How do I collect sales tax legally?

How to Legally Collect Sales Tax in South Dakota

Collecting sales tax correctly is essential for compliance and smooth business operations in South Dakota. Follow these practical steps to ensure your business collects sales tax legally and efficiently.

Register for a Sales Tax License

• Register with the South Dakota Department of Revenue: Before collecting sales tax, obtain a sales tax license by registering your business online at the South Dakota Department of Revenue website.
• Provide accurate business details: Include your federal EIN, business structure, and physical location to complete the registration process.

Understand South Dakota Sales Tax Rates and Nexus

• Statewide base rate: South Dakota has a statewide sales tax rate of 4.5%, but local jurisdictions may add additional taxes.
• Local taxes: Be aware of city or county sales tax rates where your business operates or delivers goods.
• Sales tax nexus: You must collect sales tax if your business has a physical presence or meets economic nexus thresholds in South Dakota, such as $100,000 in sales or 200 separate transactions annually.

Collect and Remit Sales Tax Properly

• Apply the correct rate: Charge customers the combined state and local sales tax rate based on the delivery location of the goods or taxable services.
• Keep detailed records: Maintain accurate sales records, including taxable and non-taxable transactions, customer locations, and tax collected.
• File sales tax returns on time: Submit returns and remit collected sales tax to the South Dakota Department of Revenue according to your assigned filing frequency (monthly, quarterly, or annually).

Use Automation and Compliance Tools

• Integrate sales tax software: Use accounting or point-of-sale systems with built-in sales tax calculation to reduce errors and automate rate updates.
• Stay updated on tax changes: Regularly review South Dakota Department of Revenue updates to ensure compliance with any rate or rule changes.

Additional Operational Considerations

• Employee training: Train staff on how to apply sales tax correctly during transactions.
• Recordkeeping: Retain sales tax records for at least three years to support audits and compliance reviews.
• Exemptions and resale certificates: Verify and document any customer exemptions to avoid incorrect tax collection.