Starting a Business in South Dakota – A Comprehensive Guide

How to Start a Business in South Dakota

If you have a business idea that you have been considering, South Dakota might be an ideal place to start your entrepreneurial journey. The state’s business-friendly environment and unique resources and opportunities make it a fertile ground for new ventures. This blog serves as a comprehensive guide, providing valuable insights and facts that will come in handy for anyone looking to start a business in South Dakota.

Famous monument in South Dakota, Mount RushmoreTop Two Benefits of Starting a Business in South Dakota

  1. Favorable Tax Climate:  South Dakota stands out for its tax-friendly policies. The state does not levy corporate income tax, personal income tax, personal property tax, or business inventory tax. This could lower your overall cost of doing business, leaving more capital for growth and expansion.
  2. Workforce Availability and Affordability:  South Dakota boasts a highly educated and reliable workforce. Moreover, South Dakota’s labor cost is significantly lower than the national average, offering an affordable option for businesses that require a substantial force.

Top Two Challenges When Starting a Business in South Dakota

  1. Limited Market Size:  While the state offers several benefits, one potential challenge can be the smaller market size due to its lower population. This could limit the reach of certain types of businesses, particularly those that rely heavily on local customers.
  2. Geographic Isolation:  Some parts of South Dakota are quite remote, which could pose logistical challenges for businesses that rely on shipping goods or require easy access to major transportation hubs.

South Dakota, known for its sprawling landscapes and the iconic Mount Rushmore, is more than just a beautiful state. It is home to over 88,000 small businesses, employing 59.9% of the state’s private workforce. South Dakota offers a unique blend of benefits for entrepreneurs, and we hope this guide helps you navigate the challenges and harness the opportunities to make your business idea a thriving reality.

Regulatory Factors and Taxes in South Dakota

Regarding regulatory factors and taxes, South Dakota is one of the most business-friendly states in the U.S. Notably. It does not impose a corporate income tax, making it an attractive location for new businesses. If you start a business in South Dakota, you can retain more profits, significantly boosting your bottom line.

South Dakota also doesn’t have a personal income tax, another boon for small businesses, particularly those structured as sole proprietorships, partnerships, or LLCs, where business profits are passed through to the owners’ tax returns.

However, businesses need to factor in the state sales tax, which is 4.5%. Additionally, municipalities can impose local sales taxes, ranging up to an additional 2%, making the potential total sales tax as high as 6.5%. Despite these sales taxes, the overall tax burden in South Dakota is considerably lower compared to many other states, making it an enticing environment for budding entrepreneurs.

Despite the lack of key taxes, businesses should be aware of other possible tax responsibilities. For instance, companies selling certain goods and services may be subject to the state’s use tax at a rate of 4.5%. Understanding these tax obligations is key to successfully operating a business in South Dakota.

How do I Choose a Business Structure?

There are five primary types of businesses. Each type of business entity is described below.

Sole Proprietorship

A business owned and operated by one individual with no legal distinction between the business and the owner. The owner is personally responsible for all debts and liabilities of the business. Most small business owners in  South Dakota use this business type.

Limited Liability Company (LLC)

A flexible business organization that combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners of an LLC are called members, and their assets are typically protected from the debts and liabilities of the business. You have the flexibility to define many aspects of how your business will work in your Articles of Organization.


A type of corporation allows for pass-through taxation, meaning that profits and losses are passed through to the shareholders and reported on their tax returns. S-Corporations are limited to 100 shareholders and must meet specific eligibility requirements. An S-Corp can be particularly advantageous if the founders or investors have other income. If the business doesn’t generate a profit in any year, the shareholders can use the losses from a tax perspective.


A separate legal entity from its owners (shareholders) means that the corporation can enter into contracts, own assets, and sue or be sued. C-Corporations are subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

A Note About S-Corps and C-Corps

For both S-Corporations and C-Corporations, your business formation documents will include Articles of Incorporation, sometimes called a Corporate Charter.  The specific requirements and format of Articles of Incorporation can vary by jurisdiction. It is advisable to consult with a business attorney or online legal service such as Legal Zoom to ensure compliance with local laws and regulations when drafting and filing these documents.

