South Dakota Veteran Tax Benefits 2025: No Income Tax, Property Tax & Exemptions

Bottom Line Up Front

South Dakota's #1 tax benefit for veterans is zero state income tax—period. No taxes on military retirement pay, VA disability compensation, or any other income. This saves the average military retiree $2,000-$3,000 annually compared to states that tax retirement income, and it benefits every veteran regardless of disability rating.

For disabled veterans, South Dakota offers a property tax exemption up to $200,000 in assessed value (increased from $150,000 in 2024) for those rated permanently and totally disabled. Paraplegic veterans get a full property tax exemption with no cap. With South Dakota's median effective property tax rate of 1.28%, a P&T disabled veteran saves approximately $2,560 per year on a $200,000 home.

The downside? Veterans with disability ratings below 100% get no property tax relief whatsoever—South Dakota only helps the most severely disabled. Property taxes vary widely by county (1.0%-1.7% effective rates), and while the no-income-tax policy is fantastic, you'll pay higher sales taxes (4.2% state rate, though food is now exempt after recent changes).

Overall, South Dakota ranks as an elite tax-friendly state for military retirees and 100% disabled veterans, but middle-tier for veterans with lower disability ratings. If you're planning to retire here with military pension income, you'll save thousands annually. Combined with low cost of living and no estate tax, South Dakota is one of America's best states for veteran finances.

Property Tax Benefits

Exemptions by Disability Rating

100% Permanently and Totally Disabled Veterans:

• Exemption amount: Up to $200,000 in assessed property value (increased from $150,000 as of July 2024)
• Cap: $200,000 assessed value
• Requirements: Must be rated permanently and totally disabled (P&T) by the VA due to service-connected disability
• Annual savings: $2,560 average (based on 1.28% median effective rate on $200,000 home)

If you're rated 100% P&T by the VA, your primary residence receives a property tax exemption on the first $200,000 of assessed value. This applies to the house, garage, and lot up to one acre. The 2024 increase from $150,000 to $200,000 was a significant improvement—adding about $640 in annual savings for qualifying veterans.

Example calculation:

• Home assessed value: $200,000
• County tax rate: 1.28% (state median)
• Annual property tax without exemption: $2,560
• With 100% disabled exemption: $0
• Annual savings: $2,560

For higher-value homes, you'll pay taxes on the amount exceeding $200,000. If your home is assessed at $300,000, you'll pay property tax on $100,000 (the $200,000 exemption reduces your taxable assessed value).

Surviving Spouses: Unremarried surviving spouses of 100% P&T disabled veterans maintain the property tax exemption as long as they remain unmarried and continue living in the home.

Paraplegic Veterans (Full Exemption):

• Exemption: 100% of property tax—no cap
• Requirements: Veterans with loss or loss of use of both lower extremities
• Annual savings: Unlimited (entire property tax bill waived)

South Dakota offers a complete property tax exemption to paraplegic veterans who have lost or lost use of both lower extremities due to service-connected disabilities. This applies to the house, garage, and lot up to one acre, with no dollar limit on home value.

If you qualify under this category, a $500,000 home has the same $0 property tax bill as a $150,000 home. Unremarried surviving spouses also retain this benefit.

70-90% Disabled:

• Exemption: None
• Savings: $0

South Dakota does not offer property tax exemptions for veterans rated 70-90% disabled. It's an all-or-nothing system: you must be 100% P&T or qualify as paraplegic.

50-60% Disabled:

• Exemption: None
• Savings: $0

No property tax relief at this rating level.

Under 50% / General Veterans:

• Exemption: None
• Savings: $0

Non-disabled veterans receive no special property tax benefits in South Dakota. You'll pay standard property taxes like any other homeowner.

How to Apply

1. Contact your county Director of Equalization (each of South Dakota's 66 counties has one)
2. Gather required documents (see list below)
3. File application annually by November 1

Documents Needed:

• VA award letter showing 100% permanent and total disability (or paraplegic disability documentation)
• DD Form 214 (Member Copy 4)
• Proof of South Dakota residency
• Property deed showing ownership
• Photo ID

Application Timeline:

• Applications available: January of each year
• Filing deadline: November 1 annually
• Processing: 30-60 days typically
• Effective: Taxes payable the following year

Important: Unlike some states, South Dakota requires annual renewal. You must reapply every year before the November 1 deadline. Mark your calendar to avoid missing the deadline and losing a year's exemption.

