Contractor's Excise Tax
Any person entering into a contract for construction services (as defined in Division C of the Standard Industrial Classification Manual of 1987) or engaging in services that include the construction, building, installation, or repair of a fixture to real property must have a South Dakota contractor’s tax license. The excise tax imposed on the gross receipts for construction projects is at a rate of 2%. The application of the tax depends on the type of construction project. There are two types of construction projects:
Tax Return Filing Date
Returns may be filed either on paper returns or electronically through our online Filing and Tax Payment portal. Returns are due by the 20th of the month. Payments if you file on paper returns are also due on the 20th of the month. Payments submitted electronically are due by the 25th of the month.
Contractor’s Excise Tax Bid Factor Calculator
Because contractor's excise tax is owed on your gross receipts, which include any taxes collected from the customer, a bid factor of 2.041% may be used to calculate the excise tax when preparing a bid or bill. This allows you to collect the full amount of excise tax due.
Prime Contractor’s Exemption Certificate
Except for projects for a qualified utility, it is the prime contractor’s responsibility to issue prime contractor's exemption certificates to all subcontractors for each project. If a subcontractor hires another subcontractor, the prime contractor must issue the exemption certificate. The exemption certificate must show the prime contractor’s excise tax license number, the project location, and description. A blanket certificate cannot be issued to a subcontractor, it must list the specific project.
Subcontractors that do not have a certificate on file for a project are considered prime contractors and are subject to the contractor's excise tax. The department recommends obtaining a prime contractor's exemption certificate prior to starting work.
A full list of statistical reports on Excise Taxable Receipts by SIC can be found on the Historical Tax Statistical Reports Page. In all cases when you select a month, you will be viewing data compiled from returns filed with the Department during that month. It may cover a variety of taxpayer filing periods, such as monthly, bi-monthly, semi-annually etc. It includes returns filed for the current period and those filed for previous periods.
Qualified Utility Projects
A 2% contractor’s excise tax is imposed on the gross receipts of all prime and subcontractors engaged in construction services or reality improvement projects. The work must be for the utility company and the prime contractor must receive payment directly from the utility company to be taxed under SDCL 10-46B. If a prime contractor receives payment directly from an entity that is not the utility company, the project is not a qualified utility project and is submit to contractor’s excise tax under Non-Qualified Utility Project SDCL 10-46A. If the utility company receives funding from an outside source and the utility company pays the prime contractor, the project is taxed as a qualified utility project. For these projects it is important to understand the responsibilities of both the prime contractor and subcontractor. Excise tax is imposed for the following types of utility companies:
- Electric, Heating, Power, Water, and Gas Companies SDCL 10-35
- Railroads SDCL 10-28
- Rural Electric Companies SDCL 10-36
- Telephone Companies, including Rural Telephone Companies SDCL 10-33
- Municipal Telephone Systems SDCL 9-41
- Rural Water Systems ASRD 64:07:01:01.02
For a qualified utility project prime contractor’s have the following obligations:
- Owe contractor’s excise tax on their gross receipts.
- Do not include the value of the owner furnished materials in their gross receipts subject to the contractor’s excise tax.
- Owe state and applicable municipal use tax on materials furnished by the owner if the owner does not document sales or use tax was previously paid.
- Owe state and applicable municipal sales or use tax on materials they, or their subcontractor, furnish for the contract.
- Cannot issue prime contractor exemption certificates to subcontractors for a qualified utility project.
- Cannot deduct amounts paid to subcontractors in determining gross receipts subject to the contractor’s excise tax.
- Owe contractor’s excise tax on their gross receipts.
- Owe state and applicable municipal sales or use tax on materials the subcontractor furnishes for the contract.
- Cannot accept a prime contractor’s exemption certificate for a qualified utility project.
Non-Qualified Utility Projects
Contractor's excise tax is imposed on the gross receipts of all prime contractors engaged in construction services or realty improvement projects in South Dakota SDCL 10-46A. The gross receipts would include the tax collected from the consumer. For these projects it is important to understand the responsibilities of both the prime contractor and subcontractor.
- Owe contractor's excise tax on their gross receipts.
- Include the value of material furnished by the owner in their gross receipts subject to the contractor's excise tax.
- Owe state, plus applicable municipal use tax on materials furnished by the owner if the owner does not document sales or use tax was previously paid.
- Owe state, plus applicable municipal use tax on material they, or their subcontractor, furnish for the contract if sales or use tax was not previously paid.
- Must issue prime contractor exemption certificates to all subcontractors.
- Cannot deduct amounts paid to subcontractors in determining gross receipts subject to the contractor's excise tax.
- Do not owe contractor’s excise tax IF a prime contractor’s exemption certificate is received for the project.
- Owe state and applicable municipal sales or use tax on material the subcontractor furnishes for the contract.
Contractor - Owner Occupied Dwellings
A contractor is allowed a maximum of four dwellings classified as owner-occupied single-family dwellings. No dwelling may be classified as an owner-occupied single-family dwelling for more than two consecutive years.
In order to qualify, the contractor is required to submit the Contractor Owner-Occupied form annually to the Director of Equalization. The due date is March 15th.
Construction Services and Realty Improvement Projects within Indian Country
Business Education Program
Contractor’s Excise Tax Seminar
Three-hour seminars are held three to four times throughout the year in Sioux Falls, Rapid City and Mitchell. A total of 3.0 CPE credits and/or 0.3 CEU credits are awarded for those who apply for them and attend the entire seminar. Each seminar will cover:
- How and when to apply for a contractor’s excise tax license
- Projects for qualifying utilities and governmental agencies
- Prime and subcontractors
- Sales and use tax
- Owner-furnished materials
- Reservation projects
- How to file excise tax returns
Contractor's Excise Tax Facts
See what others are asking the Department of Revenue about Contractor's Excise Tax.
Contractors do have to report the value of material furnished by the owner of the construction project, except for qualified utility projects. The fair market value of the owner-furnished material includes sales or use tax on the material.
Contractors also owe state and applicable municipal use tax on all material furnished for a construction project if they do not have documentation showing sales or use tax was paid. Documentation may include a copy of the invoice showing tax or a written statement from the owner that sales or use tax was paid. Contractors will owe use tax on material furnished by a government or other sales tax exempt entity because the government will not have paid sales tax at the time of purchase. Contractor's excise tax and use tax due on owner-furnished material is reported during the reporting period the material is furnished for the contractor’s use.
A person who owns land and builds with the intent of selling the building once it is complete is an operative (speculative) builder and is a prime contractor. This includes new construction or remodeling of existing structures.
This person must have a contractor's excise tax license whether they do the construction themselves or hire someone else. More information is available in the Speculative Builders and the $100,000 Rule Tax Fact (PDF).
Most floor covering sales and installations are subject to sales or use tax, not contractor's excise tax. All other types of flooring, such as ceramic tile, terrazzo work, and epoxy flooring are subject to contractor's excise tax. More information is available in the Flooring Tax Fact (PDF).