Limited Liability Partnership (LLP)

A partnership that limits the personal liability of its partners. LLPs are typically used by professional service providers such as lawyers, accountants, and architects. Each partner is protected from the other partners’ wrongful acts, omissions, and negligence, but they may still be personally liable for their actions.

Distribution of Businesses

Business Type Percent of Businesses in  South Dakota
Sole Proprietorship 45-50%
Limited Liability Company (LLC) 25-30%
S-Corporation 10-15%
C-Corporation 5-7%
Limited Liability Partnership (LLP) 3-5%

Yearly percentages may differ depending on the industry and location. Moreover, the data comprises businesses registered in states other than South Dakota but conducting operations within the state.

What is an Employer Identification Number – EIN?

Definition of an EIN or Employer Identification Number

If you’re starting a business in the US, you’ll need an Employer Identification Number (EIN). This unique nine-digit number provided by the IRS makes it easier for companies to handle their taxes. It’s sometimes called a Federal Tax Identification Number or Federal Employer Identification Number.

Do I Need One to Start a Business in South Dakota?

Obtaining an EIN is necessary if you’re considering starting a business in South Dakota. This number is required to create a business entity, hire employees, obtain business licenses, or open a business bank account.

How Do I Get One?

Getting an EIN is a simple process. You can apply for it directly on the IRS website or send Form SS-4 via mail or fax. The online application is quick and easy; you will receive the number in a few hours. If you require further help, contact the IRS at 1-800-829-4933 or visit their website at .

How to Start a Business in South Dakota – Important Registrations

Registering My Business NameCapitol building in Pierre South Dakota where business regulations and programs start

In South Dakota, the initial step in starting your business is officially registering your business name with the Secretary of State’s office. They can be reached at (605) 773-4845, or you can visit their website at .

Registering a DBA (Doing Business As) If Relevant

If you plan on operating under a different name than your business name, you must register a DBA or “Doing Business As.” South Dakota has 66 counties, each with local government services and regulations.

For a comprehensive list of South Dakota’s local governments, you can visit . The site provides contact details for each county, helping businesses navigate local rules or requirements.

Registering for Payroll, State Payroll Taxes, and Unemployment Insurance

Businesses in South Dakota must establish an account with the South Dakota Department of Revenue for payroll taxes and unemployment insurance. Visit their website at  or contact them at (800) 829-9188.

Registering for Worker’s Compensation Insurance

In South Dakota, businesses also need to secure workers’ compensation insurance..  If you use a  payroll service , they should also be able to provide worker’s comp.

Registering for Collecting Sales Tax

Businesses in South Dakota must register to collect sales tax. This can be done on the South Dakota Department of Revenue’s website: .

Registering for Income Tax

Since South Dakota does not have a state corporate income tax, there’s no need to register for it. However, federal income tax still applies, and businesses should comply with IRS requirements.

Registering to Pay Property Tax

If you need to pay property tax in South Dakota, contact the assessor’s office in your local county. For more information, refer to the South Dakota Department of Revenue’s website: .

Permits for Starting a Business in South Dakota

Do I Need a Business Permit to Operate a Business in  South Dakota?

At the State Level:  South Dakota does not have a general business license or permit requirement. However, depending on the nature of your business, you may need specific state licenses or permits. You can visit the South Dakota Department of Revenue’s website at  or call them at (800) 829-9188 to check if your business needs specific state licenses or permits.

Check With Your City:  While South Dakota doesn’t require a statewide business license, individual cities might have their licensing requirements. Check with the city clerk’s office or city business department where your business will be located to learn about local licensing. For example, the City Licensing Office in Sioux Falls can be reached at (605) 367-8082 or visit .

