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 a bank franchise tax on financial institutions organized or operating within the state. The rate is a graduated structure based on the institution's net income assignable to South Dakota, as prescribed by SDCL § 10-43-4 (current as of June 2026):

Graduated Rate Structure (SDCL § 10-43-4):

• 6% on net income of $400 million or less
• 5% on net income exceeding $400 million up to $425 million
• 4% on net income exceeding $425 million up to $450 million
• 3% on net income exceeding $450 million up to $475 million
• 2% on net income exceeding $475 million up to $500 million
• 1% on net income exceeding $500 million up to $600 million
• 0.5% on net income exceeding $600 million up to $1.2 billion
• 0.25% on net income exceeding $1.2 billion

The minimum franchise tax per institution is $200 per return. Net income for these purposes is determined under the Internal Revenue Code, subject to modifications enumerated in South Dakota law.

Senate Bill 18 (signed February 2026) modified certain income adjustments but did not alter the rate structure in SDCL § 10-43-4. The rates above reflect current law.

Source: S.D. Codified Laws § 10-43-4

South Dakota's bank franchise tax applies to entities classified as “financial institutions” under SDCL § 10-43-1(4). This statutory definition goes beyond traditional depository banks, but as of July 2023, it does not expressly address nondepository fintech companies, payment processors, or digital asset custodians that are not chartered as banks or trust companies.

Statutory definition (SDCL § 10-43-1(4)): A "financial institution" includes:

• Any banking institution, production credit association, or savings and loan association organized under federal or state law and doing business in South Dakota;
• Any trust company organized under SD law or under federal law with a principal place of business in SD;
• Persons licensed under SDCL ch. 54-4 (small loan, money lender, and consumer finance licensees);
• Any person buying, selling, or discounting notes, evidences of debt, or other commercial paper (other than a broker-dealer registered under the Securities Exchange Act of 1934);
• Any person regularly in the business of making installment or open-end loans over $500, repayable over more than four months, for purposes other than direct purchase or lease of goods or services (subject to enumerated exceptions);
• Subsidiaries owned by a financial institution where their business is integral to the financial enterprise.

Current DOR guidance: The South Dakota Department of Revenue (July 2023) affirms the bank franchise tax applies to banks, trust companies, mortgage companies, money lending businesses, and persons or entities regularly buying or investing in loans or other evidences of debt. The DOR tax fact does not specifically reference digital asset custodians, nonbank fintech lenders, or payment processors, nor does it expressly exclude such entities if they fit within the enumerated statutory activities.

Fintech, payment processors, and hybrid business models: As of July 2023, there is no explicit statutory or administrative guidance addressing:

• Whether nonbank fintech lenders or marketplace platforms facilitating loans are treated as “financial institutions.”
• Whether payment processors or digital asset custodians, clearinghouses, or lending platforms fall within the definition if not operating as a bank, trust company, or licensed lender under Ch. 54-4.

Analytical notes:

• Any fintech, lending platform, or payment processor whose operations include regular lending, buying/selling of debt, or operation under a South Dakota finance license should examine SDCL § 10-43-1(4), as such activity may subject them to the bank franchise tax. There is, however, no direct mention of fintech or digital asset entities in current law or DOR publications.
• Pure payment processors handling merchant transactions without lending or trust authority are likely outside the defined scope, unless also acting under a lending, finance, or trust license in South Dakota.
• This remains an interpretive gap for hybrid or technology-based financial businesses as of July 2023.

Source: S.D. Codified Laws § 10-43-1(4) Source: South Dakota Department of Revenue — Financial Institutions Tax Fact (July 2023)

The South Dakota bank franchise tax return must be filed, and the tax paid, within 15 days after the due date of the taxpayer’s federal income tax return. This due date is set by SDCL § 10-43-30. Returns or payments made after this period are delinquent and subject to penalty and interest as specified in SDCL § 10-59-6. Source: SDCL § 10-43-30 Source: SDCL § 10-59-6

An extension of time to file may be granted for up to six months. Statute requires that the taxpayer has obtained a federal extension and submits a copy of that extension request to the Department of Revenue by the original due date, and pays an estimated amount of the tax due. If the estimated payment is less than the final amount due, interest—but not penalty—is assessed on the underpaid portion. The mechanics for requesting the extension—including a required cover letter, submission of materials by email (bankfranchise@state.sd.us), and a minimum payment of $200—are explained in Department of Revenue guidance. The DOR specifically directs taxpayers not to use the online portal for extension requests; email is the required channel.

