South Dakota — Corporate Income / Franchise Tax

South Dakota does not impose a corporate income tax on corporations or other business entities. Corporations organized or doing business in South Dakota are not subject to state-level taxation on their income, profits, or capital, distinguishing South Dakota from the 44 states that levy corporate income taxes. This exemption applies to C corporations, S corporations, LLCs taxed as corporations, and other business entities, regardless of their place of organization.

The absence of a corporate income tax means that corporations operating in South Dakota are only subject to federal corporate income tax under the Internal Revenue Code and are not required to file a South Dakota corporate income tax return. However, businesses may still be subject to other South Dakota taxes, including sales and use tax, contractor's excise tax, and certain industry-specific taxes.

One narrow exception exists: financial institutions remain subject to the South Dakota bank franchise tax under Chapter 10-43 of the South Dakota Codified Laws. This franchise tax applies to banks, savings and loan associations, trust companies, and certain other financial institutions regularly engaged in business in South Dakota, but does not apply to ordinary business corporations.

Source: South Dakota Department of Revenue – Business Tax

South Dakota imposes an annual franchise tax on financial institutions at a rate of 6% of net income assignable to the state. The tax liability cannot be less than $200 for each authorized location. Net income is defined as taxable income under the Internal Revenue Code, as determined under 26 U.S.C. § 61 et seq., subject to additions and subtractions specified in state law.

Source: S.D. Codified Laws § 10-43-4

South Dakota's bank franchise tax applies to financial institutions as defined in SDCL 10-43-1(4). According to the South Dakota Department of Revenue, a financial institution includes any banking institution, production credit association, or savings and loan association organized under the laws of the United States and located or doing business in South Dakota. Trust companies chartered in South Dakota are also defined as financial institutions subject to the tax under the same statutory provision.

Source: South Dakota Department of Revenue – Bank Franchise Tax and South Dakota Division of Banking – Trust Company Mandates

Unable to confirm as of 2026-05-27.

South Dakota bank franchise tax net income begins with federal taxable income under the Internal Revenue Code and then applies state-specific additions and subtractions. The additions enumerated in SDCL § 10-43-10.2 increase federal taxable income to arrive at South Dakota net income before apportionment.

Required additions to federal taxable income (as enacted in 2014):

1. Net operating losses or capital losses incurred prior to July 1, 1978, included in taxable income under the Internal Revenue Code.

1. Interest or dividend income from obligations or securities of states or political subdivisions or authorities thereof not included in taxable income as determined under the Internal Revenue Code — restoring tax-exempt state and municipal bond income for South Dakota purposes.

1. Dividends received from other corporations to the extent such dividends have been deducted from net income as determined under the Internal Revenue Code — effectively adding back the IRC dividends-received deduction.

1. Federal income tax refunds received during the tax year, to the extent such refunds were previously deducted in computing South Dakota net income in a prior year.

1. All income taxes paid or accrued during the tax year under the provisions of SDCL Chapter 10-43 or under the provisions of any income tax, or franchise or privilege taxes measured by income, levied by any other state or political subdivision, to the extent that such taxes were deducted to determine federal taxable income.

1. Cash-to-accrual method adjustment — for financial institutions first doing business in South Dakota after January 1, 1987, or financial institutions required to switch from the cash method to the accrual method under IRC § 448, the difference obtained by subtracting net income under the cash method from net income under the accrual method. If the difference is less than zero, the provisions of SDCL § 10-43-10.3 (subtractions) apply instead. This adjustment is available only to qualifying institutions.

1. Meal expense and entertainment expense disallowed under IRC § 274(n) — any meal or entertainment expense that was disallowed as a deduction under IRC § 274(n) is added back.

1. Capital loss from liquidating transactions — (a) any capital loss from liquidating sales within the twelve-month period beginning on the date a financial institution adopts a plan of complete liquidation, if all of the assets of the financial institution are distributed in complete liquidation (less assets retained to meet claims) within that period, or (b) capital loss from the distribution of property in complete liquidation of the financial institution which is subject to federal corporate income taxes pursuant to IRC § 336.

These additions are applied to federal taxable income before the separate subtractions enumerated in SDCL § 10-43-10.3, and before apportionment of net income to South Dakota under the three-factor formula in SDCL § 10-43-22.1.

Source: S.D. Codified Laws § 10-43-10.2 (2014 enactment)

South Dakota bank franchise tax net income begins with federal taxable income under the Internal Revenue Code, then applies state-specific additions and subtractions. The subtractions enumerated in SDCL § 10-43-10.3 reduce federal taxable income (after the additions under SDCL § 10-43-10.2) to arrive at South Dakota net income before apportionment.

Required subtractions from federal taxable income (as enacted in 2014):

1. Interest and dividends from U.S. government obligations — interest and dividends from obligations of the United States government and its agencies which South Dakota is prohibited by federal law or treaty from taxing by an income tax, a franchise tax, or a privilege tax measured by income, to the extent those amounts were included in federal taxable income.

1. Dividends from South Dakota financial institutions — dividends received from financial institutions subject to taxation under SDCL Chapter 10-43, to the extent such dividends were included in taxable income as determined under the Internal Revenue Code.

1. Federal income taxes imposed — taxes imposed upon the financial institution within the tax year under the Internal Revenue Code, excluding any taxes imposed under 26 U.S.C. § 1374 (built-in gains tax on S corporations) and 26 U.S.C. § 1375 (excess passive investment income tax on S corporations). This is the federal tax deduction: financial institutions may subtract their federal income tax liability when computing South Dakota net income.

1. Cash-to-accrual method adjustment (negative differences) — the difference obtained by subtracting net income under the cash method of accounting from net income under the accrual method of accounting, when that difference is less than zero. If the difference is greater than zero, the provisions of SDCL § 10-43-10.2 (additions) apply instead. This adjustment is available only to financial institutions first doing business in South Dakota after January 1, 1987, or to financial institutions that are required to switch from the cash method to the accrual method under IRC § 448.

1. Capital gains from liquidating sales — any capital gain from liquidating sales within the twelve-month period beginning on the date on which a financial institution adopts a plan of complete liquidation, if all of the assets of the financial institution are distributed in complete liquidation (less assets retained to meet claims) within the twelve-month period.

1. Meal and entertainment expenses disallowed under IRC § 274(n) — any meal expense and entertainment expense disallowed under IRC § 274(n), reversing the addition required under SDCL § 10-43-10.2(7).

1. Additional depreciation for tax-basis differences — additional depreciation expenses to provide for the amortization of the excess, if any, of the remaining undepreciated tax basis as determined under the provisions of SDCL Chapter 10-43 over the depreciable basis as determined for federal tax purposes.

These subtractions are applied to federal taxable income (after the additions enumerated in SDCL § 10-43-10.2) and before apportionment of net income to South Dakota under the three-factor formula in SDCL § 10-43-22.1.

The federal income tax deduction under subdivision (3) excludes the built-in gains tax under 26 U.S.C. § 1374 and the excess passive investment income tax under 26 U.S.C. § 1375, meaning those two federal taxes remain in the South Dakota tax base. The statute does not specify whether the federal tax subtraction applies to taxes imposed, taxes paid, or taxes accrued, nor does it define the treatment of federal tax refunds or the method for computing the deduction for members of consolidated groups.

Source: S.D. Codified Laws § 10-43-10.3 (2014 enactment)