2016 State Sales and Use Tax Increase

Effective June 1, 2016 the South Dakota state sales and use tax will increase from 4.0% to 4.5%.

The new tax rate applies to the following:

  • The sale, lease, or rental of tangible personal property, products transferred              electronically, and services
  • Excise tax on the purchase of farm machinery
  • The amusement device tax

Click here to read the HB 1182 in its entirety

Click here for more information on HB 1182

Click here for updated rate charts

Frequently Asked Questions

When does HB 1182 go into effect?

HB1182 goes into effect June 1, 2016.



Should the 4.5 percent rate be collected now?

Yes, the new rate went into effect June 1, 2016.



What state tax rate, 4% or 4.5%, do I refund a customer for a purchase before the rate change?

Refund the tax rate charged to the customer at the time of purchase. For example: A customer purchases an item at 6% tax (4% state plus 2% municipal tax) in April 2016. The customer returns the item in July 2016. You will refund the 6% tax that was originally charged.



Are city taxes affected by the rate increase?

No



Does this affect tax collection in special jurisdiction areas?

Yes, the sales tax collection on Indian Country where there is a tax collection agreement also increases to 4.5 percent.



How do I apply the rate increase if I am on the Accrual Method of Accounting?

State Sales or Use Tax Rate to Apply

Invoice/Sale Date

Payment Date

Accrual Basis

On or after 6/1/2016

On or after 6/1/2016

4.5%

On or prior to 5/31/2016

On or after 6/1/2016

4.0%

On or prior to 5/31/2016

On or prior to 5/31/2016

4.0%

Accrual Basis: The sales tax rate in effect at the time of the sale applies to the sale. Sales made during May 2016 are subject to the tax rate in effect during May. Sales made in June 2016 are subject to the tax rate in effect in June. It does not matter when the actual payment for the sale is received.

Exception #1: Construction materials for contracts bid or awarded prior to the date of the rate increase are not subject to the tax rate increase.

Exception #2: Service providers with extended billing periods should apply the new tax rate to the first billing period on or after June 1st.



How do I apply the rate increase if I am on the Cash Method of Accounting?

State Sales or Use Tax Rate to Apply

Invoice/Sale Date

Payment Date

Cash Basis

On or after 6/1/2016

On or after 6/1/2016

4.5%

On or prior to 5/31/2016

On or after 6/1/2016

4.5%

On or prior to 5/31/2016

On or prior to 5/31/2016

4.0%

Cash Basis: The sales tax rate in effect at the time payment is received applies to that payment. A sale made in May 2016, but paid for in June 2016, is subject to the tax rate in effect in June.

Exception #1: Construction materials for contracts bid or awarded prior to the date of the rate increase are not subject to the tax rate increase.

Exception #2: Service providers with extended billing periods should apply the new tax rate to the first billing period on or after June 1st.



What are the differences in the Accrual and Cash Methods of Accounting for reporting my South Dakota sales tax?

Accrual - this method of accounting is a method of accounting that recognizes receipts when they are earned, rather than when the payment is received.

Cash - this method of accounting is a method of accounting where receipts are recorded during the period in which they are received.



How does the sales and use tax rate increase affect materials for construction projects that I am currently working on or bidding?

The prime contractor’s bid or award date determines the sales tax rate applicable to materials for the entire project, including materials purchased by subcontractors. If the prime contractor bid the project prior to June 1, 2016, the 4% state sales tax rate applies to all materials for the project. If the prime contractor bid the project on or after June 1, 2016, the 4.5% state sales tax rate applies to all materials for the project.

More information can be found:
Construction Materials Bid Exception Fact Sheet
Construction Materials Bid Exception Form



Still have questions?

Contact the Department of Revenue toll free at (800) 829.9188(800) 829.9188 or by email at bustax@state.sd.us

You may also contact one of our field offices for assistance.

 



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