Property Tax by County

South Dakota's property tax rates vary significantly by county. Here's how major counties compare:

County	Major City	Median Home Value	Effective Tax Rate	Annual Tax (Non-Exempt)	Annual Savings (100% Disabled, $200K Exemption)
Minnehaha	Sioux Falls	$335,000	1.54%	$5,159	$3,080
Lincoln	Sioux Falls suburbs	$290,000	1.46%	$4,234	$2,920
Pennington	Rapid City	$285,000	1.37%	$3,905	$2,740
Brookings	Brookings	$265,000	1.20%	$3,180	$2,400
Brown	Aberdeen	$209,000	1.25%	$2,613	$2,500
Codington	Watertown	$210,000	1.22%	$2,562	$2,440
Lawrence	Spearfish	$240,000	1.35%	$3,240	$2,700

Highest property tax counties:

• Lincoln County: 1.46% effective rate
• Minnehaha County: 1.54% effective rate
• Pennington County: 1.37% effective rate

Lowest property tax counties:

• Mellette County: 0.95% effective rate
• Todd County: 0.98% effective rate
• Ziebach County: 1.02% effective rate

Sioux Falls area (Minnehaha and Lincoln counties) has the highest property taxes in the state. If you're a 100% disabled veteran, the $200,000 exemption saves you $2,920-$3,080 annually in the Sioux Falls metro. Even in lower-tax rural counties, you're saving $2,000-$2,500 per year.

Payment Deadlines: Property taxes are typically due in two installments: April 30 and October 31 (though some counties may have slightly different dates).

Income Tax Treatment

Military Retirement Pay

• State tax: 0%—South Dakota has no state income tax
• Federal tax: Still applies (unless disability-related)
• Annual savings: $2,000-$4,000+ (depending on retirement income and what you'd pay elsewhere)

South Dakota is one of only nine states with no state income tax. Military retirement pay is not taxed at the state level because there is no state income tax, period. This applies to all branches: Army, Navy, Air Force, Marines, Coast Guard, Space Force, USPHS Commissioned Corps, and NOAA Corps officers.

Who benefits: Every military retiree, regardless of disability rating or age.

How it works: You don't file a state income tax return in South Dakota. Your military retirement income is yours to keep (minus federal taxes). There's no calculation, no exemption to claim—it simply doesn't exist.

Example calculation compared to other states:

• Annual military retirement: $50,000
• If you lived in Iowa: ~$2,000 state tax
• If you lived in Nebraska (with exemption): $0 state tax
• If you lived in Minnesota: ~$2,500 state tax
• Living in South Dakota: $0 state tax

If you're an O-5 retiree with $70,000 annual pension, you save $2,800-$3,500 per year compared to states that fully tax military retirement.

VA Disability Compensation

• Tax status: 0% (federally and state—no income tax in SD)
• Tax-free federally and at the state level

All VA disability compensation is tax-free. South Dakota doesn't tax it (because SD has no income tax), and neither does the federal government. This is standard across all states, but worth noting for completeness.

Survivor Benefits (SBP)

• State taxation: 0% (no state income tax)
• Federal taxation: Applies (SBP is federally taxable income)

South Dakota doesn't tax Survivor Benefit Plan payments because there's no state income tax. Surviving spouses keep 100% of SBP payments at the state level. Federal taxes still apply, but you avoid the state tax burden that exists in many other states.

Other Military Income

• Drill pay (Guard/Reserve): Not subject to South Dakota state income tax (because SD has no income tax)
• Combat pay: Generally exempt from federal tax; South Dakota has no state tax to apply
• Active duty pay: Not taxable by South Dakota (no state income tax)

Active duty service members stationed at Ellsworth AFB or other SD locations don't pay state income tax on their military pay, regardless of legal residency. This is a huge benefit compared to states with income taxes.

Vehicle & Registration Benefits

Disabled Veteran Plates:

• Cost: $10 annual fee (no standard registration fees)
• Initial mailing fee: $7.50 (one-time)
• Requirements: Must meet one of the following criteria:
  • Recipient of a VA "K Award"
  • Recipient of an automobile under Public Law 187
  • Recipient of statutory benefit for loss or loss of use of one or more extremities
  • Recipient of veteran's allotment for total disability (service-connected, incurred during active duty in wartime or armed conflict)
• Annual savings: Varies by vehicle, typically $50-$150 compared to standard registration

New benefit (July 1, 2024): Qualifying disabled veterans can now get regular county plates for the cost of the special disabled veteran plate (maximum of two sets). This means you pay just $10 annually instead of standard registration fees, even with regular-looking plates.

