South Dakota doesn't impose a general corporate income tax or franchise tax on ordinary businesses. Instead, South Dakota's franchise tax applies only to financial institutions and is based on net income rather than capital stock.
South Dakota's franchise tax functions as a fee for the privilege of operating as a financial institution within the state. 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.
The franchise tax return is due 15 days after the federal income tax return due date for that financial institution (typically April 15 for calendar-year filers, or 15 days after the applicable federal deadline 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.
You may obtain additional time to file if you have a federal income tax extension. Submit a cover letter, a copy of the federal extension, and payment of at least the $200 minimum by the original franchise tax due date.
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:
South Dakota does not offer credits for taxes paid to other states on the franchise tax return. Multistate financial institutions should consult with a tax professional to understand their overall tax obligations across jurisdictions.
South Dakota's 6% bank franchise tax on net income applies only to financial institutions—your tax advisor manages those calculations. For everything else, Discern files your South Dakota annual reports, maintains your registered agent, and tracks compliance deadlines across every state where you operate.
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