South Dakota's franchise tax system differs significantly from most states as it doesn't impose a general corporate income tax. Unlike South Carolina's franchise tax, which applies to corporations based on their capital stock, South Dakota's tax is specifically targeted at financial institutions.
South Dakota’s franchise tax functions as a fee for the privilege of operating as a financial institution within the state, based on the net income of qualifying entities. If you have entities in multiple states, you may want to check out our state-by-state guide to franchise tax requirements.
Unlike many other states, South Dakota does not impose a corporate income tax or franchise tax on all business entities. Instead, they only require financial institutions to pay the South Dakota franchise tax.
According to South Dakota Codified Law § 10-43-1, a financial institution includes any bank, savings and loan association, or trust company organized under South Dakota law, national banking associations doing business in the state, and entities employing moneyed capital competing with national banks.
The franchise tax also applies to credit card companies, which they define as any entity selling or issuing credit cards, regardless of location or charter.
Exemptions are limited, but credit unions and insurance companies typically follow different tax rules in South Dakota. Other businesses, including venture capital firms, private equity organizations, and most technology companies, typically don't face this specific tax.
Financial institutions subject to South Dakota's bank franchise tax must file with the South Dakota Department of Revenue annually, even if they owe nothing. This filing reports the company’s net income and calculates the tax due. The filing deadline is April 15th for calendar year filers or the 15th day of the fourth month after the fiscal year closes for fiscal year filers.
Recent legislative updates have focused on modernizing tax collection methods, with South Dakota now requiring electronic filing for certain tax types, including the franchise tax.
The tax rate is 6% of net income, with a minimum tax of $200 per authorized location.
Automated solutions can simplify filing and payment by pre-filling forms, calculating tax liability automatically, setting deadline reminders, and integrating with accounting software.
South Dakota allows extensions for franchise tax filings when needed. To request an extension:
Note that an extension to file isn't an extension to pay. Any taxes owed must still be paid by the original deadline to avoid penalties and interest.
According to South Dakota tax regulations, non-compliance penalties can include:
Which entities are subject to the South Dakota franchise tax?
South Dakota's franchise tax primarily applies to financial institutions, including banks, savings and loan associations, trust companies, and certain holding companies.
How is the franchise tax calculated in South Dakota?
The tax is calculated at 6% of net income for banks and financial corporations. For other financial institutions, it may be based on the institution's assets.
When is the franchise tax due in South Dakota?
The franchise tax return and payment are typically due on the 15th day of the fourth month following the close of the tax year.
Can I file for an extension on my franchise tax return?
Yes, you can request an automatic six-month extension by filing the appropriate form with the South Dakota Department of Revenue.
How does South Dakota's franchise tax interact with taxes in other states?
South Dakota does not offer credits for taxes paid to other states on the franchise tax return. However, multistate businesses should consult with a tax professional to understand their overall tax obligations.
Are there any exemptions from the franchise tax in South Dakota?
Certain entities, such as credit unions and insurance companies, may be exempt from the franchise tax. It's best to consult the South Dakota Codified Laws or a tax professional for specific exemptions.
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