Maybe you live in Sioux Falls and run crews on jobs in Omaha. Maybe your shop sits in Dakota Dunes and half your customers are across the river in South Sioux City. Either way, you’re working under two tax systems that could hardly be more different, and at Lang Tax Solutions we help owners on both sides of that line sort it out every year. South Dakota doesn’t tax your income. Nebraska does, and it expects its share of anything earned within its borders. Sales tax follows its own set of rules on top of that.
If I live in South Dakota, do I still owe Nebraska income tax?
Yes, on income that comes from Nebraska. Your South Dakota residency shields what you earn in South Dakota, but Nebraska taxes nonresidents on wages for work performed there, business income tied to the state, and rent from Nebraska property. You report it on Form 1040N as a nonresident, using Schedule III to figure the tax.
The way Nebraska does the math catches people off guard. The state calculates tax as though all of your income were Nebraska income, then applies the percentage that actually came from Nebraska. Since the brackets run against your total income, a nonresident with a large South Dakota income can see a higher effective rate on the Nebraska portion than a Nebraska resident with the same Nebraska earnings.
There is also no credit back home to soften it. Residents of most states get a credit for tax paid elsewhere. South Dakota has no income tax to credit against, so whatever you pay Nebraska is a straight cost of doing business there.
What are Nebraska’s income tax rates for 2026?
For 2026, Nebraska’s top individual rate is 4.55%, down from 5.20% in 2025, and the rates on the upper brackets are set to fall to 3.99% starting with the 2027 tax year. Corporations are on the same track. Nebraska cut its flat corporate rate to 4.55% from 5.2% for 2026. These are statutory rates, so your effective rate as a nonresident depends on how much of your total income is Nebraska income.
How is a pass-through business taxed on its Nebraska activity?
If you own an LLC, partnership, or S corporation that does work in Nebraska, the Nebraska share of profit flows through to your personal nonresident return. Nebraska generally expects the entity to either withhold tax for nonresident owners or collect a signed Form 12N from each one, agreeing to file and pay individually. Missing this step is one of the more common problems we see when a South Dakota company picks up its first big Nebraska contract.
Nebraska also offers an elective pass-through entity tax, or PTET, where the business pays the state tax at the entity level. LB754 added the PTET retroactive to 2018, largely as a response to the federal cap on state and local tax deductions. Federal law raised that cap to $40,000 for many filers starting in 2025, with a phase-down at higher incomes, so the election is worth rerunning rather than assuming last year’s answer still holds.
When does a business have a sales tax nexus in South Dakota or Nebraska?
Nexus is the connection to a state that obligates you to register, collect, and remit its sales tax. A physical presence, like an office, employees, or stored inventory, creates nexus from the first dollar. Economic nexus is based on sales volume alone, even with no presence at all.
In South Dakota, economic nexus applies once gross sales into the state exceed $100,000 in the current or prior calendar year, and the old 200-transaction test was dropped in 2023. Nebraska kept both tests. A remote seller must register and collect once it passes $100,000 in Nebraska retail sales or makes 200 or more Nebraska transactions in the prior or current calendar year. That transaction count matters for businesses with many small orders. Two hundred $40 sales triggered Nebraska long before the dollar test would.
Why a Nebraska service business can owe South Dakota sales tax
South Dakota taxes services far more broadly than most states. Repair, janitorial, and certain professional services are taxable in South Dakota even though many other states exempt them. An Omaha company doing repair or cleaning work in Sioux Falls may need a South Dakota permit even though it charges no sales tax on the same work at home.
Rates differ too. South Dakota’s statewide rate is 4.2%, and many cities add up to 2% on top. That reduced state rate has an end date: it is scheduled to return to 4.5% on July 1, 2027, so invoices and contracts that run past that date should account for it. Nebraska’s state rate is 5.5%, with local rates that vary but do not exceed 2%.
What should an owner working in both states do now?
Most of the trouble we clean up comes from records that don’t show where work happened or where goods were delivered. A few habits prevent most of it:
- Track job and delivery locations in your books so Nebraska-source income and sales by state are easy to pull at year end.
- Review sales into each state quarterly against the thresholds, remembering Nebraska’s 200-transaction test.
- Confirm your entity is handling Nebraska withholding or Form 12N for every nonresident owner.
- Have the PTET election modeled each year before the return is filed.
Getting help with both sides of the line
Operating in South Dakota and Nebraska means planning around an income tax you avoid at home and one you can’t avoid across the border, plus two sales tax regimes with different thresholds and very different views on services. The rules change often, with Nebraska’s rates still dropping and South Dakota’s sales tax rate scheduled to rise in 2027. If you’d like a clear picture of what you owe in each state and how to keep it manageable, reach out to Lang Tax Solutions. With offices serving both Sioux Falls and Omaha, we work with owners on both sides of the line every day.
