South Dakota Sales Tax Nonpayment Risk Checklist
Introduction
South Dakota requires businesses and specific individuals to collect and remit sales tax on taxable transactions. The South Dakota Department of Revenue may take collection action when sales tax or use tax remains unpaid.
Unpaid South Dakota sales tax debt can result in penalties, interest charges, and escalating enforcement actions. Ignoring nonpayment notices or failing to address unpaid amounts can lead to more serious consequences, including liens, wage garnishment, or bank levies.
What This Issue Means
Sales tax nonpayment occurs when a business or individual fails to remit collected sales tax or owes sales tax to South Dakota. Use tax obligations may also contribute to outstanding debt when businesses purchase items for their own use without paying sales and use tax. The state treats this as an outstanding tax debt that must be resolved through payment, a South Dakota
Department of Revenue payment plan, or formal dispute procedures.
Why the State Issued This or Requires This
If the state identifies that sales tax has not been paid, it initiates tax collection processes to recover the debt. Nonpayment may be discovered through filed returns showing balances due, audits that result in additional assessments, or third-party reporting. Collecting outstanding amounts and ensuring compliance with filing requirements and payment obligations going forward remain the administrative goals.
What Happens If This Is Ignored
Unpaid sales tax debt does not resolve on its own. Penalties and interest continue to accrue on the outstanding balance. Collection actions may escalate to include notices of intent to file a lien, actual liens against business or personal property, wage garnishment orders, or bank account levies. Debt that remains unresolved grows larger over time as additional penalties and interest accumulate.
What This Does NOT Mean
This issue does not automatically mean criminal charges are being filed or that a criminal investigation is underway. Nonpayment is generally treated as a civil tax collection matter, not a criminal one, unless fraud is involved.
Checklist: What to Do After Identifying Unpaid Sales Tax
Follow these steps in order. Completing each step creates a record of your actions and helps clarify your situation.
Step One: Gather All Notices and Documentation
Locate any notices you have received from the South Dakota Department of Revenue about sales tax or use tax. Collect all sales tax returns you have filed, including those marked as incomplete or showing a balance due. Gather any correspondence, emails, or phone messages from the state about this debt. Note the dates you received each notice and any deadlines mentioned in them.
Step Two: Identify the Exact Amount Owed
Review the most recent notice or statement from the state showing the amount due. Check whether the amount includes the original tax debt, penalties, and interest.
Contact the South Dakota Department of Revenue at (605) 773-3311 if the amount is unclear or
if you believe there is an error in the calculation. Request written clarification of the total amount owed, including a breakdown of tax, penalties, and interest.
Step Three: Determine If You Have a Payment Deadline or Notice of Lien
Review your most recent notice to see if it includes a specific payment deadline. Check whether the notice mentions that a lien will be filed if payment is not made by a particular date.
Under SDCL 10-59-11, the Department may file a notice of tax lien with the register of deeds.
Mark any stated deadline clearly and note how many days remain until it.
Step Four: Verify Your Current Filing Status and Tax License
Determine whether your sales tax account and tax license are currently active or if filings are up to date. Check the South Dakota Department of Revenue website or contact them to confirm whether you have any unfiled returns.
Gather the sales records and transaction information for those periods for which returns are unfiled. Verify that your tax license remains valid and that you have submitted any required exemption certificate documentation for exempt transactions.
Step Five: Review Your Payment Options
The state offers payment options for resolving unpaid sales tax debt
- Full payment: This option requires paying the entire amount owed in one lump sum.
- Installment payment plan: This option involves making monthly or periodic payments
to the state over time.
- Offer in Compromise: This option allows you to submit a proposal to settle the debt for
less than the full amount owed if you can demonstrate financial hardship.
- Dispute or abatement: This option involves filing a formal appeal or request if you
believe the assessment is incorrect or if penalties should be reduced under SDCL
10-59-28.
Request written information about each option from the Department of Revenue. Ask about eligibility, any requirements, setup fees, and applicable interest rates.
Step Six: Contact the South Dakota Department of Revenue
Call (605) 773-3311 during business hours to reach the Department of Revenue. Explain that you have unpaid sales tax and want to understand your options. Provide the amount owed and the time period it covers, including any use tax liabilities, if known. Ask whether a payment plan is available and what the process is to apply.
Step Seven: Continue Filing Sales Tax Returns On Time
Confirm with the state which filing requirements apply to your business based on your tax license type. Mark filing due dates on your calendar and file complete returns even while paying down a past debt.
Businesses participating in the Streamlined Sales Tax program must continue to meet their filing obligations to maintain compliance. Failure to file current returns or pay current tax on time may jeopardize a payment plan or result in additional collection action.
Understanding Collection Timelines and Abatement
South Dakota has a three-year statute of limitations for assessment and collection of sales tax and use tax from the later of the return due date or filing date. However, there is no statute of limitations during any period when the taxpayer was unlicensed, filed a fraudulent return, failed to file, or for the three years preceding the date of mailing a notice of intent to audit. If taxable sales are misreported by more than 20 percent, the period extends to five years.
Penalties may be reduced or abated if the Secretary of Revenue determines such reduction or abatement is just and equitable under SDCL 10-59-28. Interest may also be reduced or abated under the same statutory authority, though interest abatement is discretionary and granted less frequently than penalty abatement. States participating in Streamlined Sales Tax agreements may offer additional relief options for certain taxpayers who have made reasonable faith efforts to comply with tax collection requirements.
Common Mistakes to Avoid
Do not overlook payment deadlines stated in notices. Ignoring a deadline may result in immediate collection action without further opportunity to negotiate. Submit complete and accurate financial information and documentation if the state requests them for a payment plan.
Continue filing current sales tax returns and paying current amounts due while resolving past debt. Maintain proper exemption certificate records for all exempt sales to avoid additional assessments during future audits.
Frequently Asked Questions
Can sales tax debt be discharged in bankruptcy?
Sales taxes are excise taxes and may be dischargeable in bankruptcy if specific time requirements are met. They are not automatically classified as non-dischargeable priority debts.
Unlike trust fund taxes, sales tax debts can be discharged if they meet the bankruptcy code’s dischargeability requirements. Consult with a bankruptcy attorney if you are considering bankruptcy.
Can penalties and interest be removed or reduced?
Penalties and interest may be reduced or abated if the Secretary of Revenue determines such reduction or abatement is just and equitable or that the department has been inadvertently misinformed. You may request a penalty and interest abatement in writing, but approval depends on the facts of your situation.
Will unpaid sales tax affect my ability to get or renew a business license?
South Dakota law allows the state to deny or revoke business licenses for unpaid taxes. Your tax license status may be suspended or revoked if you fail to resolve outstanding sales and use tax obligations. Contact the state to understand how this applies to your specific license type.
What is the difference between an Offer in Compromise and a payment plan?
An Offer in Compromise allows you to settle your debt for less than the full amount if you can demonstrate financial hardship or inability to pay. A payment plan requires you to pay the full amount owed in monthly installments.
Do I need to keep exemption certificates for tax-exempt sales?
Yes, you must maintain valid exemption certificate documentation for all sales claimed as exempt. During audits, the state will request these certificates to verify that exempt sales were documented correctly. Failure to provide an exemption certificate may result in the state assessing sales tax on those transactions.
Closing
Unpaid sales tax is a solemn obligation, but it can be resolved through payment, a payment plan, or formal appeal procedures. Contact the South Dakota Department of Revenue early rather than waiting for enforcement action. Providing accurate information, meeting deadlines, and maintaining communication with the state are the foundations of resolving this issue.
Facing State Tax Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.
We help with
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
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