Farm Use Tax 101

With harvest getting started in South Dakota, some farmers do not realize use tax may be due when they buy products or services without paying South Dakota sales or excise tax.

What is Use Tax?

A purchaser owes use tax on the use of products and services in South Dakota when sales or excise tax is not paid. Unless specifically exempt by law, all products and services, including farm machinery, attachment units and irrigation equipment, used in South Dakota is subject to either sales or excise tax. For example, if a farmer buys a tractor from a dealer in a state that does not tax tractors, use tax is due. This link lists some items that are tax exempt for farmers.

What is the tax rate?

Farm machinery, attachment units, and irrigation equipment used exclusively for agricultural purposes are subject to:

  • 4.5% state tax

Farm machinery, attachment units, or irrigation equipment that is NOT used exclusively for agricultural purposes are subject to:

  • 4.5% state tax; and
  • Municipal sales or use tax

Tools and shop supplies are subject to:

  • 4.5% state tax; and
  • Municipal sales or use tax

Municipal tax applies if the item is delivered to you inside a city that imposes a sales or use tax.

What if I trade-in equipment?

Use tax is due on the trade difference. For example, if the purchase price of a new tractor is $325,000 and you receive $155,000 credit for your used tractor, use tax is due on $170,000 ($325,000 – $155,000 = $170,000). Make sure you pay close attention to your receipts to make sure sales tax was not included on the credited amount.

What if I buy a piece of equipment from another farmer?

If you buy equipment from a person who does not sell equipment on a regular basis and the equipment was not sold at an auction, you do not owe use tax on the purchase. This is called an occasional sale and is exempt from sales or use tax.

When and how do I pay use tax?

Use tax is due when the product is delivered to you in South Dakota. Complete and mail this form along with your payment to the address listed on the form.

If you are questioning if you owe tax on a purchase, consult with your local tax preparer.

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