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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:

SEE Contractor’s Excise Tax Guide

 

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.

See Tax Filing Dates

 

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:

 

Prime Contractor

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 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.

 

Subcontractors

  • 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.

 

Prime Contractor

  • 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 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.

 

Subcontractors

  • 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’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.

We have created a easy to use form to help you calculate the contractor's excise tax, please use the link below.

Link: Contractor's Excise Tax Bid Calculator

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.

See Exemption Form

 

Construction Services and Realty Improvement Projects within Indian Country

South Dakota has nine (9) tribes. Five tribes currently have comprehensive tax collection agreements; two tribes have limited agreements; and two tribes do not have agreements that include contractor’s excise tax. It is our recommendation that prior to working within Indian country you contact the tribe to see what requirements they may have for businesses / contractors working within their jurisdictions.

 

Tax Collection Agreement Areas

Currently five Indian tribes in South Dakota have comprehensive tax collection agreements with the State that include, but are not limited to sales, use, and contractor’s excise tax. The five Indian tribes with comprehensive tax collection agreements are the Cheyenne River Sioux Tribe, Crow Creek Sioux Tribe, Oglala Sioux Tribe, Rosebud Sioux Tribe and Standing Rock Sioux Tribe. The Special Jurisdiction areas for the five comprehensive tax collection agreements are as follows:

  • Cheyenne River Special Jurisdiction: the Cheyenne River Indian Reservation, which is Dewey and Ziebach Counties, excluding a 500 foot strip of land in the northern-most portions of Dewey and Ziebach Counties.
  • Crow Creek Special Jurisdiction: the Crow Creek Indian Reservation, which includes portions of Hughes, Hyde, and Buffalo Counties.
  • Oglala Special Jurisdiction: the Pine Ridge Indian Reservation, which is Oglala Lakota County, and that portion of Jackson County south of the White River. This Special Jurisdiction also includes the Allen Store in Allen, SD, and the East Wind Casino and Sunrise Housing Development, which is located on the east edge of Martin, SD.
  • Rosebud Special Jurisdiction: the Rosebud Indian Reservation, which is Todd County. This Special Jurisdiction also includes certain Indian country defined by 18 U.S.C. § 1151 (b) and (c) in Mellette, Tripp, and portions of Gregory and Lyman Counties controlled by the Rosebud Sioux Tribe.
  • Standing Rock Special Jurisdiction: the Standing Rock Indian Reservation, which is Corson County and a 500 foot strip of land in the northern-most portions of Dewey and Ziebach Counties.


Contractor’s Excise Tax is applied to the gross receipts of contractors providing construction services or realty improvements.

  • This tax applies to Indian and non-Indian contractors on all projects.
  • This 2% rate reflects the Special Jurisdiction contractor’s excise tax and is reported using the applicable Special Jurisdiction excise tax code on the state contractor’s excise tax return.


Contractors owe 4.5% sales tax or use tax on construction materials used in all construction projects regardless if used in projects for the United States government, the Tribal government, the State of South Dakota, or private persons. Contractors also owe use tax on material furnished to them by an exempt entity, such as the Tribal government or the State of South Dakota.

  • Municipal sales tax or use tax may be due if the material is delivered or used in a city that imposes a municipal tax.
  • Sales tax or use tax on all material delivered within a Special Jurisdiction is reported using the Special Jurisdiction’s code for sales/use tax.
    • If the contractor picks up the material at a location outside the Special Jurisdiction, but within South Dakota, the state sales tax would apply. This would not be reported under the Special Jurisdiction sales/use tax code.
    • If the contractor purchases materials at a location outside South Dakota, and the materials are delivered to the contractor within the Special Jurisdiction, the Special Jurisdiction use tax would apply. Credit will be allowed for tax paid to another state.

