Regional & Local Incentives

South Dakota Incentive Programs

The South Dakota Governor's Office of Economic Development offers several incentives to new or expanding businesses that assist with the overall cost of a project. Below are several important ones.

Tax Incentives: South Dakota already has the No. 1 ranked tax environment in the U.S., including no state personal or corporate income tax, according to the National Tax Foundation. There are additional tax incentives that GOED offers.

Qualified business facility expansions made in 2012 are eligible for sales and contractor excise tax refunds if the total cost of the project is at least $10 million. The project must also involve the construction of a new facility or the expansion of an existing facility. The amount of the refund on the sales, use, and contractors' excise tax is determined by the total project costs. Refunds are issued for the following:

• Sales tax paid on equipment
• Contractors' excise tax
• The sales tax the contractor pays on materials used in the new construction.
• More information is available by visiting the South Dakota Tax Incentive page of the GOED website.

Low-Interest Loans: The GOED maintains the Revolving Economic Development and Initiative Fund, or REDI designed to help job growth. Available to start-up firms, expanding companies, or relocating businesses, the REDI Fund provides up to 45% of a project's total cost. Companies need to secure construction financing, matching funds for permanent financing, and be able to provide a 10% minimum equity contribution before applying. Costs eligible for participation include:

• The purchase of land and associated site improvements
• Construction, acquisition, and renovation of buildings
• The purchase and installation of machinery and equipment
• The REDI loan program offers fixed-rate interest which is currently at 2 percent. Loans may be amortized up to 20 years on land and buildings and up to 10 years on equipment, with a balloon payment due after five years. For further details and applications, visit South Dakota GOED's REDI website.

Workforce Development Program: Through matching grants, the Workforce Development Program funds partnerships between industry and academia through which customized training programs are delivered, supporting up to one-half the total cost of training. To be eligible, the project must fit into one of two types of training:

• New employee training
  • Positions must be new.
  • Openings created by turnover or retirement are not eligible.
• Current employee retraining
  • Must be "out-of-the-ordinary" training and beyond what is needed in the normal course of business.
  • Trainees must receive an increase in their wages as the result of the training.

If this is of interest, please contact us or visit GOED's workforce development training policies and procedures for more information.

Local Programs

Dakota Business Finance - SBA 504 Loan Program

As your local U.S. Small Business Administration (SBA) Certified Development Company, Dakota BUSINESS Finance works with local banks to provide loans to small businesses to construct, purchase, renovate a building or install leasehold improvements, or to purchase a building or purchase long-term machinery and equipment. Typically, the banks will provide 50 percent of the financing; SBA/Dakota BUSINESS Finance will provide 40 percent of the financing, and the small business owner will contribute the remaining 10 percent in the form of an equity or cash injection.

SBA/Dakota BUSINESS Finance's portion of the project is a direct loan from SBA, which sells the loans as bonds (or debentures) to investors on a monthly basis. Loan participants must be for-profit businesses and meet standards set by SBA.

Structure:

• The lender takes a 1^st lien on the project property
• SBA takes a 2^nd subordinate lien on the project property
• For expansion projects, a borrower may be able to pledge existing equity in land/building as the down payment
• Minimum of 10% down payment required
• Start-up businesses require an additional 5% equity injection
• "Single-purpose" buildings require an additional 5% equity injection

Example Project Structure

South Eastern Development Foundation Revolving Loan Fund

Created to assist companies with "gap" financing, this program includes funding for:

• Land
• Buildings
• Permanent Fixtures
• Equipment/Machinery
• Working Capital

Loans will be amortized according to the following schedule with all loans carrying a five year balloon:

• Land 20 years
• Buildings 20 years
• Permanent Fixtures 20 years
• Equipment/Machinery 15 years
• Working Capital 7 years

The interest is current prime and is fixed for the life of the loan. The minimum loan amount is $20,000 and the maximum is $150,000. All loans will be made in cooperation with an established bank or financial institution. More information can be found at www.secog.org.

Rural Electric Economic Development (REED) Fund
Offered through East River Electric Company, accessing this fund would be initiated by Sioux Valley Energy or Southeastern Electric Cooperative. The loan would be originated and serviced by East River Electric out of Madison, South Dakota.

The program is limited to 50% of the total project costs and terms are negotiable but generally carry a below-market rate for interest. More information can be found at www.eastriver.coop

Sales Tax Refund
South Dakota charges sales tax on capital equipment purchases. Many of the communities offer a refund of their city's portion (generally 2%) of capital equipment purchased within the first 12 months of operation.

Larger projects, $10 million or more in total project costs are eligible to receive a refund on their state sales tax (4%) on the total project.

More information can be found at: www.sdreadytowork.com

Property Tax Abatement
All of the communities included within this response participate in this program. This is a five-year property tax abatement for qualified commercial and industrial construction. Qualified construction is where the value exceeds $30,000 with the abatement being retroactive to the first dollar.

Qualifying projects pay a graduated tax rate on the improvements that begins the first full year following construction. (Partial assessments during construction are not included.) Project estimates on savings can be provided upon request. Specific abatement schedules are as follows: