SALES TAX TUESDAY 2018: South Dakota

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What comes to mind when I mention the state, ‘South Dakota?’  Perhaps you think of Mount Rushmore, after all South Dakota is not only the home to Mount Rushmore, but it is known as ‘The Mount Rushmore State.’ As we will visit more about Mount Rushmore later in this article, but “What else comes to your mind about South Dakota?”

Some people may think of the ancestry of this place, a land named for the Lakota and Dakota Sioux Native Americans who called theses prairies, river hills and mountain ranges home. Among those are ‘Badlands National Park,’ with its’ mountainous terrain and bighorn sheep. Another is the prairie grass and bison of South Dakota’s ‘Custer State Park.’ And let’s not forget the ‘Crazy Horse Memorial,’ or ‘Wind Cave National Park.’

“But, when it comes to South Dakota for me, at least this year, I have to say what comes to my mind is ‘sales tax.’” And not just any old sales tax, but what we have come to refer to as ‘Economic Nexus based Sales Tax.’ This past summer, the United States Supreme Court ruled in favor of South Dakota, granting the state authority to impose sales tax obligations on out-of-state transactions. The result of South Dakota’s attempt to ‘tax’ out-of-state sellers will have tremendous implications for remote sellers everywhere and the way that they conduct business from now on.

While South Dakota was the first to get permission from the Court, many other states had provisionally implemented (with temporary holds that have been lifted since the Court’s decision or have since enacted laws providing for Economic Nexus based Sales Tax requirements. And the writing on the wall is clear, almost every state will be following the same pattern henceforth. 

So, when you go to see Mount Rushmore, or the various monuments, parks and memorials within the state, make certain to recognize they are the ‘founding fathers’ so to speak of economic nexus. And, if you want to know more about the Supreme Court Decision, be certain to check out our Sales Tax Tuesday from June 26th.

With that being said, we have to remember that this is a ‘Sales Tax Tuesday 2018’ article, which is one in a series of articles that Insightful Accountant is preparing in cooperation with Avalara, the ‘sales tax people.’ Not only is this series updating our state-by-state review of sales tax from our 2015 series, but we are also providing a lot of special editions (like the one from June 26th) dealing with changes and legislative enactments impacting sales and use taxes in a state near you (if not you own state). As such, we know that our series will be going on for a few months into 2019 in order to get all the states covered this time around.

But this series is not only about ‘sales tax,’ it’s my opportunity to tax my big sales-tax, gas-tax guzzling RV all across this great land (at least in my imagination) and to see the sights along the way as we enjoy what every state has to offer. While the capital of South Dakota is Pierre, the largest city is Sioux Falls, and the second largest city is Rapid City. But I’m stopping in Sioux Falls at a place called ‘Big Rig BBQ’ which reportedly has the best Barbecue in all of South Dakota.

The owner, Bob and his wife Nicole, started Big Rig BBQ as a food truck business back in 2015 but within 2 years they had become so popular that they just had to move into a fixed location because it is just too hard to be in more than one place at one time. So now they are on the corner of 41st and Minnesota, and you can ‘smell the oak wood smoke, blocks away.’ This is Texas-style ‘smoke and spice’ BBQ, with sauce on the side. They serve brisket, ribs, and pulled pork on their every day menu, but I heard they also have ‘BBQ Prime Rib’ on special occasions. I think I will start with an ‘order of ribs.’

Wow, that’s a perfect ‘Murph’ size order… Now, if I can only afford the ‘sales tax!' With a little BBQ under my belt I should just about be able to make it through the sights of South Dakota.

The Great Plains of the USA are filled with history and folk lore, they are also the home to a lot of ‘bad weather’ from lighting storms, to snow storms, from flash floods, to tornadoes; not to mention blazing heat and bitter cold. While much of the plains are ripe for agriculture including both farming and ranching, the drastic weather changes can mean either boom or bust for those that live and work in places like South Dakota.

