South Dakota Tax Guide: No State Income Tax

Tax Overview

South Dakota is one of the most tax-friendly states in the nation, imposing no state income tax on individuals. This applies to all forms of personal income, including wages, investment income, and retirement distributions. The state constitution has been amended to explicitly prohibit a state income tax, making it very difficult to change this policy. South Dakota has been a top destination for high-net-worth individuals and retirees seeking to minimize their tax burden.

Sales tax in South Dakota is the primary revenue source, with a state rate of 4.2% and local additions that push the combined rate to about 6.4%. South Dakota does tax groceries at the full rate, which is one of the few drawbacks of the state's tax system. Some municipalities impose additional taxes on lodging, food, and alcohol related to tourism.

Property taxes in South Dakota are moderate, with effective rates around 1.22%. The state offers a property tax reduction program for seniors and disabled individuals, as well as a tax freeze program that prevents assessment increases for qualifying elderly and disabled homeowners. South Dakota also has no corporate income tax, no personal property tax, and no inheritance tax, making it a top choice for trust establishment and wealth preservation.