This month, we continue our blog series with a contrast of a couple of Upper Plain states – North Dakota and South Dakota – specifically their treatment of technology items for sales tax purposes.

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Software as a Service (SaaS) in North Dakota vs. SaaS in South Dakota

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, these  states differ regarding their treatment of sales tax.

Cloud Computing Services are exempt in North Dakota.

Cloud computing and other subscription-based access services are  exempt from sales tax, as long as the software is not transferred to the customer.

SaaS is taxable in South Dakota.

South Dakota treats SaaS as a taxable service. Charges for accessing or using software via the cloud or internet are subject to the state’s sales tax, regardless of whether the software is downloaded or simply accessed remotely.  Check out our SaaS map here for more information about the taxability of SaaS in South Dakota: https://milesconsultinggroup.com/saas-sales-tax-by-state/south-dakota/

Other Software in North Dakota vs. Software in South Dakota

North Dakota does impose sales and use tax on prewritten computer software sold electronically. Sales tax applies to prewritten software (sometimes called “canned” software), regardless of how it is delivered—physically (on disk/CD, etc.), electronically (downloaded), or via load and leave. This means that buying off-the-shelf or standard software for installation or electronic download is subject to North Dakota sales tax. Prewritten software is considered tangible personal property for sales tax purposes.

The sale of custom computer software delivered electronically is not subject to tax in North Dakota.

When software is purchased with equipment, it is exempt only if charges for custom software are separately stated.

South Dakota considers digital products, including software downloaded over the internet or transferred electronically, as taxable tangible personal property. Sales tax must be collected on these sales at the state rate of 4.2%, plus applicable local sales tax, which can bring the total rate up to about 7.5% depending on the location of the buyer. This applies to both business and consumer purchases.

The sale of custom computer software delivered electronically is not subject to tax in South Dakota.

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In North Dakota, digital products are exempt. The state exempts most digital goods from sales tax, including e-books, music, streaming video, and other electronically delivered products.

In South Dakota, digital products are taxable. South Dakota taxes digital products such as e-books, music, streaming services, and software delivered electronically. These are treated similarly to tangible personal property for sales tax purposes.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how North Dakota and South Dakota shake out.

North Dakota does not have any sales tax holidays.

South Dakota does not have any sales tax holidays.

For more information on sales tax holidays, click here. (https://taxadmin.org/sales-tax-holidays/)

Economy

North Dakota’s earliest industries were fur trading and agriculture. Although less than 10% of the population is employed in the agricultural sector, it remains a major part of the state’s economy. With industrial-scale farming, it ranks 9th in the nation in the value of crops and 18th in total value of agricultural products sold. Large farms generate the most crops. North Dakota has about 90% of its land area in farms with 27,500,000 acres of cropland, the third-largest amount in the nation.

The state is the largest producer in the U.S. of many cereal grains, including barley, durum wheat, hard red spring wheat, oats, and combined wheat of all types. The state is the second leading producer of buckwheat. As of 2007, corn became the state’s largest crop produced, although it is only 2% of total U.S. production. North Dakota is the second leading producer of sugarbeets, which are grown mostly in the Red River Valley. The state is also the largest producer of honey, dry edible peas and beans, lentils, and the third-largest producer of potatoes.

The energy industry is also a major contributor to the economy. North Dakota has both coal and oil reserves. Shale gas is also produced. Lignite coal reserves in Western North Dakota are used to generate about 90% of the electricity consumed, and electricity is also exported to nearby states. North Dakota has the second largest lignite coal production in the U.S. However, lignite is the lowest grade of coal.

North Dakota is considered the least visited state in the country because it does not have a major tourist attraction. Nonetheless, tourism is North Dakota’s third largest industry, contributing more than $3 billion to the state’s economy annually. Outdoor attractions like the 144-mile Mah Daah Hey Trail and activities like fishing and hunting attract visitors. The state is known for the Lewis & Clark Trail and being the winter camp of the Corps of Discovery. Areas popular with visitors include Theodore Roosevelt National Park in the western part of the state. The park often exceeds 47,000 visitors each year.

The service industry is the largest economic contributor in South Dakota. This sector includes the retail, finance, and health care industries. Citibank, which was the largest holding company in the United States at one time, established national banking operations in South Dakota in 1981 in order to take advantage of favorable banking regulations. Ellsworth Air Force Base is the second largest single employer in the state.

Agriculture has historically been a key component of the South Dakota economy. Although other industries have expanded in recent decades, agricultural production is still very important to the state’s economy, especially in rural areas. The five most valuable agricultural products include cattle, corn, soybeans, wheat and hogs. Agriculture related-industries include meat packing and ethanol production which, also have a considerable economic impact on the state. South Dakota is the sixth leading ethanol-producing state in the nation.

North Dakota Fun Facts:

  • North Dakota is the leading producer of sunflowers in the United States.
  • The state produces enough soybeans to make 483 billion crayons each year.
  • The world’s largest French Fry Feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of French fries were served.
  • Explorers William Clark and Meriweather Lewis and the Corps of Discovery spent more time in what is now North Dakota than any other place on their journey.
  • North Dakota is home to more wildlife refuges than any other state. Wildlife viewing and birding opportunities are abundant.
  • The world’s largest buffalo monument stands tall on the hill in Jamestown, ND. This 26-foot-tall, 60 ton concrete giant has been standing watch over Jamestown since 1959.

South Dakota Fun Facts:

  • It is the 17th largest state in the Union.
  • Eastern South Dakota has many natural lakes, mostly created by periods of glaciation.
  • In North America, the continental pole of inaccessibility is in Southwest South Dakota, about 7 miles north of the town of Allen.
  • The Mammoth Site near Hot Springs is a privately owned attraction in the Black Hills. A working paleontological dig, the site has one of the world’s largest concentrations of mammoth remains.
  • Billy Mills, from the town of Pine Ridge, competed at the 1964 Summer Olympic Games in Tokyo, becoming the only American to ever win a gold medal in the 10,000-meter event for running.

We invite you to further explore North Dakota and South Dakota in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in North Dakota, South Dakota, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

Focus on North Dakota – Multi State Tax Solutions | Miles Consulting Group

Focus on South Dakota – Multi State Tax Solutions | Miles Consulting Group