Key figures
No state 1099s
With no personal income tax, South Dakota has no 1099 filing requirement and no withholding on payments to contractors. The federal 1099 rules are all there is.
Use tax on almost everything
South Dakota’s use tax mirrors its sales tax, which covers services and electronically delivered products. A South Dakota company that buys SaaS, design work or consulting from a vendor that doesn’t collect South Dakota tax owes use tax at 4.2% plus the municipal rate where the service is used.
In practice, many national software vendors register in South Dakota because of its broad base, so the use tax exposure is mostly smaller vendors and freelancers.
Contractors
DLR decides whether a worker is an employee for Reemployment Assistance on its own test, and a reclassified worker brings back contributions. A South Dakota contractor selling taxable services may also owe sales tax on its invoices, which is a reason to check what a contractor’s invoice includes.
The federal baseline
This page covers what South Dakota adds. The federal rules underneath it apply here too.
Common questions
Do we owe use tax on SaaS and services we buy?
Yes, if the vendor didn’t charge South Dakota tax. Because the state taxes services and products transferred electronically, software subscriptions, consulting and other services bought from out-of-state vendors that don’t collect owe use tax, reported on the company’s sales tax return or a use tax return.
Does South Dakota want our 1099s?
No. South Dakota has no individual income tax, so there is no state copy of the 1099-NEC and no withholding on contractors.
Payables next door
- NDNorth Dakota payablesNo contractor withholding and 1099s only where North Dakota tax was withheld. Use tax applies to prewritten software and equipment bought untaxed.
- MNMinnesota payablesMinnesota wants 1099s that show Minnesota withholding filed directly by January 31, and it taxes prewritten software however delivered, so untaxed software purchases carry use tax.
- IAIowa payablesIowa wants 1099s only when they show Iowa withholding, filed electronically by February 15. Business SaaS purchases are generally exempt; computers are not.
- NENebraska payablesNebraska takes 1099s only when Nebraska tax was withheld. Use tax reaches downloaded software and hardware, not access-only SaaS.
- WYWyoming payablesWyoming has no state 1099 filing; use tax applies to downloaded and boxed prewritten software but not to SaaS, PaaS or IaaS, which Wyoming doesn’t tax.
- MTMontana payablesMontana wants Forms 1099 on federal due dates, has no sales or use tax on purchases, and expects contractors to hold an Independent Contractor Exemption Certificate.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- 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.
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
- 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
- AdvisoryAdvisory: credits and decisions in South DakotaCredits, incentives and the decisions that are cheaper to get right the first time
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.