2023 Legislative Updates

HB1137 is effective on July 1, 2023.

No, continue collecting 4.5% through the end of business on June 30, 2023, and then begin collecting the 4.2% on July 1, 2023.

No, city tax rates remain the same.

Yes, the tax collection within Indian Country where there is a tax collection agreement also decreases to 4.2%.

The new rate applies to the first billing period starting on or after July 1, 2023.

• Accrual Basis: The tax rate in effect at the time the customer is billed applies to that invoice. Sales made and/or services provided through June 30, 2023, are subject to 4.5% state tax plus applicable municipal tax. Sales and/or services made on or after July 1, 2023, are subject to 4.2% state tax plus applicable municipal tax. It does not matter when the actual payment for the sale is received.
• Cash Basis: The tax rate in effect at the time payment is received applies to that payment. Sales made prior to July 1, 2023, but paid for on or after July1, 2023, are subject to 4.2% state tax plus applicable municipal tax.

Simply stated, all sales that are subject to 4.5% tax will decrease to 4.2% tax on July 1,2023.

The new state tax rate applies to the following:

• Sales and use tax on the sale, lease, or rental of tangible personal property, products transferred electronically, and services
• Special Jurisdiction Tax Rates in Indian Country
• Farm Machinery excise tax
• Amusement device excise tax
• Motor Vehicle Lease & Rental tax

The use tax rate that is in effect at the time the product is received or removed from inventory is the rate that would apply. Items removed from resale inventory after June 30 are subject to the 4.2% use tax rate.

Service providers with billing periods that start before and end after the effective date of the rate change should apply the new rate to bills issued on or after the effective date.

The businesses’ accounting method determines what tax rate applies. Sellers using the accrual basis use the tax rate in effect at the time the deposit is billed or recorded in the business’s books and records. Sellers using the cash basis owe the tax rate in effect at the time the deposit is received.

When refunding a customer for returned merchandise, the tax rate they paid on the original purchase should also be returned.

You will need to refer to your operating manual or contact technical support to assist with any changes you need to make to your cash register, point of sale system, or accounting software.

You can adjust the amount claimed as returned merchandise to account for the higher tax rate. You will need to compute the returned merchandise amount by taking the tax amount refunded and dividing by 4.2% for the adjusted returned merchandise amount.

Example:

The original sale price on June 15^th was $143.35 plus 4.5% sales tax of $6.45 for a total of $149.80. On July 7^th you refund the customer the full $149.80.

To realize the full 4.5% tax refunded when you complete your July return, take the tax amount, and divide that by the new tax rate of 4.2% to compute the adjusted sale amount.

$6.45 ÷ 4.2% (.042) = $153.57

Take the non-taxable deduction of $153.57 on the July sales tax return.

Suggested preparations:

• Update point of sales system (e.g., cash registers, accounting programs, etc.)
• Educate staff
• Check back on the DOR information page for the latest information about the rate change

A remote seller is a business making sales in South Dakota with no physical presence in South Dakota. A physical presence includes but is not limited to owning property in South Dakota; sales staff working in South Dakota; or deliveries into South Dakota with company vehicles.

All sellers with a physical presence in South Dakota continue to be required to hold a sales tax license and remit sales tax regardless of the amount of sales or number of transactions.

As of November 1, 2018, remote sellers have been required to license their business and remit applicable sales tax if the business meets one or both of the following criteria in the previous or current calendar year:

• gross sales into South Dakota exceeding $100,000; or
• 200 or more separate transactions into South Dakota.

Effective July 1, 2023, the remote seller registration criteria no longer includes the 200 or more transactions threshold. Only remote sellers with more than $100,000 in gross sales in South Dakota in the previous or current calendar year are required to be licensed and remit South Dakota sales tax.

As of March 1, 2019, marketplace providers have been required to license their business and remit applicable sales tax on all sales it facilitates into South Dakota if:

• The marketplace provider is a remote seller; or
• The marketplace provider facilitates the sales of at least one marketplace seller that meets the remote seller criteria; or
• The marketplace provider facilitates the sales of two or more marketplace sellers that, when the sales are combined, meets the remote seller criteria.

Gross sales include selling, renting, or leasing products or services (including products delivered electronically) into South Dakota. (SDCL ch. 10-64)

Yes, all remote sellers meeting the criteria of having more than $100,000 of gross sales delivered into South Dakota must register.

Yes, all remote sellers with more than $100,000 of gross sales delivered into South Dakota, including those selling through a marketplace, must register. If all sales are made through a marketplace provider who is registered and remitting South Dakota sales tax on behalf of all sellers, you may qualify for a non-filing status. This will be determined when your application for license is reviewed and issued.

• The Department of Revenue offers a convenient, online application for a variety of taxes, including sales tax. To get started, click here.
• You can also register through the Streamlined Sales Tax Project. To get started, click here.

• The Streamlined Sales Tax Project provides businesses of all sizes the ability to simultaneously obtain a license, file and pay sales tax with the program’s 24-member states.
• To learn more about the Streamlined Sales Tax Project, visit their website at https://www.streamlinedsalestax.org/.

No, a marketplace provider may use the same sales tax license for their sales and sales on the marketplace. Both types of sales would be filed on the same sales tax return for each reporting period.

If the marketplace chooses to report their sales separately from the sales on the marketplace, they can be issued two tax licenses and file separate sales tax returns.

• Yes, sales tax returns must be filed even if there are no sales to report.

Meal delivery platforms operating in South Dakota have created a physical presence through the individuals delivering meals to customers. Having a physical presence in South Dakota requires the meal delivery platform to be licensed and pay sales tax regardless of the volume of sales or number of transactions.