When will South Dakota’s sales tax rate increase take effect?

The South Dakota retail sales and use tax rate will increase from 4.2% back to 4.5% on July 1, 2027. This increase was already scheduled under the 2023 legislation that temporarily reduced the rate.

Why is South Dakota increasing its sales tax rate again?

The increase is not a newly introduced tax policy. The 2023 reduction from 4.5% to 4.2% included an automatic sunset clause that scheduled the rate to return to 4.5% in July 2027.

Who should pay attention to the South Dakota sales tax changes?

Businesses with sales tax nexus in South Dakota, including remote sellers shipping products into the state, should monitor these changes closely. Sellers may need to update tax calculation systems and track local tax adoptions by cities and counties.

What will the additional South Dakota sales tax revenue be used for?

Governor Larry Rhoden proposed directing the revenue generated by the rate increase into a dedicated homeowner property tax reduction fund instead of the state’s general budget.

What steps should businesses take before the 2027 tax rate increase?

Businesses should add the July 1, 2027 effective date to compliance calendars, review South Dakota tax configurations before implementation, and monitor announcements from local governments regarding new optional taxes.

South Dakota Sales Tax Rate Increase 2027

Q: How could local taxes affect South Dakota sales tax rates?

South Dakota counties may impose an optional 0.5% sales tax, while cities can adopt a temporary 1% tax for capital improvement projects. As a result, combined state and local sales tax rates could exceed 8% in some areas.

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