Agriculture may still be the number one industry in South Dakota, but it is followed closely by tourism. In fact, nearly 3-million people visit Mount Rushmore each year. Back on August 10, 1927, President Calvin Coolidge dedicated a towering mountain wall located in the heart of the Black Hills as the future site of a memorial intended to commemorate the spirit of these United States including the independence, growth and strength as well as the restoration of our great country from the ravages of the Civil War. President Coolidge said, “This memorial will crown the height of land between the Rocky Mountains and the Atlantic seaboard, where coming generations may view it for all time.”

That memorial, Mount Rushmore, features the images of Presidents, George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt. President Coolidge went on to say, “No one can look upon it understandingly without realizing that it is a picture of hope fulfilled.” It’s amazing to think that this mountainside sculpture cost only $1-million even though it took 14 years to complete.

Anytime you gaze up at Mount Rushmore, you see the majesty of this place; but to really take in the grandeur you want to be there for a sunrise. Because Mount Rushmore faces the east, the faces of the four Presidents are illuminated with the rising of the sun in a most spectacular fashion. It will send chills down your spine, as pride in our country overwhelms you. But just in case you are wondering, there is neither a fee nor sales tax for admission to Mount Rushmore.

While Mount Rushmore is a huge source of tourism in South Dakota, another event is also a major source of tourist activity and sales tax for the state. The Sturgis Motorcycle Rally, held the first full week of August, attracts more than 600,000 to the small town of otherwise 6,600 people. The South Dakota Department of Revenue devotes considerable energy to the issuance of temporary sales tax licenses and securing bonds from all vendors who plan on selling (or even displaying) a product or providing services at the Rally. The process begins more than 6-months in advance of the actual gathering. While the rumble of motorcycles at the rally roar day and night for the week, the sales tax results are a boom for the state, county and the little town of Sturgis.

Set in a canyon surrounded by evergreens is another place known for its history, and an onslaught of adventure seekers. That place is Deadwood, where the gold rush of 1876, attracted gamblers like Wild Bill Hickok and frontierswoman Calamity Jane, along with countless other miners, gamblers, and gunslingers. But let us not forget, just a few short weeks after arriving in Deadwood, Hickock, a notorious gunman in his own rights, was gunned down while playing a game of poker. The Aces and Eights cards he left on the table was forever marked as the Dead Man’s Hand in his honor.

Today, this historic town is a ‘boom town,’ once more as a tourist attraction featuring places like the Stockade Bar and Cadillac Jack’s Gaming Resort along with the Deadwood Social Club and Saloon # 10. They even stage ‘mock shootouts’ along Main Street to entertain the tourists. Gambling casinos have also made a return and are a big source of revenue for the town, and the state. Of course, like a lot of tourist towns you can count on paying higher than normal prices for almost everything, and that means paying a higher sales tax bill than you would typically expect for ‘a Coke.’ You will be paying sales tax at eating establishments, lodging locations, on ticket sales and admissions.

Tens of millions of years ago, after layers of sand, silt and clay, the erosion of streams and rivers created distinctive layers of ran, brown, yellow, gray and black rock from the floor of the canyon to the peaks of Badlands National Park, another South Dakota tourist destination. This 244,000-acre park is home to such diversity ranging from mixed-grass prairies to the canons, peaks and everything in between.

The rugged beauty of the Badlands is manifest in the striking geologic deposits containing one of the richest fossil beds in the world. Today you will see bison, bighorn sheep, prairie dogs and black-footed ferrets, but the animals of old in this area included not only horses, but rhinos and the famed saber-toothed cat. With each step through the beauty and adventure of this park, you will also be taking a step-back in geologic history.

Custer State Park in South Dakota is truly a wild place with nearly 1300 bison wondering the park’s 70+ thousand acres along with pronghorn antelope, elk and mountain goats. Here it can be said ‘where the dear and the buffalo roam’ across the windswept prairies and forests, along the sparkling waters, and the granite spires.You can enjoy not only the scenery, but the recreation of numerous options ranging from hiking and climbing, to fishing and canoeing, to watching the animals and even observe a buffalo roundup. And don’t forget to take in Black Elk Peak, at 7,242 feet it is the highest point east of the Rock Mountains within the United State.