Motor Vehicle Excise Tax Exemption:

• Eligibility: Veterans who are 100% disabled due to service-connected disabilities
• Benefit: Exempt from excise tax on purchase of one vehicle
• Savings: Typically 4% of vehicle purchase price
• Example: $40,000 vehicle = $1,600 excise tax savings (one-time)

This is a one-time benefit when purchasing a vehicle. You must provide VA disability documentation to the county treasurer when registering the vehicle.

Parking privileges: Disabled veteran plates do not automatically allow handicapped parking. You need a separate handicapped placard or plates for accessible parking.

Sales Tax Exemptions

• Vehicle purchases: No exemption for veterans (4.2% state sales tax + local taxes apply)
• Groceries: Exempt from state sales tax (as of 2024, groceries are no longer taxed in SD)
• Other items: No general sales tax exemptions for veterans
• State sales tax rate: 4.2% (plus local taxes: total rates typically 5.2%-7.2%)

South Dakota does not offer sales tax breaks for veterans on vehicle purchases or other goods. You'll pay the standard 4.2% state sales tax plus any applicable municipal taxes (Sioux Falls adds 2%, Rapid City adds 2%, etc.).

Good news for everyone: South Dakota recently eliminated sales tax on groceries, a significant cost-of-living improvement that benefits all residents, including veterans and retirees on fixed incomes.

Bad news: Higher-than-average sales tax rates offset some savings from no income tax. Combined state and local rates range from 5.2% to 7.2% depending on location.

Overall Tax Analysis

Annual Tax Savings by Rating

100% Disabled Veteran Example (Sioux Falls, Minnehaha County):

• Property tax saved (on $200K exemption): $3,080
• Income tax saved (on $50K military retirement): $2,000 (vs. states that tax retirement)
• Vehicle excise tax saved (one-time): $1,600 (on $40K vehicle)
• Total Annual Savings: $5,080 (plus one-time $1,600)

Over 20 years, that's $101,600 in property tax savings alone, plus $40,000 in income tax savings = $141,600 total.

100% Disabled Veteran Example (Rapid City, Pennington County):

• Property tax saved: $2,740
• Income tax saved: $2,000
• Total Annual Savings: $4,740

Over 20 years: $94,800.

70% Rating:

• Property tax saved: $0
• Income tax saved (military retirement): $2,000
• Vehicle tax saved: $0
• Total savings: $2,000/year

50% Rating:

• Property tax saved: $0
• Income tax saved: $2,000
• Total savings: $2,000/year

Military retiree with no VA disability:

• Income tax saved: $2,000/year (vs. states that tax retirement)
• Total savings: $2,000/year

20-Year Savings Projection

100% Disabled (Sioux Falls):

• Annual savings: $5,080
• 20-year total: $101,600
• Net present value (3% discount rate): $75,700

100% Disabled (Rapid City):

• Annual savings: $4,740
• 20-year total: $94,800
• Net present value: $70,600

70% Rating:

• Annual savings: $2,000
• 20-year total: $40,000
• Net present value: $29,800

50% Rating:

• Annual savings: $2,000
• 20-year total: $40,000
• Net present value: $29,800

Military Retiree (No VA rating):

• Annual savings: $2,000
• 20-year total: $40,000
• Net present value: $29,800

The big winner is 100% disabled veterans—you save $75,000-$100,000+ over 20 years. Everyone else benefits equally from the no-income-tax policy, saving $40,000 over 20 years compared to states that tax military retirement.

Comparison to Neighboring States

State	Military Retirement Tax	100% Disabled Property Tax Exemption	Annual Savings (100% Disabled)
South Dakota	No income tax (fully exempt)	$200,000 assessed value exemption	$5,080 (Sioux Falls)
North Dakota	Fully taxable	$120,000 true and full value	$3,500
Nebraska	Fully exempt	Full exemption, no cap	$8,048
Iowa	Exempt if 55+	$1,852 max	$3,852
Minnesota	Fully taxable	Varies by county	$3,200
Wyoming	No income tax	No specific veteran exemption	$2,000 (income tax savings only)
Montana	Partially exempt	Up to $400,000	$5,200

Verdict: South Dakota ranks #2 among neighbors for 100% disabled veterans (Nebraska's unlimited property tax exemption edges ahead). For non-disabled military retirees, South Dakota ties with Wyoming for best in region (both have zero income tax). South Dakota beats North Dakota, Iowa, Minnesota, and Montana for all veteran categories.

State vs National Comparison

• Property tax exemption: Middle tier nationally—$200,000 cap is better than many states but below states with unlimited exemptions
• Income tax treatment: Elite tier—no income tax puts South Dakota in top 9 states nationally
• Overall ranking: Top 10 nationally for 100% disabled veterans; top 15 for all military retirees

According to studies by Veterans United and The Military Wallet, South Dakota consistently ranks in the top 10-15 states for veteran tax benefits, primarily due to the no-income-tax policy.

