South Dakota is one of the most business-friendly states in the country. Being an entrepreneur or small business owner in South Dakota is difficult to surpass, and for good reason. In such an affordable location to conduct business, you’ll find reasonable regulations, a balanced budget, and minimal taxes that make it easier for your business to achieve its full potential. With one of the best business tax climates in the country, operating in South Dakota allows you to reinvest in the continuing growth of your company.
Here are a few small business statistics from the Mount Rushmore State.
Quick South Dakota Small Business Statistics for Entrepreneurs
- Approximately 99% of all enterprises in South Dakota are small businesses.
- Small businesses employ 58.5% of the state’s entire workforce.
- Racial minorities make up 10.3% of workers and own 2.8% of businesses.
- Close to 5.5% of small businesses in South Dakota are veteran owned.
- In 2019, small businesses exported goods worth $420 million.
- The per capita disposable income in South Dakota is $52,216.
- Between March 2019 and March 2020, 2,942 South Dakota businesses opened and 2,598 closed, for a net gain of 344.
- The per capita consumption expenditure in South Dakota is $44,149.
- In their 2021 “Top States for Business” report, CNBC ranks South Dakota 29th out of 50 states.
- Opening and expanding South Dakota enterprises created 31,151 jobs between March 2019 and March 2020, while closing and contracting establishments lost 29,869 employees, for a net increase of 1,282 jobs.
South Dakota Small Business Statistics
1. What is considered a small business in South Dakota?
Depending on the Small Business Administration (SBA), a small business could be defined as one with fewer than 250 employees or one with fewer than 1,500 employees. They are privately held corporations, partnerships, or sole proprietorships with lower revenue than larger corporations. In general, the revenue cap for a small business is $7.5 million. There are currently 89,942 small businesses in South Dakota that represent 99% of all businesses in the state.
South Dakota accounted for 10,972 of all new business applications submitted nationwide (about 5.8 million) from January 2021 to January 2022, ranking fourth among states. Adjusting for population, South Dakota had 1,240 applications per 100,000 residents, which was lower than the national average and ranked 13th among states.
When starting a business, you should consider hiring an LLC (limited liability company) formation service. They will handle the paperwork on your behalf, giving you more time to focus on business matters. To learn more, check out my review of the best LLC Services in South Dakota.
2. How many people are employed by small businesses in South Dakota?
There are 210,301 South Dakotans currently working for small businesses. They account for 58.5% of all employees in the state. South Dakota’s minimum wage rose to $9.45 per hour on January 1, 2021, up from $9.30 the previous year. This amount is $2.20 more than the federal minimum wage. Most South Dakota employees are subject to the minimum wage, although there are notable exceptions.
Employers can claim a “tip credit” of up to 50% of the state minimum wage of $9.45 per hour, which means they must pay tipped employees at least $4.72 per hour. Employers must make up the difference if tipped employees do not earn enough in tips to earn at least the state minimum wage.
Employees under the age of 20 are entitled to a training minimum wage of $4.25 per hour for the first 90 days of employment in South Dakota.
3. South Dakota small business statistics by industry
Retail trade is the largest industry in the state in terms of small business investment, with a total of 11,080 firms invested in it. Approximately 8,505 of these firms are nonemployer businesses, 2,231 have 1–19 employees, and 344 have 20–499 employees.
The management of companies and enterprises industry is the smallest in the state, with only 84 firms invested in it.
4. South Dakota small business ownership by ethnicity
South Dakota has a population of 895,376 residents and an annual population growth rate of 0.8% over the five years to 2019, ranking 16th out of the 50 states. White/Caucasian Americans are the major ethnic group, representing 84.6% of the population. They are followed by American Indians and Alaska Natives (9%), Hispanic/Latino Americans (4.2%), Black/African Americans (2.3%), Asian Americans (1.5%), and Native Hawaiians and Other Pacific Islanders (0.1%).
Below is a numeric representation of how small business ownership is distributed among these groups:
- White/Caucasian — 82,936
- Hispanic — 3,524
- Asian — 847
- American Indian and Alaska Native — 777
- Black/African American — 550
- Native Hawaiian and other Pacific Islander — 30
5. South Dakota small business ownership by gender
Women own approximately 28,694 small businesses in South Dakota. Approximately 25,500 of them are nonemployer businesses, while 3,194 have employees. Men own 48,302 small businesses, 37,000 of which are nonemployer businesses, and another 11,302 have employees on payroll.
There are 8,161 small businesses owned equally by both men and women.
6. Business taxes in South Dakota
Most LLCs are considered pass-through tax entities when it comes to income taxes. In other words, the burden for paying federal income taxes is passed through the LLC to the individual LLC members.
South Dakota is one of just a few states that does not levy a personal or corporate income tax. As a result, most LLCs, including those that are taxed as corporations, owe no state income taxes. Furthermore, because South Dakota does not have a personal income tax, LLC members will normally owe no state tax on income earned from a South Dakota LLC.
It is critical to file your taxes on time if you want to keep a good reputation with the Secretary of State. Failure to file your taxes on time can result in severe penalties, including the suspension of your operating license. You may, however, reduce this risk by using a registered agent service.
They not only send you regular reminders about upcoming deadlines, but they also help you with the tax filing process. To learn more, read my comprehensive analysis of the best registered agents in South Dakota.
7. How COVID-19 affected small businesses in South Dakota
South Dakota has the 14th highest economic exposure to COVID-19 of any state in the US, based on the percentage of employees working in industries with a high or medium-high level of exposure to COVID-19.
In South Dakota, 54% of all employees, or 281,436 people, work in industries with a high or medium-high level of economic exposure to COVID-19. Also, 17% of all employees, or 89,228 people, work in industries with a low or medium-low level of economic exposure to COVID-19.
8. Small business financing in South Dakota
The Community Reinvestment Act (CRA) is a federal banking law passed by Congress in 1977 that encourages commercial banks and savings associations to assist borrowers in all segments of their communities, including low- and moderate-income areas.
Large banks are required by the Community Reinvestment Act to report new small business loans. In 2019, reporting banks paid out a total of $432.8 million in loans to South Dakota businesses with $1 million or less in revenue. Total reported new lending to businesses with loans of $100,000 or less was $284 million, and total reported new lending to businesses with loans of $1 million or less was $995.3 million.
9. South Dakota small business export statistics
South Dakota exported goods worth $1.2 billion from 881 identified firms in 2019. Approximately 669 (or 75.9%) of those exporters were small businesses that exported goods worth, in total, $420 million, accounting for 34.6% of all exports by identified businesses.
The Final Word
While most people connect South Dakota with Mount Rushmore, entrepreneurs have come to associate the state with its business friendliness. Does a business-friendly environment set against the backdrop of gorgeous Midwest countryside sound appealing as a location for your dream business? If so, South Dakota might be the place for you.
- CNBC – Top States for Business
- Tax Foundation
- Census Bureau
- Square Up
- US Small Business Administration
- US News
- South Dakota Department of Tourism
- South Dakota Governor’s Office Of Economic Development
- Center Square