(The Center Square) – South Dakota has the second-best business tax climate in the country, according to a report from The Tax Foundation released Tuesday.
The organization lauded South Dakota for its lack of income and corporate taxes. The state sales tax rate is 4.5% and the maximum local rate is 6.5%, according to the report.
The report factors in a sales tax rollback passed by lawmakers earlier this year that went into effect on July 1. The measure rolls back the state sales tax from 4.5% to 4.2% for the next four years.
“This change improved South Dakota’s sales tax component ranking by seven places, from 34th to 27th, but this change was not enough to improve the state’s overall ranking, which is already 2nd in the country,” The Tax Foundation said in its report.
Gov. Kristi Noem asked lawmakers to eliminate the state’s grocery tax. The legislature opted for the income tax break instead.
Sales taxes are South Dakota’s largest revenue source. Despite a dip of $6.9 million for fiscal year 2023, the state ended the year with a $96.8 million surplus. Budget officials noted the state spent $79.7 million less than appropriated by lawmakers.
The Tax Foundation grades states based on five different criteria. Individual income taxes account for 29.8% of the ranking, sales tax for 23.3%, corporate tax at 20.9%, property tax at 11.1% and unemployment insurance tax at 11.1%.
Wyoming took the top spot in the ranking, with Alaska, Florida and Montana rounding out the top five. The five states with the worst business tax climates are New Jersey, New York, California, Connecticut and Massachusetts.
