South Dakota Sales Tax Rate Increase 2027

South Dakota's Governor Larry Rhoden signed Senate Bill 245, which will increase the state's retail sales and use tax rate. While the increase reflects a previously scheduled rollback of the 2023 rate reduction, the legislation's significance lies in two areas: how the additional revenue will be used and the new authority granted to local governments to impose optional taxes.

New Retail Sales Tax Rates

In 2023, South Dakota reduced its retail sales tax rate from 4.5% to 4.2%. However, this decrease in the applicable rate was always intended to be temporary and included an automatic sunset clause that scheduled the rate to return to 4.5% in July 2027. The upcoming increase is therefore part of a predefined legislative plan, not a new policy decision.

For taxable persons with sales tax nexus in South Dakota, July 1, 2027, is the important compliance date to monitor, after which the higher 4.5% statewide rate applies to all taxable transactions. Moreover, taxable persons should pay close attention to local sales taxes, as South Dakota has approved additional local taxing authority. More specifically, counties may impose an optional 0.5% sales tax, while cities can introduce a temporary 1% tax for capital improvement projects.

Although the rate increase was already scheduled, the allocation of the resulting revenue is new. Governor Rhoden proposed directing the revenue generated by the already scheduled rate increase into a dedicated homeowner property tax reduction fund rather than allowing it to flow into South Dakota’s general state budget.

Conclusion

As a result of all these changes, combined state and local sales tax rates could exceed 8% in some jurisdictions. This is particularly relevant for remote sellers shipping products into cities or counties that choose to adopt the newly authorized local taxes.

Some of the preparatory steps to comply with these changes include adding the effective date to compliance calendars and scheduling a review of South Dakota tax setups closer to implementation, as well as monitoring announcements from counties and municipalities regarding potential local tax adoption.

Source: Legislative Research Council - Senate Bill 245