Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state. Go to Retiree Tax Map South Dakota Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Most Tax-Friendly One of Kiplinger's top ten most tax-friendly states for retirees, the Mount Rushmore State offers a friendly tax environment for retirees. There is no state income tax, so Social Security benefits and other forms of retirement income get a free ride. Sales taxes are relatively low, although they cover a broad scope of services. The state has several property tax relief programs. State Sales Tax 4% state levy. Localities can add as much as 2.75%, and the average combined rate is 5.84%, according to the Tax Foundation. Many services are taxed, as is food. Income Tax Range There's no state income tax. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Retirement income is not taxed.IRAsRetirement income is not taxed.401(k)s and Other Defined-Contribution Employer Retirement PlansRetirement income is not taxed.Private PensionsRetirement income is not taxed.Public PensionsRetirement income is not taxed. Property Taxes Median property tax on South Dakota's median home value of $138,400 is $1,828.Tax breaks for seniors: A tax freeze and/or municipal property tax reduction is available for seniors 65 and older. To qualify for the assessment freeze, you must meet income requirements and have resided in a single-family dwelling for at least 200 days of the previous calendar year. Unmarried surviving spouses may also qualify for a freeze or reduction. Income is limited to $26,965.13 for individuals and $33,706.41 for multimember households, and the value of the home must be less than $183,095.75.Single homeowners 66 and older who earn $10,500 or less can get a property tax refund based on income. Multi-person households headed by someone 66 or older, where the combined income is $13,750 or less, are also eligible. Refunds are only available for single-household dwellings, and you must have been a South Dakota resident for the entire previous year. People who do not receive a property tax refund and who do not own a home may apply for a refund of sales tax.South Dakota also has a property tax homestead exemption for homeowners 70 or older (or surviving spouses), which delays payment of property taxes until the property is sold. Taxes are a lien on the property, which includes up to one acre, and must be paid along with 4% interest before the property can be transferred. For a single person, annual income must be less than $16,000. For a multimember household, the limit is $20,000. Inheritance and Estate Taxes There is no inheritance tax or estate tax.