Key figures
South Dakota advisory
2026, with sources
Nothing to claim, and nothing to elect
No income tax means no state research credit, no NOLs to track, no PTE election and no QSBS question. A founder living in South Dakota pays no state tax on a stock sale. Those decisions are federal ones here.
Sales tax is the planning question
South Dakota v. Wayfair (2018) is the case that allowed states to require remote sellers to collect, and South Dakota applies its own rule broadly: services and products transferred electronically are taxable unless specifically exempted. For a software company, that makes South Dakota one of the first states where it has to register.
The state rate is 4.2% through June 30, 2027 and is scheduled to return to 4.5% on July 1, 2027 unless the legislature changes the law. Annual contracts that span that date need the rate change handled on the invoice.
Where founders go wrong
South Dakota is cheap and simple for payroll and corporate filings. Nearly all its complexity is sales tax.
- Assuming SaaS is exempt because it isn’t tangible.
- Forgetting that the $100,000 threshold counts all gross revenue into South Dakota, not just taxable sales.
- Missing the annual report window, which is tied to the anniversary month.
- Skipping the investment fee in the first-year payroll budget.
The federal baseline
This page covers what South Dakota adds. The federal rules underneath it apply here too.
Common questions
Is there a South Dakota R&D credit?
No. With no corporate income tax there is nothing for a research credit to offset, and South Dakota hasn’t created a refundable one. The federal R&D credit and its payroll tax offset are the only research credits a South Dakota company claims.
Where do founders go wrong in South Dakota?
Mostly by assuming no income tax means no tax. South Dakota taxes nearly every service and SaaS, and it is the state whose case, Wayfair, created economic nexus. A software company crosses its $100,000 threshold faster than in most states because almost everything it sells counts.
Advisory next door
- NDNorth Dakota advisoryNorth Dakota’s research credit is 25% on the first $100,000 of excess expenses and can be sold by certified primary sector startups. WSI is the only workers’ comp carrier.
- MNMinnesota advisoryMinnesota’s R&D credit is 10% on the first $2 million of research and, since 2025, partly refundable — 25% for 2026 — even for companies with no receipts.
- IAIowa advisoryIowa replaced its Research Activities Credit in 2026 with an IEDA-certified R&D credit of up to 3.5% of Iowa research spending, refundable and capped at $40 million a year. Individuals pay a flat 3.8%.
- NENebraska advisoryNebraska’s Angel Investment Tax Credit gives investors a refundable credit for backing small Nebraska tech companies. Personal and corporate rates are falling to 4.55% in 2026.
- WYWyoming advisoryWyoming has no income tax for companies or people, so R&D credits, QSBS and NOL questions don’t arise; the planning issues are sales tax on downloaded software and keeping the registration current.
- MTMontana advisoryMontana is the one state where employees can’t be fired at will after probation; it has no R&D credit but credits half of employer FICA on new jobs through 2028.
Founder guides on this
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
More of the South Dakota guide
- AccountingAccounting and state tax in South DakotaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in South DakotaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in South DakotaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in South DakotaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in South DakotaRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.