income tax to the IRS, and you may owe income tax to another state if you work or live there.
- South Dakota funds state services through sales tax (currently 4.5 percent statewide, plus local additions), property tax, and excise taxes.
- If you move to or from South Dakota, your tax situation may change depending on your residency status and where your income comes from.
How South Dakota's tax system works without income tax
States without income tax have to raise revenue another way. South Dakota relies heavily on sales tax, which is 4.5 percent at the state level. Most cities and counties add their own local sales tax on top, so the total you pay at checkout ranges from 4.5 percent to over 7 percent depending on where you shop.
The state also collects property tax, which homeowners and landlords pay based on the assessed value of real estate. Property tax rates vary by county. South Dakota also taxes gasoline, cigarettes, and alcohol at higher rates than many states — these are called excise taxes and are built into the price you pay.
Because South Dakota has no income tax, people with high incomes pay less in state tax than they would in states with income tax. However, everyone who buys goods in South Dakota pays sales tax, so lower-income households may feel the burden more heavily since they spend a larger share of their income on taxable purchases.
Federal income tax still applies in South Dakota
Not having state income tax does not change your federal tax obligation. You still file a federal return with the IRS and pay federal income tax based on your total income, filing status, and deductions. South Dakota residents use the same federal forms and follow the same rules as residents of every other state.
When you file your federal return, you report all income from all sources. If you had state income tax withheld from your paychecks (because you worked in another state, for example), you claim that as a credit on your federal return. South Dakota's lack of state income tax does not reduce what you owe the federal government.
What happens if you work in another state but live in South Dakota
If you work remotely for a company based in another state, you owe federal income tax and South Dakota owes you nothing. Your employer withholds federal tax from your paycheck. You file your federal return as usual, and you are done with state taxes.
If you work in person in a state that has income tax — say you live in South Dakota but cross the border to work in Minnesota — that state may require you to pay income tax on the wages you earn there. Minnesota, for example, taxes anyone who works within its borders, even if they live elsewhere. You would owe Minnesota income tax on your Minnesota wages and federal income tax on all your income. South Dakota would not tax you. You may be able to claim a credit on your federal return for taxes paid to Minnesota to avoid double taxation.
The rules vary by state, so if you work across a state line, check the tax agency website for the state where you work to understand what you owe.
What happens if you move to South Dakota from another state
When you move to South Dakota, you become a South Dakota resident for tax purposes once you establish residency — usually by living there for more than half the year and intending to stay. From that point forward, South Dakota will not tax your income, but you may still owe tax to your previous state for the portion of the year you lived there.
If you moved mid-year, you typically file a part-year resident return in your old state, reporting only the income you earned while you lived there. Your new state (South Dakota) does not tax you at all. The IRS allows you to claim credits to avoid paying tax twice on the same income.
If you receive a pension or retirement income from your old state, check that state's rules — some states tax pensions only if you were a resident when you earned them, while others do not tax pensions at all. South Dakota does not tax any retirement income, so once you move there, your pension and Social Security are not subject to state tax.
What happens if you move away from South Dakota
If you leave South Dakota and move to a state with income tax, you will owe that state's income tax on income you earn as a resident there. Your last year in South Dakota, you file a part-year resident return reporting only income earned while you lived in South Dakota (which is not taxed) and income earned after you moved (which is taxed by your new state).
If you own property in South Dakota after you move, you still owe South Dakota property tax on that property. You do not owe South Dakota income tax on money you earn elsewhere, even if you own land there.
Sales tax and other taxes you will pay in South Dakota
Even though South Dakota has no income tax, you will pay other taxes. The state sales tax of 4.5 percent applies to most goods you buy, plus local sales tax that varies by city and county. Groceries are not taxed in South Dakota, but prepared food, clothing, and most other items are.
If you own a home, you pay property tax to your county based on the assessed value of the property. Rates vary widely — some counties are around 0.8 percent of assessed value per year, while others are higher. You can find your county's rate through your county assessor's office.
If you own a vehicle, you pay registration fees and may pay sales tax on the purchase. If you buy gasoline, cigarettes, or alcohol, you pay excise tax built into the price. Self-employed people pay federal self-employment tax (Social Security and Medicare), which is the same in every state.
How to file taxes as a South Dakota resident
Because South Dakota has no state income tax, you do not file a state income tax return. You file only your federal return with the IRS. You can file online using free software like IRS Free File, through a tax professional, or by mail.
If you lived in another state earlier in the year, you may need to file a part-year resident return in that state. Check that state's tax agency website for forms and important date. Your federal return is the same whether you lived in one state all year or moved during the year.
If you are self-employed, you file Schedule C with your federal return to report business income and expenses. You pay federal self-employment tax on your net profit. You do not file anything with South Dakota.
Frequently Asked Questions
Do I have to file a South Dakota state tax return?
No. South Dakota has no state income tax, so there is no state return to file. You file only your federal return with the IRS. If you lived in another state earlier in the year, you may need to file a part-year return in that state.
If I live in South Dakota, do I still pay federal income tax?
Yes. Every state resident pays federal income tax to the IRS. South Dakota's lack of state income tax does not change your federal obligation. You file a federal return and pay federal tax based on your income, filing status, and deductions.
What if I work in Minnesota but live in South Dakota?
Minnesota taxes income earned within its borders, so you would owe Minnesota income tax on your Minnesota wages. You also owe federal income tax on all your income. South Dakota does not tax you. You may claim a credit on your federal return for Minnesota taxes paid to reduce double taxation.
Are groceries taxed in South Dakota?
No. Groceries are exempt from South Dakota sales tax. Prepared food, restaurant meals, and food eaten on premises are taxed. Most other goods, including clothing and household items, are subject to the 4.5 percent state sales tax plus local additions.
Do I pay property tax in South Dakota even though there is no income tax?
Yes. South Dakota has no income tax but does collect property tax on real estate. Rates vary by county. You pay property tax on any land or buildings you own in South Dakota, whether you live there or not.