Source: SDCL § 10-43-30.1 Source: South Dakota DOR – Bank Franchise Tax

Effective for tax years beginning after the enactment of 2026 Senate Bill 18, the South Dakota bank franchise tax additions to federal taxable income are governed by SDCL § 10-43-10.2 as amended. The 2026 amendments repealed the specific income tax modifications for bad debts and consolidated the list of required additions to federal taxable income.

Required additions to federal taxable income (SDCL § 10-43-10.2, as amended by SB 18):

1. Net operating losses or capital losses incurred prior to July 1, 1978 that are included in federal taxable income under the Internal Revenue Code.
2. Interest or dividend income from obligations or securities of states or political subdivisions or authorities thereof not included in federal taxable income under the Internal Revenue Code.
3. Dividends received from other corporations to the extent those dividends have been deducted in arriving at federal taxable income (i.e., add back the federal dividends-received deduction).
4. Federal income tax refunds received during the tax year, but only to the extent such refunds were previously deducted in computing South Dakota net income for a prior year.
5. Any capital loss from liquidating sales or distributions in complete liquidation of a financial institution, as described in the statute, within the defined twelve-month period following adoption of a plan of complete liquidation.

There is no statutory requirement to add back meal or entertainment expenses disallowed under IRC § 274(n); no such provision appears in SDCL § 10-43-10.2. Practitioners should reference the statute directly for modifications applicable to federal taxable income.

Source: S.D. Codified Laws § 10-43-10.2 (2026)

Effective for tax years beginning after the enactment of Senate Bill 18 in February 2026, the list of subtractions from federal taxable income for South Dakota bank franchise tax purposes under SDCL § 10-43-10.3 was amended to repeal the subtraction for bad debt adjustments. As of February 17, 2026, that subtraction is no longer available. This update reflects the legislative change enacted by SB 18, aligning with recent Department of Revenue guidance.

Required subtractions from federal taxable income (SDCL § 10-43-10.3, as amended by SB 18):

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, franchise tax, or privilege tax measured by income, to the extent included in federal taxable income.
2. Dividends from financial institutions subject to SDCL Chapter 10-43 — dividends received from other financial institutions subject to the South Dakota bank franchise tax, included in federal taxable income.
3. Federal income taxes imposed — taxes imposed upon the financial institution within the tax year under the Internal Revenue Code, except for taxes under IRC §§ 1374 and 1375 (S corporation built-in gains and passive investment income taxes). This represents a federal income tax deduction in computing South Dakota net income.
4. Cash-to-accrual method adjustment (negative differences) — the net negative difference between the cash and accrual methods of accounting, available only for certain financial institutions (those first doing business in South Dakota after January 1, 1987 or required to change methods per IRC § 448).
5. Capital gains from liquidating sales — any capital gain recognized from liquidating sales within a twelve-month period following adoption of a plan of complete liquidation, if all assets are distributed in full liquidation (less assets retained to meet claims) within the period.
6. Additional depreciation for tax-basis differences — additional depreciation to amortize the excess of the state undepreciated tax basis over the federal depreciable basis, as detailed in SDCL Chapter 10-43.

Practitioners should reference the amended statute directly for exclusions and other modifications. There is no statutory subtraction for bad debt or for meal or entertainment expenses disallowed under IRC § 274(n) as of the 2026 amendments.

Source: S.D. Codified Laws § 10-43-10.3 (as amended by SB 18, 2026) Source: 2026 Senate Bill 18, § 1 & 2 (enrolled version)

South Dakota requires financial institutions subject to the bank franchise tax (SDCL ch. 10-43) to make estimated tax payments if their prior year franchise tax liability exceeded $10,000. This estimated payment regime applies for tax years beginning after December 31, 2025, pursuant to the 2024 amendments (see HB 1011, now codified at SDCL § 10-43-30).

Who must pay estimated tax:

• Any financial institution whose South Dakota bank franchise tax liability for the previous year exceeded $10,000.

