U.S. Bank National Assoc. v. S.D. Dept of Revenue, 980 N.W.2d 936

U.S. Bank (a national bank and member of the U.S. Bancorp consolidated group) is subject to South Dakota’s bank franchise tax (SD BFT), which measures net income as defined by the Internal Revenue Code with specified state adjustments.
SDCL 10-43-10.3(3) allowed a deduction for “taxes imposed upon the financial institution” (i.e., federal income taxes); the Department had promulgated a rule treating deductible net federal income taxes as the amount paid (or, for accrual taxpayers, the amount incurred).
U.S. Bank did not file a separate federal return; U.S. Bancorp filed a consolidated Form 1120. U.S. Bank prepared an internal pro forma Form 1120 showing its separate taxable income.
For 2010–2012 U.S. Bank changed its SD BFT deduction method: instead of allocating consolidated taxes after credits, it multiplied its separate taxable income by the statutory 35% rate, producing deductions that exceeded the consolidated group’s total federal tax liability.
The Department audited, disallowed the 2012 deduction entirely, denied refunds for amended 2010–2011 returns, and issued an assessment for 2012; the administrative hearing, circuit court, and the South Dakota Supreme Court affirmed the Department’s interpretation.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Meaning of “taxes imposed” in SDCL 10-43-10.3(3)	"Taxes imposed" means the tax computed by multiplying a bank’s separate taxable income by the statutory rate (i.e., separate-company tax before credits).	"Taxes imposed" means the net federal income tax actually paid or the tax liability (for accrual taxpayers) after accounting for credits.	Court held "taxes imposed" = federal taxes paid or tax liability (for accrual taxpayers), not separate-income×rate.
Effect of federal tax credits on SD BFT deduction	Credits are equivalent to cash payments and thus do not reduce the deductible federal tax amount.	Tax credits reduce the tax liability and are not the same as cash paid; deduction must reflect taxes actually owed/paid.	Court held credits reduce federal tax liability and cannot be treated as equivalent to cash payments for the deduction.
Burden and sufficiency of proof for 2012 deduction	Department should provide a uniform method or accept U.S. Bank’s methodology absent clearer guidance.	Taxpayer bears burden to prove entitlement and amount; U.S. Bank failed to provide proof of actual federal tax paid/owed on a separate-company basis.	Court held taxpayer bears the burden and U.S. Bank failed to prove a specific deductible amount for 2012; denial affirmed.

Pirmantgen v. Roberts Cnty., 954 N.W.2d 718 (S.D. 2021) (standard for reviewing agency factual findings and legal questions)
Citibank, N.A. v. S.D. Dep’t of Revenue, 868 N.W.2d 381 (S.D. 2015) (tax statute interpretation reviewed de novo)
Rushmore Shadows, LLC v. Pennington Cnty. Bd. of Equalization, 838 N.W.2d 814 (S.D. 2013) (tax construction principles and deference context)
Burlington N. R.R. Co. v. Strackbein, 398 N.W.2d 144 (S.D. 1986) (statutes granting deductions strictly construed against taxpayer)
Doyal v. Comm’r of Internal Revenue, 616 F.2d 1191 (10th Cir. 1980) (taxpayer bears burden to prove entitlement and amount of a deduction)