As a tribute to the Native American peoples of this area, Korczak Ziolkowski began work on the Crazy Horse Memorial in 1948. Emerging from granite and iron is the likeness of the legendary leader of the Lakota people. Upon completion it will be the largest mountain carving in South Dakota. In addition to the monument itself which is still under construction, despite Ziolkowski's death in the 1980s, you will find the Indian Museum of North America and the Native American Educational & Cultural Center. These museums provide a collection of historical, cultural and educational exhibits including one-of-kind artifacts.

Near the start of this article, I spoke of the Native American heritage of South Dakota, and the fact that the state is named for the Lakota and Dakota Sioux. One observance can be found in the fact that Indian tribes are specifically exempted from South Dakota Sales and Use tax.

Everyone else will be paying state and local sales taxes on the gross receipts of all retail sales as well as the sale, lease or rental of tangible personal property or any product transferred electronically, along with the sale of services unless the product or service is specifically exempted by law. South Dakota also has a use tax applicable to all products and services that are used, stored or consumed in South Dakota upon which South Dakota sales tax has not been paid.

Even though we love talking about the history of South Dakota, we must turn our attention back to the subject of sales tax, because that’s the real purpose of these articles. We all know that sales tax provides critical revenues to states, counties, cities and towns in at least 46 of our 50 United States. In many states sales tax is the primary source or revenue, but in most it is the second or third largest revenue source. As a result, making sure that every penny of sales tax is collected is or prime concern. That concern was sufficient to spur the South Dakota v. Wayfair, Inc. litigation which I mentioned was settled by the Supreme Court, at the beginning of this article.

Obviously, when a state takes a case over sales tax all the way to the Supreme Court, they must take the subject of sales tax very seriously. So, we need to take a look at some of the other sales tax facts, besides ‘economic nexus’ that South Dakota takes seriously.

  • South Dakota has been a full member of the Streamlined Sales and Use Tax Agreement since 2006.
  • South Dakota has at least 251 different sales tax jurisdictions.
  • The current state sales tax rate is 4.5%, but the total rate can range as high as 6.5% when local jurisdictions sales taxes are included. The average collected sales tax rate within the state is 5.486% (based upon current rates at the time of this article).
  • Local taxes can be for imposed within South Dakota by essentially any subsidiary level of government to the state including cities, counties, and schools, as well as transportation and other special purpose districts.
  • South Dakota sales tax is sourced at the destination address.
  • South Dakota exempts sales tax on the following services: health, education, social, agricultural, forestry financial, trucking, and travel agencies.
  • South Dakota even taxes sales to churches, and most civic and non-profit organizations. Gifts and premiums, prepared food, the repair and service of products, and products sold at auction are all taxable sales.
  • Motor vehicles are not subject to state and local sales taxes. They are subject to a 4 percent motor vehicle tax on the purchase price.
  • Exemption certificates are valid for the following: purposes of resale, if the entity is an Indian tribe, state, local or federal government, non-profit hospitals, and relief agencies. There is no expiration for state exemption certificates.
  • Any business, organization or person engaged in retail sales, including the selling, leasing and renting of tangible personal property, products transferred electronically, or the sale of services (as long as they are not specifically intended for resale) is required to obtain a sales tax license and collect and remit the applicable tax.
  • Paper returns are due monthly in South Dakota, but business may also file electronically on a quarterly or annual frequency upon approval from the DOR. Zero-dollar returns must be filed.
  • The complete and current South Dakota Sales and Use Tax guide including a list of sales tax exemptions is available as a PDF here.
  • The Avalara South Dakota Sales Tax rate page can be found here.

Manual sales and use tax management is prone to error and consumes staff time in pass-through rather than revenue-generating activities. For example, local tax rates in South Dakota can be quite complex compared against local tax rates in other states. South Dakota sales tax has numerous local taxing levels that must be monitored and maintained on a regular basis, it is complex and time consuming due to the volume of jurisdictions. And let’s not forget compliance with South Dakota’s ‘economic nexus’ requirements, because the South Dakota tax man is out to get every penny they are due for sales in their state, regardless of the seller’s location.

But you can have the assurance of compliance when you use an Avalara sales tax automation solution that includes tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avalara allows businesses to be fully sales tax compliant, even in complex states like South Dakota, without sacrificing productivity.