Calculation and due dates:

• The calculation mirrors the federal estimated corporate tax regime (IRC § 6655), requiring institutions to pay the lesser of 90% of the current year's tax or 100% of the prior year's tax liability, divided into four installments.
• Estimated payments are due on the 15th day of the fourth, sixth, ninth, and twelfth month of the financial institution’s taxable year (generally April 15, June 15, September 15, and December 15 for calendar-year filers).

Filing thresholds and penalty:

• No penalty is imposed if less than $10,000 in tax was payable in the previous year—the estimated payment requirement only triggers at the $10,000 threshold.
• Failure to make timely estimated payments results in interest (not penalty) on the underpaid amount, calculated at the rate and manner established for delinquent taxes under SDCL § 10-59-6.

Mechanics:

• Any required estimated payments are submitted to the Department of Revenue on forms prescribed for this purpose. There is no safe-harbor for “annualizing” income as exists for federal estimated tax, except as specifically permitted under SDCL § 10-43-30.

Authority:

• SDCL § 10-43-30 (as amended by HB 1011, 2024)
• SDCL § 10-43-30.2 to 10-43-30.5 (estimated payment mechanics and interest on underpayment)

Source: S.D. Codified Laws § 10-43-30 (2026) Source: 2024 HB 1011, § 4–6

South Dakota imposes penalty and interest on financial institutions that fail to timely file or pay the state bank franchise tax as required by SDCL Chapter 10-43. The specific penalty and interest rules are set forth in SDCL § 10-43-30, which refers to the penalty and interest provisions of SDCL § 10-59-6 for administration by the Department of Revenue.

Penalty for late filing or payment: If the bank franchise tax return is not filed or the tax is not paid within 30 days after the due date, a penalty is imposed equal to 10% of the unpaid tax or $10, whichever is greater. This penalty applies once the return or payment becomes delinquent as defined by statute.

Interest on late or underpaid tax: Interest accrues on any unpaid franchise tax at the rate set under SDCL § 10-59-6: one percent per month, or fraction thereof, calculated from the date the tax became delinquent until paid. The statute does not specify a minimum dollar threshold per month for interest, nor alternative interest rates for intent to avoid payment or mistake of law, within these bank franchise tax provisions.

Penalty abatement for reasonable cause: Under SDCL § 10-59-6, the secretary of revenue has authority to reduce or eliminate any penalty if the taxpayer shows reasonable cause for the failure. The law does not define “reasonable cause”; the determination is at the secretary’s discretion and applies only to penalties, not to interest, unless otherwise expressly provided.

Summary:

• Penalty: 10% of tax due or $10, whichever is greater, for late filing/payment.
• Interest: 1% per month or portion, until paid.
• Penalty relief: Abatement possible on showing of reasonable cause (at secretary’s discretion).

Source: SDCL § 10-43-30 Source: SDCL § 10-59-6

South Dakota apportions the net income of multistate and national banks—and other financial institutions subject to the bank franchise tax—using a statutory three-factor formula codified at SDCL § 10-43-22.1. This formula determines what portion of a financial institution's overall net income is assigned to South Dakota for state tax purposes.

Formula structure and weightings: South Dakota uses the average of three factors: property, payroll, and receipts. Each is calculated as a percentage (South Dakota numerator divided by everywhere denominator), and the average of these three yields the apportionment ratio applied to net income. Each factor carries equal weight in the calculation. Source: SDCL § 10-43-22.1

Factor definitions:

• Property factor: The ratio of the average value of the bank’s real and tangible personal property owned or rented and used in South Dakota, to the value of such property everywhere. Intangible property is specifically excluded. Source: SDCL § 10-43-23.1

• Payroll factor: The ratio of the total compensation paid in South Dakota to employees (where the employee’s service is performed primarily in South Dakota), divided by all compensation paid by the bank everywhere. If the statutes define further assignment rules for multistate employees, those rules control payroll assignment. Source: SDCL § 10-43-24.1

• Receipts factor: The ratio of gross receipts (interest, fees, service charges, and other income) assigned to South Dakota, as sourced under statutory and regulatory guidance, divided by gross receipts everywhere. Detailed sourcing rules for specific receipts are stated in SDCL § 10-43-25.1. Source: SDCL § 10-43-25.1

Unitary group/combined reporting: When the banking enterprise is part of an affiliated, combined, or unitary group, South Dakota regulations require property, payroll, and receipts of all entities in the group be used (net of intercompany amounts) in both numerators and denominators. This approach is set by S.D. Admin. R. 64:26:05:07. Source: S.D. Admin. R. 64:26:05:07

This statutory formula applies exclusively to financial institutions under the bank franchise tax regime, not to non-financial business corporations, which generally are not subject to income or franchise tax in South Dakota.

