Message from the Secretary
Greetings from the Department of Revenue. I hope 2014 is off to a good start for everyone; it is FINALLY feeling like spring as I write this note! During the months of January and February, the Department’s primary focus is the South Dakota Legislative Session. This year over 590 bills, resolutions, and commemorations were introduced, with the Department tracking 170 that, if passed, could affect our role and responsibilities in some fashion. The Department also introduced sixteen of our own bills that were focused on cleaning up existing statutes, removing outdated sections of law, or completing federal code reference updates.
South Dakota’s Legislative Session allows the Department to advise state legislators as they work to establish public policy for the good of our state. Each Division within the Department plays a role during session, from the completion of the requested budget by our Administrative Services’ finance team to our Business Tax, Motor Vehicles, and Property and Special Taxes Divisions providing testimony and analysis. It is in this collaborative way that good public policy is made. Each year my admiration for our process and the elected Legislators who make it grows substantially!
In the coming months we will continue to strengthen and expand our educational outreach program. I am convinced that providing these educational opportunities will give taxpayers the tools they need to both manage their businesses effectively and comply with South Dakota’s tax laws. We will once again work with our industry partners, the Municipal League, the South Dakota Retailers and others in this effort. I encourage you to check out the education calendar on our website to view upcoming dates for tax seminars scheduled throughout the summer. If you are unable to attend a seminar, training videos are available on YouTube. You can receive department announcements as they happen by liking us on Facebook, following us on Twitter, or reading our Blog. Links to each of these are available on our website at dor.sd.gov.
Angela Wilkerson, a Law Enforcement Agent with the South Dakota Commission on Gaming graduated from the South Dakota Law Enforcement Training Academy.
Wilkerson is pictured with Attorney General, Marty Jackley.
How You Can Reduce Your Risk of a Sales Tax Audit
Almost every business has purchased items subject to use tax, and not paying it is a red flag. The internet makes it easier than ever before to order items from a vendor in another state. If the vendor ships that item to you and doesn’t charge you sales tax, you need to pay use tax. There are many other situations that will result in use tax due. To read more about use tax and other industry specifics, click here. If you have questions about use tax, please call 1-800-829-9188. We stand behind the advice we give, and calling in demonstrates an effort to properly pay your taxes and does not flag your account for audit.
Another way to mitigate risk of audit is to file your returns electronically. Many errors on tax returns filed by the state are caught by a computer system. Accounts with duplicate filings, and returns with errors in math or special jurisdictions all violate in our system and are subjected to increased scrutiny. You can catch and correct some of these errors yourself by filing your returns using the state’s secure e-filing system E-Path. In addition to making your returns more accurate, filing on e-path can earn you an allowance of up to $70 for timely filed and paid sales tax returns. Request an E-Path account now.
2014 Legislative Update
The South Dakota Legislature held hearings on over 449 bills during the 2014 Legislative Session that officially ended on March 31. The session included discussions on tax exemptions, education funding, economic development and the outlook for state revenues.
The Department of Revenue tracked over 170 bills that may have had a possible impact on the Department’s responsibilities or operations.
Bills introduced on behalf of the Department included clean up legislation to remove outdated and obsolete statutes, as well as legislation to clarify some areas of South Dakota’s tax structure and the department’s regulatory responsibilities. Unless otherwise indicated all bills listed in this article are effective on July 1, 2014.
House Bill 1057 repealed the statutes referring to South Dakota’s inheritance tax. In 2000, voters approved an initiated measure adding language to the State’s constitution effectively eliminating the inheritance tax in South Dakota effective July 1, 2001. The statute of limitations for collecting inheritance is twelve years. As of June 30, 2013, there is no longer any potential inheritance tax liability for the state to collect.
House Bill 1070 sunsets tax refund claims for the economic development incentive program enacted in chapter 10-45B of South Dakota law. Entities that obtained a permit to participate in the tax refund for the construction of agricultural processing and new business facilities must file its final claim for refund before May 1, 2014. This bill also repeals the provisions of chapter 10-45B on July 1, 2015.
