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December 29, 2015

Low taxes make South Dakota attractive to startups, expansions

South Dakota’s real state and local taxes for new and existing businesses are among the lowest in the nation, according to a report from the Tax Foundation and the KPMG accounting firm.

The report, titled “Location Matters, the State Tax Costs of Doing Business,” looked beyond the property, sales and income tax rates of each state. It also considered factors such as unemployment insurance rates, special incentives and exemptions that could apply to seven types of business developments for both new and mature companies. The report’s authors said their goal was to create a bottom-line comparison of the tax cost in all 50 states.

South Dakota was among the top 10 tax bargains in six of the seven categories. The state was No. 2 in two categories.

  • 2nd - Corporate headquarters
  • 7th - Research & development facility
  • 2nd - Retail store
  • 5th - Capital intensive manufacturer
  • 8th - Labor intensive manufacturer
  • 5th - Call center
  • 19th - Distribution center

South Dakota fared well in part because it has no tax on corporate or personal income, or taxes on inventory, and its unemployment insurance rates are relatively low. And lower overall rates give South Dakota an advantage even over states that offer various tax credits and incentives to startups and expansions, especially in categories such as retail.

“Because new retail operations rarely receive incentives, South Dakota’s structurally low taxes give it a comparable advantage for new retail stores, which experience one of the lowest burdens in the country for that firm type,” the study’s authors wrote.

“This report comes as no surprise to us, but it’s gratifying to see an objective third-party acknowledgement of South Dakota’s business-friendly environment,” said Benjamin Snow of the Rapid City Economic Development Partnership.

In addition to a great tax climate, South Dakota’s central location in the nation offers transportation access points to key industrial regions. On top of that, the Black Hills and Rushmore Region offer a quality outdoors lifestyle that is attractive to employers and workers, added Hollie Stalder of the Belle Fourche Economic Development Corp.

The report can be downloaded from the KPMG website.


Benjamin Snow
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Hollie Stalder
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