Check Federal Requirements.  Certain business activities require licenses or permits at the federal level. For example, businesses dealing with alcohol, tobacco, firearms, commercial fisheries, wildlife, etc., may require federal licenses. Check the U.S. Small Business Administration’s website at  for a comprehensive federal access and license guide.

Check With Your County:  In addition to state, city, and federal requirements, there may be county-level business permits or licenses. These vary by county, so it’s important to check with your specific county’s office. For example, in Minnehaha County, the Auditor’s Office at (605) 367-4220 can provide information about local requirements.

How do I learn about any special permits I need for my business?

Special licenses might be required depending on the type of business you’re operating. It’s crucial to conduct thorough research to ensure compliance with all regulations. Some resources include

Industry-specific associations or organizations:  Industry-specific groups often have resources to help businesses understand their regulatory requirements. Joining such groups can give you access to their resources and the opportunity to connect with other business owners in your field.

South Dakota Small Business Development Center (SBDC):  SBDCs assist small businesses and aspiring entrepreneurs throughout the United States and its territories. The South Dakota SBDC ( ) can guide the necessary licenses and permits.

Legal advice:  Consultation with a lawyer experienced in business regulations can be helpful. They can guide you through the regulatory landscape and help you understand any special permits your business might need.

Remember, failure to comply with licensing and permit requirements can result in fines, penalties, or even the closure of your business, so it’s crucial to ensure you’re covered.

Financing Options for Entrepreneurs in South Dakota

While it’s natural for entrepreneurs to first look to their personal assets and credit cards as initial funding sources, South Dakota offers a variety of other financing options. This range of alternatives ensures that entrepreneurs are independent of personal resources, allowing them to leverage external financing to grow their businesses sustainably.

Financing a New Business

Securing credible funding sources is crucial for the success and growth of any new business. South Dakota businesses can access diverse financing options, including grants, venture capitalists’ investments, and angel investors’ support. It’s important for entrepreneurs to diligently research each option to understand their potential benefits, costs, and risks. Finding the right funding mix can pave the way for a business to thrive and succeed.

SBA Loans and Microloans

The U.S. Small Business Administration (SBA) provides an array of loan programs designed to foster the growth of small businesses. One notable offering is their microloan program, which offers small, short-term loans to businesses needing immediate funding. These microloans can be a lifeline for businesses that need a quick infusion of capital to seize growth opportunities. You can learn more about these microloans by visiting the SBA’s website at .

SBA Microlenders in South Dakota

GROW South Dakota

Northeast South Dakota Economic Corporation

104 Ash Street East, Sisseton, SD 57262

Phone: (605) 698-7654


Dakota BUSINESS Finance

500 N. Western Ave., Suite 100, Sioux Falls, SD 57104

Phone: (605) 367-5353


First District Development Company

124 1st Ave. NW, Watertown, SD 57201

Phone: (605) 882-5115


Four Bands Community Fund

101 S. Main St., Eagle Butte, SD 57625

Phone: (605) 964-3687


These microlenders are trusted partners in the community and have a strong history of providing essential financial services to small businesses throughout South Dakota. Contacting these organizations directly for the most current information and opportunities is best.

State and Local Grants and Incentives

South Dakota offers various state and local grants and incentives to help small businesses establish and expand their operations. The South Dakota GOED (Governor’s Office of Economic Development) provides information about programs such as REDI (Revolving Economic Development & Initiative Fund), MicroLOAN South Dakota, and Proof of Concept Fund. Visit their website at  to learn more.

Angel Investor Groups

Angel investors provide capital for start-ups, often in exchange for convertible debt or ownership equity. These investors can be a valuable resource for new businesses in South Dakota for the monetary investment they provide and their knowledge, expertise, and networks which can prove instrumental in navigating the business landscape.