After July 1, 2014, persons placed on the Deadwood gaming exclusion list who enter licensed gaming establishments may be subject to a penalty with the passage of House Bill 1084. A person on the exclusion list that enters a Deadwood casino is guilty of a Class 1 misdemeanor. The Commission on Gaming may also suspend, revoke, or penalize a licensee or licensed gaming establishment that knowingly fails to exclude or eject from the premises any person on the exclusion list. The Commission will be reviewing new administrative rules to support this law change at one of their regular commission meetings in the near future.
Senate Bill 58 authorizes the issuance of a permit in place of the current sticker issued to harvest vehicles operated upon highways, roads and streets in South Dakota. This change to a permit allows the Department of Revenue the flexibility to issue the permit electronically.
To review other bills that passed during the 2014 Legislative Session, visit the Legislative Research Council’s website at http://legis.sd.gov/.
Lottery Supports Annual Problem Gambling Campaign
The South Dakota Lottery once again partnered with other lottery jurisdictions and the National Council on Problem Gambling to remind the public that March was Problem Gambling Awareness Month. Prior to 2014, the recognition was known as Problem Gambling Awareness Week and was observed the first full week of March; this year the campaign was extended to cover the full month. The Lottery’s campaign included 30-second radio ads on 24 stations statewide as well as newspaper ads in nearly a dozen daily publications, website and social media announcements, and Players Club emails. Executive Director Norm Lingle says while the official observance only lasts a single month, the Lottery promotes responsible play year-round.
“While the majority of our players recognize the lottery as just another form of entertainment, we know there are some individuals for whom gambling can become a problem. All of our advertising and products contain a ‘please play responsibly’ message, and information is available on our website regarding how to recognize problem gambling symptoms and where to get assistance if gambling becomes a problem,” Lingle said.
Deposits for Utilities
Deposits for electricity, natural gas, or telephone services are no longer subject to sales tax. Any taxes previously collected and reported on deposits for utilities should be refunded to the customer when the deposit is refunded.
Hookup and disconnect fees that do not include construction services are still subject to sales tax when the utility service is also subject to sales tax.
Utilities that are Prime Contractors
Does your utility charge someone for construction services, such as repair to utility owned property? If so, the utility is the prime contractor and is responsible for contractors’ excise tax on those receipts. In addition, because the work is for the utility any contractor hired by the utility to complete this work is also responsible for contractors’ excise tax on their receipts. The subcontractor is responsible for use tax on any material furnished they purchase or material furnished by the utility if sales or use tax was not previously paid, but does not include the value of the owner furnished material in their receipts subject to contractors’ excise tax.
Government Contracts and Owner-Furnished Material
Use tax is always prevalent when a Governmental entity furnishes materials for a construction project. Governments are exempt from sales tax when they purchase the material, therefore, when the materials are passed on to the contractor, they are still tax unpaid. The contractor becomes the consumer of the materials and is liable for use tax on the Government’s costs of the material. The contractor will also need to add the Government’s cost of material and use tax paid in the amount on which they charge the contractors’ excise tax.
Here’s an example of how to calculate the tax using the bid factor worksheet and how to report the tax when tax unpaid owner furnished material is provided.
This project is for the City of Pierre. The city provides material valued at $10,000 (no sales or use tax was paid on the material). The contractor furnishes material that cost $4,000 plus $240 sales tax and bills $7,000 for their labor.
Collection Allowance Credit Available January 1
The collection allowance applies to all taxes reported on the sales tax return form including sales tax, use tax, tourism tax, municipal sales taxes, telecommunications gross receipts tax, excise tax on farm machinery, amusement device tax, motor vehicle leasing tax, intermediate care facility tax, Sioux Falls lodging tax and tax collection agreement taxes.
Licensees who have outstanding tax returns, who have outstanding tax balances due to the Department or those that do not file and pay electronically will not receive the allowance. In addition, the allowance does not apply to contractors’ excise tax returns.
Do you have questions on electronic tax return filing or the collection allowance credit? Contact the South Dakota Department of Revenue at firstname.lastname@example.org or call 800-829-9188.