Who Benefits Most

Best for:

• Military retirees with pensions over $40,000 (save $2,000-$4,000/year vs. states that tax retirement)
• 100% P&T disabled veterans (save $5,000+/year in Sioux Falls/Rapid City)
• Paraplegic veterans (unlimited property tax exemption)
• High-income retirees (no state tax on investment income, pensions, Social Security)

Less beneficial for:

• Veterans rated 50-90% disabled (no property tax break unless you're in the paraplegic category)
• Veterans without military retirement income (you still benefit from no income tax on other income, but the military retirement exemption doesn't apply)

Better options:

• If you're 70% disabled and want property tax relief, consider Oklahoma (full exemption for 50%+), Texas ($12,000+ exemption for 10%+), or Florida ($5,000 exemption for 10%+)
• If you're a military retiree with no disability, South Dakota, Wyoming, Texas, Florida, Nevada, Alaska, Washington, Tennessee, and New Hampshire all have no income tax

Additional Financial Benefits

Estate Tax / Inheritance Tax

• South Dakota estate tax: None
• South Dakota inheritance tax: None
• Veteran exemptions: Not applicable (no estate/inheritance taxes exist)

South Dakota has no estate tax or inheritance tax. Your heirs receive your estate without state-level death taxes, regardless of value. This is a significant benefit for wealth transfer, especially for military families with substantial assets.

Other Tax Benefits

Income Tax Exemptions:

• Social Security: Not taxed (no income tax)
• Pensions: Not taxed (no income tax)
• Investment income: Not taxed (no income tax)
• Military retirement: Not taxed (no income tax)

Sales Tax Refund Program: Seniors (65+ by January 1) and disabled individuals with income below certain thresholds can claim an annual sales tax refund. This helps offset the higher sales tax burden for low-income retirees.

• Eligibility: Age 65+ or disabled, with income below $13,851 (single) or $17,314 (married)
• Benefit: Refund of a portion of sales taxes paid during the year
• Maximum refund: Varies based on income

Recreational Benefits

Hunting & Fishing Licenses:

• 40%+ disabled veterans: 4-year hunting and fishing license for $10
• 100% disabled veterans: Free lifetime hunting and fishing licenses
• Former POWs: 4-year license for $10

State Parks:

• Eligible disabled veterans and former POWs: Free lifetime State Park Entrance License
• Benefit: Free entrance to all state parks, 50% discount on camping and electrical fees

How to Maximize Benefits

Action Plan:

1. Establish South Dakota residency immediately if you're retiring here. No income tax means every day counts. File for homestead and get your driver's license within 30 days of arrival.

2. Apply for property tax exemption by November 1 if you're 100% disabled. This is an annual application—mark your calendar every year. Missing the deadline costs you $2,500-$3,000+ in lost savings.

3. Update your DFAS withholding. Since South Dakota has no income tax, you don't need state withholding on your military retirement. Adjust your account to stop withholding state taxes.

4. Apply for disabled veteran license plates. Save $50-$150 annually on vehicle registration, and as of July 2024, you can get regular county plates for the same low price.

5. Claim vehicle excise tax exemption if you're 100% disabled. When purchasing your next vehicle, bring VA documentation to the county treasurer to exempt the 4% excise tax.

6. Apply for hunting/fishing licenses and state park passes. If you're 40%+ disabled, get the $10 four-year license. If 100% disabled, get the free lifetime license and park pass.

7. File for sales tax refund if you qualify. If you're 65+ or disabled with low income, apply annually for the sales tax refund program.

Common Mistakes:

• Missing the November 1 property tax exemption deadline: This is an annual filing. Set a recurring reminder for October to avoid losing a year's exemption.

• Forgetting to reapply annually: Unlike some states with multi-year exemptions, South Dakota requires yearly applications for the property tax exemption.

• Not updating DFAS withholding: Many retirees continue having state taxes withheld out of habit, even though South Dakota has no income tax. Fix this immediately.

• Assuming 70% or 80% disabled qualifies for property tax exemption: Only 100% P&T or paraplegic veterans qualify. There's no partial exemption for lower ratings.

• Not claiming vehicle excise tax exemption: When buying a vehicle, many 100% disabled veterans forget to claim this exemption at registration, losing $1,000-$2,000.