While finding angel investors can sometimes be challenging, resources like the Angel Capital Association’s directory can be a good starting point. They have a comprehensive listing of angel investor groups, which can be filtered by region. Another resource is AngelList, a website for start-ups, angel investors, and job-seekers looking to work at start-ups. While these resources are not specific to South Dakota, they can be used by South Dakota businesses to find potential angel investors both within and outside the state.

Remember, building a relationship with an angel investor is about more than just securing financing. Choose investors who bring relevant experience and networks to your business and can provide strategic guidance and capital.

Benefits of a Well-Structured Business Plan

In the thriving business environment of South Dakota, creating a well-structured business plan is more than just a formality; it’s a strategic blueprint for success. A business plan offers a clear vision for the future of the enterprise and provides a roadmap to achieve the objectives.

South Dakota, known for its robust agriculture, tourism, and manufacturing sectors, also boasts a growing presence in the tech and healthcare industries. A well-structured business plan can help new businesses navigate these industries by clearly outlining the business model, target market, competitive landscape, and strategies to penetrate the market. This document becomes a powerful tool in positioning your business strategically within South Dakota’s diverse economic landscape.

A comprehensive business plan also plays a critical role in securing funding. South Dakota’s local banks, investors, and even state-sponsored grant programs require a solid business plan as part of the application process. This document illustrates the business’s financial viability, revenue projections, and strategic growth plan, assuring potential investors of the soundness of the business model.

But how can South Dakota businesses ensure a well-executed business plan? The first step is market research. Understanding your market, including the competition, consumer behavior, and industry trends. This insight informs key components of the business plan, like marketing strategy, sales forecasts, and operational plans. Resources like the South Dakota Small Business Development Center can provide valuable assistance.

Another essential step is careful financial planning. Business owners must include a detailed financial projection, including revenue, costs, and profitability. Tools such as SCORE’s financial projections template can help create these projections.

Lastly, business owners should regularly review and update their business plans. As the business environment in South Dakota evolves, so too should your business plan. By staying flexible and responsive to changes in the market, your business plan remains a dynamic, relevant tool that drives the success of your South Dakota business.

Meeting Lender and Investor Expectations

Securing funding is a critical component of the startup journey, and meeting lender and investor expectations is fundamental to this process. Understanding these expectations and aligning your business strategies to meet them increases the likelihood of receiving the necessary funds and strengthens the overall business plan and strategy.

Lenders and investors typically evaluate a business on its financial viability, growth potential, and the strength of its management team.

They’re looking for businesses with a robust business model, solid financial projections, a well-researched market strategy, and a competent leadership team. To meet these expectations, entrepreneurs must present a well-structured business plan communicating their business model, revenue projections, and marketing strategies. Moreover, portraying a deep understanding of the industry, competition, and target customers enhances the credibility of the entrepreneur and trust in their capability to drive the business toward success.

The importance of meeting lender and investor expectations can’t be overstated. Beyond securing the necessary funding, it establishes trust and transparency between the business and its financial partners. This relationship could be instrumental in ensuring continued support in future business stages – from expansion, and product development, to potential exit strategies.

To meet these expectations, businesses must demonstrate sound financial management, show a realistic yet ambitious growth plan, and be open to feedback and guidance. Regular communication regarding business developments, challenges, and progress toward business goals also helps foster this relationship. By effectively managing this aspect, businesses can significantly increase their chances of gaining and maintaining the financial backing required to propel their growth trajectory.

Where Can I Find a Mentor to Help Me Succeed?

Finding a mentor with business acumen and rich experiences can make all the difference when establishing your business in South Dakota. South Dakota boasts a dynamic ecosystem of organizations and resources dedicated to nurturing its entrepreneurs. Here are a few valuable sources you should consider:

South Dakota SCORE:  Affiliated with the U.S. Small Business Administration (SBA), South Dakota SCORE provides free business mentoring, low-cost workshops, and a range of tools and resources to assist businesses at every growth stage

Phone: (605) 330-4243


South Dakota  SBDC:  Offering a range of services, including assistance with business plan creation and financial analysis, the South Dakota Small Business Development Centers (SBDC) is a vital resource for new and existing businesses.

