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Editorial 7 MIN READ

South Dakota in April 2025: the quiet state that keeps showing up

A $50 annual report, no state income tax, and a trust regime that rewrote the map

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. The mechanics
  2. What the total cost of ownership actually looks like
  3. The trust situs question
  4. Nexus and the Wayfair footnote
  5. South Dakota versus Delaware, in dollars
  6. Who this state actually makes sense for
  7. Sources

South Dakota LLC costs $150 to form and $50 a year to keep. There is no state income tax, no franchise tax on operating companies, and no rule against perpetuities for trust assets parked in the state. Those four facts do most of the work.

This is a guide for someone forming in April 2025, or evaluating whether to move a trust or holding entity here, written for readers who already know why South Dakota keeps coming up and want the actual numbers.

The mechanics

You form an LLC by filing Articles of Organization with the Secretary of State. Online filing is $150; paper is $165. The form is short: entity name, registered-office address in South Dakota, name and address of the registered agent, duration, management structure. The Secretary of State turns online filings around in one business day in most cases.

The authorizing statute is the South Dakota Uniform Limited Liability Company Act, codified at SDCL Title 47, Chapter 34A. The annual report obligation for LLCs sits at SDCL § 47-34A-809 and requires every domestic and foreign LLC on the rolls to file a report and pay the associated fee by the first day of the entity's anniversary month. Miss that window and the state assesses a $50 late fee; leave the report unfiled long enough and administrative dissolution follows.

Corporations work similarly. The domestic corporation annual report rule is SDCL § 47-1A-1620; the foreign corporation version is SDCL § 47-1A-1621. The fee is $50 online for corporations as well. The anniversary-month timing means filings are spread across the calendar rather than stacked on a single statewide deadline, which keeps the Secretary of State's office from drowning in paper in any one month.

What the total cost of ownership actually looks like

The number that matters most for ongoing cost of ownership is the annual report. South Dakota charges $50 online. Compare that to Delaware's $300 LLC tax, California's $800 franchise minimum, or Massachusetts's $500 annual report, and the gap is visible in year one and compounds over a decade.

Year one in South Dakota is $150 for formation plus $50 for the first annual report in the anniversary month, so roughly $200. Year two and after is the $50 annual report and the registered-agent fee (usually $50 to $150 depending on the provider). A South Dakota LLC held for ten years costs, in state fees alone, roughly $600. A Delaware LLC held for the same period costs $90 plus ten $300 taxes, or $3,090, and that is before registered-agent markup.

There is no state-level corporate income tax. South Dakota is one of a small handful of states that imposes neither a personal income tax nor a general corporate income tax. There is no franchise tax on operating corporations. The sales-tax regime exists and is consequential for retailers, but for a holding company, a consulting LLC, or a passive real-estate vehicle with no South Dakota operations, the income-tax zero is the headline.

The one carve-out is financial institutions. South Dakota imposes a Bank Franchise Tax under SDCL Chapter 10-43, with a minimum payment of $1,500 per year for institutions that meet the threshold for doing business as a financial institution in the state. If your entity is a chartered bank, a trust company, or a qualifying financial services business, you are inside that regime and the zero-tax headline does not apply to you. For ordinary LLCs and operating corporations, it is irrelevant.

The trust situs question

South Dakota's most distinctive move was the abolition of its common-law rule against perpetuities, codified at SDCL § 43-5-8. The statute permits trusts to hold assets in trust indefinitely, which is the structural precondition for what practitioners call a dynasty trust: a vehicle that holds wealth across generations without being forced to terminate and distribute, and therefore without the transfer-tax events distribution would trigger. Delaware, Nevada, and Alaska have broadly comparable regimes, but South Dakota's combination of no state income tax on trust income, permissive directed-trust statutes, and strong privacy protections around trust filings has made it the preferred situs for a meaningful share of large family trusts formed in the last decade.

If you are forming a South Dakota LLC that will serve as a holding vehicle under a South Dakota dynasty trust, the formation itself is unremarkable; the work happens at the trust layer with trust counsel. If you are forming a South Dakota LLC for ordinary operating reasons and are curious about the trust story, the answer is: the trust advantages accrue to the trust, not the LLC, and the LLC on its own gets you cost savings and income-tax neutrality, not perpetual dynastic insulation.

Nexus and the Wayfair footnote

South Dakota is the state that produced the Supreme Court's 2018 remote-seller decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), which rewrote the nexus rules for state sales tax. The statutory vehicle was SDCL Chapter 10-64, which sets the state's economic-nexus thresholds: a remote seller becomes liable to collect and remit South Dakota sales tax once its gross revenue from sales into the state exceeds $100,000 in the current or prior calendar year, or once it has 200 or more separate transactions into the state.

For a South Dakota-formed entity with no in-state operations and no in-state sales, this is almost entirely moot. For a South Dakota LLC that actually sells goods into the state, it is the governing rule. The $100,000 revenue threshold is low enough that it catches more small sellers than founders expect, and the 200-transaction prong catches low-ticket high-volume merchants even when revenue is modest. If you are a seller with any meaningful South Dakota presence, treat SDCL Chapter 10-64 as the first place to look.

Worth flagging: in 2023 the South Dakota legislature removed the 200-transaction prong going forward, leaving the $100,000 revenue threshold as the sole economic-nexus trigger. This mirrors changes other states have made since Wayfair and reflects the consensus that the transaction-count test swept in too many truly small sellers.

South Dakota versus Delaware, in dollars

The direct comparison most founders actually run is South Dakota versus Delaware. Delaware charges $90 to form an LLC and $300 a year to keep it, per the Division of Corporations fee schedule. South Dakota charges $150 to form online and $50 a year. Formation is $60 more expensive in South Dakota; maintenance is $250 cheaper every year. The break-even arrives before the first annual tax is due.

Over ten years, you save roughly $2,400 in state fees by forming in South Dakota instead of Delaware. That is real money for a solo consultant; it is a rounding error for a venture-backed company whose investors are going to insist on Delaware anyway. The arithmetic favors South Dakota; the non-arithmetic factors (Court of Chancery case law, investor familiarity, conversion friction) favor Delaware for anything headed toward institutional capital.

For a family holding entity, a real-estate LLC, a consulting vehicle, or a trust-related special purpose entity, South Dakota is the cheaper home. For anything with a cap table you expect to grow, Delaware's premium is worth paying and you should pay it from day one.

Who this state actually makes sense for

Four kinds of entities belong in South Dakota in 2025.

The first is any LLC that will hold assets under a South Dakota dynasty trust. You are already here for the trust law; the LLC follows.

The second is a holding company with no operations in any particular state. If the entity will own passive investments, intellectual property, or subsidiaries, and will not create nexus anywhere by its own activity, South Dakota's zero income tax and low annual fee outperform almost every other option.

The third is a closely held family business whose owners value low ongoing cost and simple compliance over brand recognition. The $50 annual fee and the anniversary-month filing cadence are easy to keep on top of for people running a business by hand.

The fourth is a financial services business that is not a bank. If your entity does not cross the SDCL Chapter 10-43 threshold, you get the zero-tax regime; if it does, you are paying at least $1,500 a year and the math changes.

The rest of the market, operating businesses with a physical presence in another state, venture-backed companies, anything heading toward an exit, generally forms elsewhere and should.

If you are forming this quarter and the business fits one of the four profiles above, file in South Dakota this week. The mechanics are straightforward, the fee is small, and the statutory spine at SDCL Title 47 is a Uniform-Act derivative that will read familiarly to any lawyer who has worked with another ULLCA state.

Sources

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