Let's End Corporate Giveaways in South Dakota
- Anthony Kathol
- Feb 9
- 4 min read
To complete the three-part blog series of my conversation with Bennett County Register Jaci Clifford, today I want to highlight something that was never on my radar screen, and was, to be honest, quite shocking how LLCs and business corporations in South Dakota exploit a legal loophole. What do I mean by that? Did you know that when a corporation or LLC merges, consolidates, or "reorganizes," by which all of the assets of the corporation or limited liability company are transferred, including consideration for real property, they are able to avoid paying the transfer fee in South Dakota? I thought to myself, "How is this possible when anyone who transfers real property on the open market is required to pay the transfer fee that is collected upon the sale of the property?"
There is a codified law in South Dakota, SDCL 43-4-22, that sweetens the deal for all corporations and LLCs by exempting them from real estate transfer fees. See the list of exemptions below:
Under the law, if there is consideration for Company A to take over Company B and there is no official "transfer of title," the corporation or LLC is exempt. The only change is made at the Office of the Secretary of State, where the name change is performed. See SDCL 47-34A-105 below, which discusses acquiring the name of an LLC or a foreign company. Pay attention to subparagraph d(3) regarding "acquired substantially all of the assets, including the name, of the other company."
In my conversation with the Bennett County Register, she shared an example of a local apartment complex managed by a specific LLC or corporation that was bought out and had a change of ownership and management, with no official transfer of title. Both the buyer and seller continued to use the same incorporated name to avoid the transfer fees. Hence, when the county treasurer issued a new tax bill without notification of a real estate transfer from the register of deeds, the previous owner faced problems because the county was unaware of the transfer.
Typically, when real estate is transferred, the Register of Deeds records the transaction, which normally triggers a reevaluation of the property's assessed value by the Director of Equalization. Upon reassessment of newly purchased property, the county treasurer will follow up with an adjustment in property taxes the following year. However, this is not the case. Jaci assured me that, in speaking with other registers in South Dakota, bypassing the county register is common when consideration is offered in exchange for a corporate buyout and the acquisition of real property. She said the Pennington County Register of Deeds informed her that it is quite common for companies to be bought out or reuse the same corporate or LLC name to avoid paying the real estate transfer fees. The question is, how much are counties losing in transfer fees in South Dakota?
According to Jaci, the transfer fee for real property is 50 cents per $500, or $1.00 per $ 1,000 of consideration. Reference SDCL 43-4-21 (https://sdlegislature.gov/Statutes/43-4-21). In other words, for a $1 million acquisition between Company A and Company B, there is a $1,000 loss in transfer fees. This may not be a lot, but when one is talking about corporations merging or taking over another business in the millions, the lost payments of transfer fees that counties collect can add up quickly. Why are transfer fee payments being exempted for corporations and LLCs, leaving the rest of everyday South Dakotans in the cold and requiring them to pay the transfer fee when they sell their property? Do most South Dakotans put their home in an LLC? I seriously doubt it.
To understand this corporate scam, all one has to do is simply visit the Secretary of State's website to see how easily the LLC system can be exploited. Establishing an LLC in South Dakota is like the wild west. As long as you have $150 for the filing fee and have a friend or neighbor to serve as your "brick-and-mortar" noncommercial registered agent, you're set. Below, I demonstrate the simple steps to create your own LLC in South Dakota. Based on my previous interactions with the Office of the Secretary of State regarding the formation of LLCs, I can confirm that it's relatively easy to deceive this office with minimal consequences, as it has no regulatory or enforcement authority and has been dysfunctional under the current leadership. The office simply wants your filing fee with no questions asked.
Many of your non-commercial registered agents, not all, are attorneys in South Dakota who receive correspondence from the Office of the Secretary of State. The attorneys act as registered agents for the LLC, doing business in South Dakota, in exchange for a minimal fee. This is where transparency in filing corporate statements and annual reports breaks down. Thus, your everyday South Dakotan does not know who is typically behind the shell corporation that avoids paying the transfer fee, because ownership can be disguised through joint ventures, LLCs formed in other states, and so on. Moreover, minimal information is required to create an LLC or incorporate a business with little to no oversight.
In conclusion, the loophole allowing corporations and LLCs to avoid real estate transfer fees is unfair to everyday South Dakotans and deprives counties of much-needed revenue. The question I have is: Why are our current state legislators not doing anything about this? If elected, I will work to close this loophole and introduce legislation to end corporate giveaways in South Dakota by eliminating the exemption from real estate transfer fees on real property for big corporations and LLCs, ensuring a level playing field for all. I ask you to join me in this fight for integrity, transparency, and accountability. Vote for Anthony Kathol for District 27 State Senate.
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