South Dakota: A Tax-Friendly Haven for Remote Workers
Update [2024]
This post discussed South Dakota's past appeal as a tax haven. Unfortunately, the situation has changed. South Dakota's domicile laws underwent significant changes in 2023. Frequent travelers and digital nomads face challenges under the new rules.
Stronger Physical Presence Required: A simple personal mailbox (PMB) no longer establishes domicile.
Voting and Unemployment Taxes: Voting requires a residential address, and PMB addresses can't be used for unemployment taxes or benefits.
Additional Notes:
Consider Alternatives: Explore other locations like Florida with tax advantages and flexible residency options. Stay tuned for a new post soon on how to do so!
Are you tired of paying high state income taxes while you're traveling the world? Many Americans need to keep a residential address in the States for employment opportunities, banking, and health care, even though they may not be physically present most or all of the time. Well, have you considered moving your tax domicile to South Dakota? That's right, the land of Badlands, Mount Rushmore, and...no state income tax.
I recently flew to Sioux Falls to update my address. Here is a step-by-step guide on how to do it!
As a digital nomad, I have the freedom to work from anywhere in the world. But, with that freedom comes the responsibility of managing my taxes. I had previously resided in California before going nomadic, and had defaulted to a family address as my "permanent address", having my parents open and photograph the occasional mail that came for me. When I realized I had no intention of residing in California, I decided it was time to update my address.
South Dakota has no state income tax, which means I save a significant amount of money on my taxes. Plus, the state has a friendly business environment and is welcoming to digital nomads like myself. Becoming a resident of South Dakota is was designed to be the easy choice for people without a permanent residence. Some people who benefit most are full-time travelers, full-time RVers, military living abroad, full-time yachters (sign me up!), full-time traveling nurses, OTR truck drivers, Expats, remote traveling workers, and tiny house travelers.
Another great thing about South Dakota is that it's home to some of the most beautiful natural landscapes in the US, from the Badlands to Mount Rushmore. It's the perfect place for digital nomads who want to balance work and play. Though you're only required to return to the state every 5 years to renew your license, you may want to come through more often to explore the stunning national parks and charming towns.
When it comes to establishing residency in a state for tax purposes, one important factor to consider is showing "intent to live." This means that you need to demonstrate to the state government that you have a genuine intention to live in the state and make it your permanent home.
There are several ways to show intent to live in a state, but some of the most commonly accepted methods include registering to vote, getting your drivers license and registration, opening a bank account or updating your banking address, and filing state taxes
It's important to note that while these methods can help demonstrate intent to live in a state, the state government will ultimately make the determination of whether you qualify as a resident. Additionally, you should consult with a tax professional before making any decisions.
How to Establish Residency in South Dakota
Step 1
Get a South Dakota Address
If you want to buy property in South Dakota or lease a rental you can do that. Otherwise, you can set up an address with a mail forwarding service. I used Dakota Post and had a great experience with them. Their service starts at $179/year. After making a payment, you will need to download the USPS 1583, sign it, have it notarized, and mail it in. Unfortunately, online notaries are not accepted by the state of South Dakota. Once your form has been received, you will be sent your new address!
If you opt for a mail forwarding service, it is important that you use one which provides a real mailing address, and not a PO box, as you will not be able to use that for online banking and to register to vote.
Step 2
Stay one night in South Dakota
Choose a local hotel or campground to stay at for at least one night. When you make your reservation and check in, make sure they use your new South Dakota address. You will need to keep this receipt and bring it to the DMV with you.
I flew into Sioux falls and stayed at the Sleep Inn. It wasn't glamorous, but clean and comfortable for a 1-night stay, and under $100. The primary reason I chose this was for it's proximity. It was a 6-minute Uber away from the airport, and the DMV shared a parking lot. It couldn't be easier!
Step 3
Obtain a South Dakota drivers license
Go to the DMV with the necessary documents. You can expedite your trip there by making an appointment ahead of time. Here's what you will need to bring:
A completed Residency Affidavit (they will need to watch you sign it there, and can provide you a copy if you forget)
A receipt from a South Dakota hotel, motel, campground, or RV park proving one night of stay in the previous year. Your name and South Dakota address must be included on the receipt.
A PMB business receipt no older than a year (Dakota Post will provide you with this when they assign you an address)
Proof of lawful status in the United States (I brought my passport)
Social Security Card, a W-2, a 1099, or a pay stub
You will have to surrender any license from another state. If your license is expired by more than 30 days, you will have to take a written test. I had to do that and spent my plane ride reading the SD driving pamphlet. South Dakota's laws are very similar to most states and didn't offer any surprises.
I went to this DMV and was surprised at it's high rating on Google Maps. It lived up to it! I was in and out of there in 45 minutes, and the staff were downright pleasant.
So, if you're a digital nomad who's tired of having your parents scan your mail, or dealing with high taxes in a state you don't spend time in, I highly recommend considering moving your domicile to South Dakota. Not only will you save money on taxes, but you'll also enjoy a lower cost of living, beautiful natural landscapes and a friendly business environment.
So, what are you waiting for? Pack your bags, and let's head to South Dakota!