Phone: (605) 275-7575


Elevate Rapid City:  Aimed at fostering business growth and innovation, Elevate Rapid City connects entrepreneurs with resources and programs tailored to inspire and equip.

Phone: (605) 343-1880


By utilizing these resources, entrepreneurs can acquire crucial insights and support to successfully navigate South Dakota’s vibrant business landscape.

The Economy of South Dakota

Scenic view of South Dakota showing business buildings on riverWhen initiating a business in South Dakota, it’s crucial to comprehend the state’s economy, as this understanding will drive your business decisions and strategies. Recognizing the average household income, the average level of education, and the consumer spending per capita can provide useful insights into your target market and potential customer base.

Economic Overview

Average Household Income

The median household income in South Dakota is about $83,175. For businesses, this can translate into the type and price point of the products or services that attract consumers in the state.

Average Level of Education

Education plays a significant role in the business one wishes to establish. In South Dakota, roughly 92.5% of the population aged 25 and over have completed high school, and about 30% hold a bachelor’s degree or higher. These figures suggest a relatively well-educated population, which might be interested in more sophisticated or specialized products and services.

Consumer Spending per Capita

Consumer spending per capita is another essential indicator of the economic health of a region. South Dakota’s consumer spending per capita is at approximately $42,000. Compared to other states, this figure shows a moderate but reliable consumer spending capacity, which can be attractive for businesses considering cost-effective products or services.

In conclusion, understanding the South Dakota economy’s nuances can help tailor your business model to meet local demands. This awareness can influence everything from product development to pricing strategy, ensuring your business is well-positioned for success in South Dakota’s unique economic landscape.

Top Industries in South Dakota:

South Dakota’s economy is diverse and dynamic, boasting a variety of top industries that drive the state’s economic health. At the forefront is the Agriculture industry, which is the state’s lifeblood. South Dakota ranks in the top 10 states for producing a range of crops and livestock. According to USDA data, South Dakota produced over $10 billion of agricultural products, with cattle and calves and corn for grain being the two most valuable.

In addition to agriculture, South Dakota’s Manufacturing industry also plays a significant role in its economy. The state has a growing manufacturing sector, particularly in food processing, machinery, and fabricated metal products. The South Dakota Department of Labor and Regulation estimated that manufacturing comprised about 6.5% of the state’s GDP.

Finance and insurance are key sectors, largely thanks to favorable business laws. Citibank, one of the world’s largest credit card issuers, relocated its primary credit card operations to South Dakota in the 1980s, contributing to a boom in the state’s finance sector.

Another industry contributing substantially to South Dakota’s economy is Tourism. The state’s rich history and scenic landscapes make it a popular tourist destination. Mount Rushmore alone draws more than 2 million visitors annually. The South Dakota Department of Tourism reported that tourism contributed $2.6 billion to the state economy.

In the future, South Dakota’s business industry is transitioning toward technology-based sectors. For example, the bioscience and healthcare sectors are experiencing considerable growth. The state government is actively promoting South Dakota as a location for technology and bioscience firms, with incentives for research and development. This initiative and South Dakota’s strong traditional industries make it an attractive destination for entrepreneurs and businesses. South Dakota’s diverse industry sectors provide a stable foundation for economic growth, paving the way for future business success in the region.

Network Your Way to Success When Starting a Business

Networking is a skill that most successful business owners have as one of their top talents. You can do it too! Networking is a great way to improve your success and grow your personal and business reputation. Here are a few ways to get started.

Identify Complementary Businesses:  Building relationships with businesses that offer complementary services or products can yield substantial benefits for any company. In South Dakota, for instance, a new restaurant might align with local farms for fresh produce or partner with a regional brewery for craft beers. Such collaborations can expand your market reach, enhance your product or service offering, and potentially lead to mutual referrals. They can also foster community and shared success, strengthening the local economy and enhancing your reputation among consumers.