Source: SDCL § 10-43-22.1 Source: SDCL § 10-43-23.1 Source: SDCL § 10-43-24.1 Source: SDCL § 10-43-25.1 Source: S.D. Admin. R. 64:26:05:07

South Dakota’s bank franchise tax, governed by SDCL Chapter 10-43, provides only a narrowly limited set of credits that can be applied against tax due. Unlike many states, South Dakota does not offer a general business tax credit regime within its bank franchise tax law. The primary credit expressly authorized is for taxes paid to other states or political subdivisions on income also subject to South Dakota tax, intended to mitigate the risk of double taxation on multistate income.

Credit for Taxes Paid to Other States (SDCL § 10-43-9.4):

• A financial institution may claim a credit for income taxes paid to another state or political subdivision on net income that is also subject to South Dakota’s bank franchise tax.
• The credit is limited to the portion of South Dakota tax due on the same income—meaning it cannot exceed the tax attributable to the income taxed elsewhere.
• The statute explicitly excludes credit for franchise, occupation, or excise taxes based on something other than income. Only net income taxes qualify.
• Taxpayers must support credit claims with documentation showing the nature, amount, and basis of the taxes paid to other states.

No Community Investment or Employment Credits: South Dakota bank franchise tax law currently does not provide credits or deductions for community investment, economic development, local employment, or similar purposes. There are no job or investment credits analogous to those offered for other business taxes in some jurisdictions.

Other Special Credits: There are no general credits for charitable contributions, historic rehabilitation, research and development, or similar activities within the bank franchise tax statutes. Except as detailed above for taxes paid to other states, the credit regime is highly limited.

For up-to-date details on the administration and any new legislation, practitioners should refer regularly to SDCL Chapter 10-43 and recent session laws.

Source: S.D. Codified Laws § 10-43-9.4

South Dakota does not impose a general corporate gross receipts tax, business privilege tax, or alternative non-income franchise tax on corporations, LLCs, partnerships, or other for-profit business entities, other than the Bank Franchise Tax applicable only to financial institutions under SDCL Chapter 10‑43. This means:

• There is no Texas-style margins/franchise tax (TX), no Washington-style business & occupation (B&O) tax (WA), no Nevada or Ohio commercial activity tax (CAT), and no Oregon corporate activity tax for business entities in South Dakota.
• Ordinary C corporations, S corporations, and LLCs (unless specifically classified as financial institutions) are not subject to any entity-level gross receipts, alternative franchise, or business privilege levy.
• The only state-level taxes South Dakota imposes on non-financial business entities are sales and use tax (SDCL ch. 10-45, 10-46), excise tax for contractors, and industry-specific levies (such as insurance premium tax), but these are not entity-level alternative taxes on gross receipts or franchise value.
• All references in the South Dakota Codified Laws and Department of Revenue guidance to franchise or privilege taxes at the entity level are strictly limited to financial institutions as defined in SDCL § 10‑43‑1(4).

Practitioner context: This statutory and regulatory environment means that South Dakota is among a small group of states (including Wyoming and Nevada) that do not impose any corporate or business privilege tax on general business entities. Only the federal income tax regime and South Dakota’s transaction/industry taxes apply, unless a company is a financial institution.

Citations:

• Review of all titles in the South Dakota Codified Laws reveals no chapter imposing a general business entity-level gross receipts, franchise or privilege tax, other than SDCL Chapter 10‑43 (limited to financial institutions).
• The South Dakota Department of Revenue explicitly confirms the absence of a corporate income or alternative business entity tax for non-financial institutions on its summary pages for business taxes.

Source: South Dakota Codified Laws – Table of Chapters Source: South Dakota Department of Revenue – Business Taxes