Resources

Apply Here:

• Property tax exemption: Contact your county Director of Equalization

  • Minnehaha County: (605) 367-4224 | https://www.minnehahacounty.gov/dept/eq/
  • Pennington County: (605) 394-2175 | https://www.pennco.org/
  • Lincoln County: (605) 987-2881 | https://www.lincolncountysd.org/

• Vehicle registration and excise tax exemption: Your county treasurer's office

• Sales tax refund program: South Dakota Department of Revenue | (605) 773-3311

Contact Information:

• South Dakota Department of Veterans Affairs:

  • Pierre Office: (605) 773-3269 | 425 E. Capitol Ave., Pierre, SD 57501
  • Sioux Falls Office: (605) 333-6869 | 2823 W. Main St., Rapid City, SD 57702
  • Website: https://vetaffairs.sd.gov/
  • Email: SDDVA@state.sd.us

• South Dakota Department of Revenue: (605) 773-3311 | https://dor.sd.gov/

• County Veterans Service Officers: Each county has a CVSO—contact your county for local assistance

Frequently Asked Questions

Q: Do I need to file a state income tax return in South Dakota?

A: No. South Dakota has no state income tax, so there's no state tax return to file. You'll still file federal taxes, but nothing at the state level.

Q: Do I need to reapply for the property tax exemption every year?

A: Yes. South Dakota requires annual applications by November 1. Mark your calendar—missing the deadline means you lose that year's exemption.

Q: Can I get the property tax exemption if I'm 90% disabled?

A: No. Only 100% permanently and totally disabled veterans (or paraplegic veterans) qualify. There's no partial exemption for 70-90% ratings.

Q: Does the property tax exemption apply to second homes or rental properties?

A: No. It only applies to your primary residence (house, garage, and lot up to one acre).

Q: I just retired from the military. Do I need to do anything to avoid South Dakota income tax?

A: No special action required. South Dakota has no income tax, so your military retirement is automatically exempt from state taxes. Update your DFAS withholding to stop state tax withholding.

Q: Can I get both the disabled veteran property tax exemption AND the senior citizen property tax relief?

A: Check with your county Director of Equalization. Generally, you receive whichever benefit is greater, but rules may vary.

Q: What if I became 100% disabled mid-year? Can I get a partial property tax refund?

A: You must apply by November 1, and the exemption typically applies to the following tax year. Contact your county Director of Equalization to discuss your specific situation.

Q: I'm 100% disabled due to PTSD. Do I qualify for the property tax exemption?

A: Yes. The exemption applies to any 100% permanent and total service-connected disability, regardless of the condition (physical or mental).

Q: Does South Dakota tax VA disability compensation?

A: No. VA disability compensation is tax-free federally, and South Dakota has no state income tax, so it's completely tax-free.

Q: I'm stationed at Ellsworth AFB but my home of record is California. Do I pay South Dakota income tax?

A: No. South Dakota has no income tax, so you won't pay SD state taxes regardless of residency. You may owe California income tax depending on your residency status.

Q: Does my surviving spouse keep the property tax exemption if I die?

A: Yes, as long as your surviving spouse remains unmarried and continues living in the home.

Q: Are National Guard and Reserve retirement payments exempt from South Dakota income tax?

A: Yes. All retirement pay is exempt from South Dakota state income tax because South Dakota has no income tax.

Q: Can I get a vehicle excise tax exemption for multiple vehicles?

A: No. The exemption applies to one vehicle only for 100% disabled veterans.

Q: How does South Dakota's no income tax compare to other states for military retirees?

A: South Dakota is one of only 9 states with no income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). This is the best possible scenario—you keep 100% of your military retirement at the state level.

Q: If I move to South Dakota mid-year, when can I apply for the property tax exemption?

A: You can apply during the next filing period (January-November 1). Establish residency, get your homestead documentation in order, and file by November 1. The exemption typically applies to the following tax year.

Q: What's the difference between the paraplegic exemption and the 100% disabled exemption?

A: The paraplegic exemption (for loss or loss of use of both lower extremities) is unlimited—full property tax exemption regardless of home value. The 100% P&T disabled exemption is capped at $200,000 assessed value.

Q: Does South Dakota charge sales tax on groceries?

A: No. As of 2024, groceries are exempt from South Dakota sales tax, a significant cost-of-living benefit for all residents.

Q: Can I combine the disabled veteran plate discount with other vehicle exemptions?

A: The disabled veteran plate fee ($10 annually) is the veteran-specific benefit. Vehicle excise tax exemption (for 100% disabled on one vehicle purchase) is separate. You can benefit from both.

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Last updated: 2025. Tax laws change frequently. Verify current rates and eligibility with the South Dakota Department of Veterans Affairs and your county Director of Equalization.

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Sources: VA.gov, Military OneSource, Benefits.gov