South Dakota's Alcohol Sales Tax: Higher Rates?

Alcohol taxes in the United States are subject to frequent changes and vary from state to state. In South Dakota, the sales tax on alcohol is influenced by various factors, including the type of alcohol, the place of purchase, and local regulations. The state imposes specific requirements for businesses involved in the alcohol industry, including manufacturers, retailers, and shippers, who must navigate a complex tax landscape. Understanding the tax obligations and staying compliant is essential for those operating in this sector within the state.

Municipal sales tax

South Dakota's sales tax and use tax rates are 4.2%, although rates can vary from 4.5% to 6.5% depending on the location. The state's municipalities may impose a municipal sales tax, use tax, and gross receipts tax. The South Dakota Department of Revenue administers these taxes.

Municipalities may impose a general municipal sales tax rate of up to 2%. They may also impose a 1% municipal gross receipts tax (MGRT) in addition to the municipal sales tax. The municipal gross receipts tax can be imposed on alcoholic beverages, eating establishments, lodging accommodations, admissions to places of amusement, athletic, and cultural events.

Municipalities may impose or amend a municipal tax only on January 1st or July 1st. State and municipal taxes may be due on purchases made online.

Excise tax

When it comes to alcohol, the price of alcoholic beverages in South Dakota includes federal alcohol excise taxes, which are typically passed on to the consumer. These excise taxes are collected by the Alcohol and Tobacco Tax and Trade Bureau from the brewer or distiller. The tax rates vary depending on the type of alcohol, with distilled spirits facing higher tax rates due to their higher alcohol content.

The state of Washington levies the highest excise tax rate on distilled spirits at $36.55 per gallon, while states like Oregon, Virginia, Alabama, and North Carolina also have relatively high excise tax rates. On the other hand, states like Wyoming and New Hampshire have lower excise tax rates on distilled spirits.

In South Dakota, licensed alcohol shippers are required to register for sales tax, and alcohol taxes are also applied to direct-to-consumer shipments. These shipments may be subject to "markup" taxes, where the retail value of the alcohol is multiplied by a percentage rate, and traditional "gallonage"-based excise taxes. However, these excise taxes are usually factored into the price of the item and not explicitly passed on to the consumer.

Additionally, South Dakota municipalities may impose a municipal sales tax of up to 2% and a 1% municipal gross receipts tax (MGRT) on alcoholic beverages, which is administered by the South Dakota Department of Revenue.

Federal alcohol excise tax

In South Dakota, the price of alcohol includes these federal excise taxes. The state also collects its own taxes on alcohol, with a 4.2% state sales tax applying to all shipments into the state. Additionally, there is a municipal sales tax and a municipal gross receipts tax for shipments within a municipality. Wineries shipping wine into South Dakota are required to collect sales tax based on the customer's shipping address, and both the product cost and shipping charges are subject to tax.

The federal government imposes different tax rates for various categories of alcohol, making the tax non-neutral. Distilled spirits, for example, are taxed at a higher rate than beer, even when both beverages contain the same amount of alcohol. Spirits can be taxed at more than double the rate of beer and more than triple the rate of wine. This discrepancy is due to the preferential tax treatment given to certain production processes or raw ingredients, which can incentivize producers to focus on subsidies rather than creating new and better products.

There are some tax discounts and reduced tax rates available for specific situations. For instance, small brewers may qualify for tax discounts, and certain tax credits may be available for those who meet criteria related to production, processing, or foreign assignments. Additionally, tax rates may be influenced by group arrangements, such as controlled groups or Single Taxpayer arrangements.

Wholesale tax

South Dakota has various taxes on alcohol, including federal alcohol excise taxes, which are collected from the brewer/distiller and generally passed on to the consumer. The state also imposes a 4.2% sales tax on all wine shipments into the state, with municipal sales tax and municipal gross receipts tax applying to shipments within a municipality. Municipal gross receipts tax can be imposed on alcoholic beverages, eating establishments, lodging accommodations, and admissions to places of amusement, athletic, and cultural events.

In addition to the sales tax, South Dakota has taxes specific to the alcohol industry, such as wholesale taxes, bottle fees, and distributor license fees. These taxes are separate from the general sales tax and are levied on businesses operating in the alcohol industry.

The wholesale tax rate for alcohol in South Dakota is not readily available. However, it is important to note that tax rates, rules, and regulations change frequently. Therefore, it is advisable to refer to the South Dakota Department of Revenue or official legal sources for the most up-to-date information on specific tax rates, including wholesale tax rates for alcohol.

To comply with South Dakota's alcohol tax regulations, wineries shipping wine directly to consumers in the state must collect sales tax based on the customer's shipping address. Both the product cost and shipping charges are subject to the 4.2% state sales tax. Additionally, wineries are required to report their sales quarterly through the South Dakota Department of Revenue's online portal and register their products for wholesale distribution and direct-to-consumer sales.

Retail and distributor license fees

The state of South Dakota has various licenses for the distribution and sale of alcohol. These licenses are issued by the city or county where the event is held. The type of license required depends on the type of alcohol being sold, the location of sale, and the intended use.

Retail Licenses

Retail licenses are required for the sale of alcoholic beverages to customers for consumption on or off the licensed premises. The fees for these licenses vary depending on the type of alcohol being sold and the location.

• Retail (on-sale) Liquor License (RL): Required for any alcoholic beverages, including beer, wine, and spirits, for consumption on the licensed premises. The fee for this license is $1,500, renewable annually on January 1.
• Package (off-sale) Liquor License (PL): Required for any alcoholic beverages sold by the package for consumption off the licensed premises. The fee for this license is $500, renewable annually on January 1.
• Convention Center (on-sale) Liquor License (CL): Held by businesses such as hotels or motels with convention facilities serving alcoholic beverages. The fee for this license is $1,500, renewable annually on January 1.
• Retail (on-sale) Liquor License – Restaurant (RR): Allows restaurants to sell on-sale liquor in the bar and dining room. At least 60% of the restaurant's gross revenue must come from the sale of food and non-alcoholic beverages. The fee for this license is $1,500, renewable annually on January 1.
• Retail (on-off sale) Malt Beverage & SD Farm Wine License (RB): Required to sell malt beverages or wine produced by a South Dakota farm winery for consumption on or off the licensed premises. The fee for this license is $300.

Distributor Licenses

Distributor licenses are required for the distribution of alcoholic beverages to retailers. The fees for these licenses vary depending on the type of alcohol being distributed.

• Liquor Wholesalers License: Required for anyone selling wine, spirits, and malt beverages to retailers. The fee for this license is $5,000, along with a $50,000 surety bond.
• Malt Beverage Wholesaler License: Required for wholesalers who only sell malt beverages to retailers. The fee for this license is $400.
• Manufacturer's Licenses: These are separate licenses required for businesses manufacturing spirits, cider, malt beverages, or wine. The fees for these licenses vary and are payable to the Department of Revenue. For example, the annual distillers' license fee is $2,500, while the annual farm winery license fee is $500.
• Carrier License: Required for any business or person transporting individuals and wishing to sell or furnish alcohol. The fee for this license is $100.
• Special Alcoholic Beverage License: Counties may issue this license for hunting preserves to sell alcoholic beverages during the shooting preserve season from September 1 to March 31. The annual fee for this license is $500.

Frequently asked questions