Leverage Workforce Talent:  South Dakota’s diverse economy, encompassing sectors like agriculture, manufacturing, finance, and tourism, has cultivated a rich pool of skilled workers. By leveraging this local talent, businesses can capitalize on homegrown expertise, reduce training costs, and foster strong relationships with employees. Workforce development programs, like those offered by the South Dakota Department of Labor and Regulation, can also assist in connecting employers with trained workers, ensuring a more effective, productive, and sustainable workforce.

Collaborate with Industry Leaders:  Collaboration with industry leaders can provide knowledge, resources, and opportunities. For businesses in South Dakota, reaching out to established companies or industry associations in your sector can lead to valuable partnerships, joint ventures, or mentorship opportunities. This can be especially beneficial for emerging businesses, providing them with the insights and strategies that have driven the success of industry pioneers. Such collaborations can build credibility, expand networks, and foster a more competitive business landscape in the state.

Workforce and Talent

Understanding the workforce and talent demographics of a region like South Dakota is integral to business operations. It allows businesses to design effective hiring strategies, devise suitable training programs, and build a diverse and competent team. Aligning workforce strategies with the local talent pool can ensure companies leverage the most relevant skills and experiences, leading to better performance and growth.

Unemployment Rate

The unemployment rate in South Dakota is approximately 1.9%. This rate is important for business operations as it indicates the job market’s health. A lower unemployment rate means a more competitive job market, potentially resulting in a smaller pool of available talent and higher wages. However, it also suggests a strong economy, which can benefit business expansion.

Minimum Wage

In South Dakota, the minimum wage is currently $10.80 per hour. This figure is vital for businesses to consider while budgeting salaries and benefits. Paying at least the minimum wage is a legal requirement, and it’s crucial for maintaining employee satisfaction and morale.

Average Age and Demographics

Considering the average age and demographics, South Dakota has a median age of 36.8 years, with 49.7% of the population being female and 50.3% male. These demographics can influence the business environment, from the types of products or services in demand to the preferred marketing and communication channels. For example, businesses targeting specific age groups might adjust their marketing strategies and product lines accordingly.

Breakdown of People with Various Levels of Education

In terms of education, South Dakota residents aged 25 and above

  • Approximately 30% hold a bachelor’s degree or higher
  • About 92.5% are high school graduate
  • Roughly 8.9% do not have a high school diploma

These figures suggest a workforce with a broad range of skills and qualifications, which could provide businesses with diverse talents to meet various job requirements.

In conclusion, businesses in South Dakota need to consider the state’s workforce and demographic characteristics. This understanding can help them develop effective strategies tailored to the local workforce and market, increasing their prospects for success in the dynamic business landscape.

Top Areas of Skilled Workers for Residents of South Dakota

In South Dakota, the top areas of skilled workers span a range of industries, presenting diverse opportunities for businesses and entrepreneurs.

Healthcare is one such industry. With many skilled nursing, medicine, and allied health workers, it offers business opportunities in healthcare delivery, medical equipment, pharmaceuticals, and healthcare technology.

Education is another area with a high concentration of skilled workers. This sector offers opportunities in ed-tech, training and development companies, and educational consultancy.

The manufacturing sector, with skilled workers in machinery operation, quality control, and process management, offers business opportunities in supply chain management, manufacturing technology, and logistics.

The retail sector, employing many skilled salespeople, customer service representatives, and managers, presents opportunities in e-commerce, retail technology, and customer experience management.

Finally, the information technology (IT) sector, with many skilled software developers, network administrators, and data analysts, provides opportunities for tech startups, software development, IT consultancy, and data analytics firms.

By understanding the top areas of skilled workers, businesses can better identify potential growth areas and adapt their services or products to cater to these specific sectors. This strategy can lead to greater success and sustainability in the South Dakota business environment.

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