SD State Sales Tax: New Rate Effective July 1, 2023
On March 27, 2023, House Bill 1137 was signed into law. This bill decreases the state sales and use tax rate from 4.5% to 4.2%, effective July 1, 2023. Additional rates affected by the change are the special jurisdiction tax, excise tax on farm machinery and attachment units, the amusement device tax, and the motor vehicle gross receipts tax. To facilitate reporting, there will be 4.5% and 4.2% lines on sales tax return forms after July 1, 2023.
The rate reduction will be repealed automatically in four years, ending on June 30, 2027. This bill does not change any municipal sales and use tax rates, the municipal gross receipts tax rate, the tourism tax rate, or the contractor’s excise tax rate.
Cash v Accrual
One important piece of information needed to determine how to implement this change is whether a business files SD sales tax returns on a cash basis or accrual basis. A cash basis filer reports sales to the state based on when payments from customers are received, while an accrual basis filer reports sales based on when invoices are issued to customers.
This accounting method can be found on your original sales tax application, by calling the South Dakota Department of Revenue (SD DOR) at 1-800-829-9188, or by opening a Live Chat on the SD DOR website and asking their representative. You will need your license number available if you call or chat.
Here is an example of how to manage the change as a cash basis versus accrual basis filer. In this case, the customer is charged $100 before taxes. (City and other taxes are excluded.)
|Date Invoiced||Date Paid||Sale Amount||Tax Charged and Remitted to State|
|Cash Basis||n/a||06/30/2023||$100.00||4.5% = $4.50|
|Cash Basis||n/a||07/01/2023||$100.00||4.2% = $4.20|
|Accrual Basis||06/30/2023||n/a||$100.00||4.5% = $4.50|
|Accrual Basis||07/01/2023||n/a||$100.00||4.2% = $4.20|
Please note that point of sale systems, cash registers, and/or accounting software will need to be updated to reflect the rate change. System providers are best able to help you change the sales tax rates in your business systems.
Situations in which tax treatment may be less clear are customer deposits, customer refunds, and items removed from inventory for business use.
For customer deposits, the sales tax accounting method determines which rate to use. For a cash basis filer, use the rate in effect when the deposit is received. For an accrual basis filer, use the rate in effect at the time the deposit is billed, or recorded in the business books – consistent with how the business currently reports those deposits.
Customer refunds for returned merchandise should be paid at the rate charged on the original purchase. To report returns of the 4.5% rate after July 1, 2023, please refer to the SD DOR website FAQs for an example of how that should be reported on the sales tax return.
Use tax for items removed from inventory for business use or as materials used on construction projects, should be calculated at the rate in effect when the item is removed from inventory.
Reach out to the SD DOR with specific questions – dor.sd.gov. Once there, click “Latest News” in the upper right-hand corner, and then click on House Bill 1137. The link “2023 Legislative Changes” has Frequently Asked Questions that address most situations affected by the rate change.
The SD DOR representatives are friendly, knowledgeable, and want to help all businesses understand and correctly apply sales tax rates. Their Live Chat feature also allows you to receive a copy of the chat transcript for future reference.