If you’re American and you’re moving overseas or you travel often enough to be considered a nomad, becoming a South Dakotan is a fantastic way to save money and hassle. I did it myself, and here I’ll share everything I learned in the process.
- Why South Dakota?
- Tax & Vehicle Benefits
- Moving from California or New York?
- What You’ll Need to Bring
- Additional Tips
Why South Dakota?
SD is unique among the 50 US states in having passed laws specifically intended to make it easier for nomads and long-term travelers to become residents. It’s thus easy to benefit while traveling from their lack of state income taxes and other advantages for people without a permanent location. This is an important service for people who genuinely don’t have any long-term home, at least in the US.
With just one night in a hotel or campground in the state (and a receipt to prove it), along with a local mail forwarding service, you can pick up a new SD driver’s license on the spot. If you want to register to vote and register your vehicle, those are easy too.
This is different from the other states without an income tax like Alaska, Florida, Texas, and Washington, because all other states require you to maintain a residential address there and expect you to live there for a while to establish residence. SD requires just one night in the state every five years in order to renew your driver’s license in person and doesn’t require a residential address.
For me, the benefit of this is not having to rely on a friend or family member in one of the other states without an income tax to let me use their address on an ongoing basis, and going through the hassle of falsely demonstrating that I live there by putting utilities in my name or the like. Or spending enough time and rent in a state to do that without a friend, then bending the law by not maintaining the address I set up and not keeping my driver’s license up to date.
If you’re already living in a state without income tax and are planning to start long-term travel, I suppose you could just continue using your last address on government forms. But USPS mail forwarding only works for a year, and only within the US. And even then, as mentioned above that would be bending the law since you’re supposed to keep your driver’s license and government forms up to date with your current address.
Thus, South Dakota not only has no income taxes but also eliminates the hassle of being homeless/nomadic and out of state all the time. There are other benefits for RVers. For instance, SD does not require annual inspections, so you don’t have to drive back to the state once a year.
Tax & Vehicle Benefits
Above, I’ve tried to emphasize the value of SD residency for nomads, which is not just about the tax benefits. But here are the tax and vehicle cost benefits of being a South Dakota resident:
- No state income tax, including for earned income, pensions, dividends, interest, capital gains, etc.
- No property tax.
- No inheritance tax.
- Low tax on vehicle purchases, and it’s applied only on the trade difference of a vehicle.
- Low vehicle registration fees.
- No annual vehicle inspections.
- Low vehicle insurance rates. (Edit 2021-11-29: See the comments below for a discussion of challenges with getting non-RV autos insured using only an SD mailing address.)
Moving from California or New York?
If you’re moving from a high-income tax state, they may try to keep taxing you for as long as they can, especially if they think you’re moving for tax avoidance. California and New York are the most notorious for their aggressive approaches to taxing people who’ve left if they think you’re still domiciled in their state or that you’re really leaving only for tax avoidance. If you’re moving from one of those states, you should probably consult a tax attorney. It might make sense to spend a year (and pay your taxes once) in a state other than South Dakota, before establishing residency there.
When leaving CA or NY, it’s especially important to document your departure and set up connections in your new home state (e.g., getting a new driver’s license, re-registering any vehicles, registering to vote, joining professional organizations, purchasing a home, etc.).
If this is a major concern for you (e.g., if you’re a high-income earner, or you expect to retain ties to your former state), check out this site that describes how states typically determine residency, and this document that gives some example court cases decided for and against people who were pursued for taxes after they tried to move their domicile out of NY.
What You’ll Need to Bring
Transferring your driver’s license to SD and establishing residency is incredibly simple and takes only a few minutes. You’ll need the following:
- Your current driver’s license to trade in.
- Another form of identification. I brought my passport.
- Proof of your social security number, such as your social security card or last W-2.
- A receipt for your ownership of a mail forwarding address within the state.
- A hotel receipt for at least one night’s stay in SD. Important: The address on your receipt should be your mail forwarding address in SD, or alternatively it should have no address listed for you at all. (I haven’t seen these details anywhere else online; I learned them by getting this wrong and initially giving the Sioux Falls DMV a hotel receipt that used a different address. After having my receipt rejected, I was able to go back to the hotel and have them print a new receipt with an updated address.)
If you’re doing this in Sioux Falls (where I did — it’s the state’s largest city), it’s fine to budget only one day in town for this. Just make sure to arrive the night before, so you can get that receipt you’ll need from your hotel.
Here are SD’s official requirements: Required Driver License & ID Card Documents: Full-Time Travelers. That page mentions a “residency affidavit” which wasn’t in my list above. That’s because they gave me a copy at the DMV, so I didn’t need to bring one in.
Note that South Dakota doesn’t actually have a Department of Motor Vehicles (DMV). They issue drivers’ licenses from their Department of Public Safety (DPS). I’ll continue calling it the DMV in this post though since that’s a more familiar term for most people.
Stay in a hotel near the Sioux Falls DMV. Motel 6 is a 15-minute walk and is the cheapest night’s sleep in the city unless you want to stay at a campground. Sleep Inn Airport is even closer, on the same block as the DMV. Both are also close to Sioux Falls Regional Airport, so staying at one of these places will save on rides to and from the airport. But more importantly, staying close to the DMV will help if you run into any problems. I had to go back to the DMV a couple of extra times while there and ended up Ubering back and forth from my hotel each time.
I used DakotaPost for the forwarding address requirement. I recommend them because they have a nice physical location in Sioux Falls where you can walk in and sign up on the spot, with no need for getting a USPS authorization form notarized like you would be required to if signing up with other services online. Although DakotaPost’s website pushes their more expensive virtual mailbox service that allows you to see your mail online, they also do simple mail forwarding starting at $155/year.
I actually tried another service first, called Traveling Mailbox. They’re fantastic and possibly the best deal (given my needs) for this kind of remote mailbox service. I already had a North Carolina address with them, and signed up for a second address in SD, expecting to cancel the first account after becoming an SD resident. Well, I’m glad I didn’t cancel it beforehand because the SD DMV rejected my Traveling Mailbox address due to a legal requirement about them not maintaining a physical presence in the state. The helpful woman I spoke to at the Sioux Falls DMV recommended a couple of alternative companies that always gave her the paperwork she needed on the first try: DakotaPost and Your Best Address. She preferred DakotaPost.
Edit (2021-05-19): A reader who switched to South Dakota residency based on this post wrote me to mention he used South Dakota Residency Center for mail forwarding since they’re cheaper ($110/year).