See Tax Fact

 

Limited Tax Collection Agreement

The Sisseton Wahpeton Oyate limited tax collection agreement includes the use tax and contractor’s excise tax at only the following locations:

  1. The Dakota Connection Property — a casino, restaurant, convenience store, and gas station located east of Sisseton at the junction of I-29 and HWY 10;
  2. The Agency Village Property — a convenience store and gas station located in Agency Village (10 miles south of Sisseton);
  3. The Dakota Sioux Property —a casino, hotel, restaurant, convenience store, and gas station located northwest of Watertown;
  4. The Buffalo Lanes Property —a bowling alley located east of Sisseton at the junction of I-29 and HWY 10; and
  5. Dakota Crossing Grocery Store —a grocery store located east of Sisseton on HWY 10.

The Yankton Sioux Tribe limited tax collection agreement includes the use tax and contractor’s excise tax at only the following locations. Both properties are located on Highway 46, 10 miles west of Wagner, SD, or 3 miles east of Pickstown, SD:

  1. Fort Randall Casino & Smokeshop property; and
  2. Yankton Sioux Tribe Travel Plaza

See Tax Fact

 

Indian Country Not Included in Tax Collection Agreements

The State of South Dakota does not have sales, use, or contractor’s excise tax collection agreements with the Flandreau Santee Sioux Tribe or the Lower Brule Sioux Tribe. The Yankton Sioux Tribe and the Sisseton Wahpeton Oyate have limited tax collection agreements that do not include sales tax, and do not include use tax or contractor’s excise tax in areas not defined in the agreements.

Generally, non-tribal member contractors doing construction services or realty improvements within Indian country that is not included in a tax collection agreement are subject to the state contractor’s excise tax. The 4.5% state sales tax or use tax also applies to materials purchased for these projects.

  • Tribal government or enrolled tribal member contractors providing construction services or realty improvements within Indian country controlled by the contractor’s tribe do not owe state contractor’s excise tax when the Indian country is not included in a tax collection agreement. In those instances, the Tribal government or enrolled tribal member contractor does not owe state use tax on materials when the materials are delivered by a retailer, not licensed by the Department of Revenue, to the contractor within Indian country controlled by the contractor’s tribe.
  • An tribal contractor, not licensed by the Department of Revenue, performing a construction service within Indian country controlled by the contractor’s tribe cannot issue a prime contractors’ exemption certificate to subcontractors for the projects within Indian country controlled by the contractor’s tribe. Subcontractors who are not enrolled tribal members are then subject to the contractor’s excise tax.

 

Indian Country Project – Request for Exemption

Some construction projects may qualify for an exemption from state contractor’s excise, sales, and use taxes. The prime contractor or project owner may submit an “Indian Country Project—Request for Exemption”. The Department of Revenue will review the project by using a list of qualifying criteria and send back a written response either approving or denying the request for exemption. Contractors who have questions regarding the list of qualifying criteria should contact the department.

If approved, the contractor should provide material suppliers and subcontractors with a copy of the approved Request for Exemption form. The sales tax and use tax exemption for materials only applies to materials incorporated into the project.One requirement for the exemption is that the project be located within Indian country controlled by one of the following Tribes and not included in a tax collection agreement area:

  • Lower Brule Sioux Tribe
  • Flandreau Santee Sioux Tribe
  • Sisseton Wahpeton Oyate
  • Yankton Sioux Tribe

Projects which may qualify include:

  • Tribal hospitals
  • Tribal housing projects
  • Tribal schools
  • Tribal administrative buildings

 

Contact Information

Before making sales or entering into a contract to provide construction services or realty improvements within Indian country controlled by these Tribes, but not included in the tax collection agreement, you should contact the Tribe to obtain information on taxes the Tribe may impose.

 

Business Education Program

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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

Find Upcoming Seminars

 

Other Contractor's Excise Tax Resources

 

Contractor's Excise Tax Online Forms

 

Contractor's Excise Tax Frequently Asked Questions

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).

Contractor's Excise Tax Laws & Regulations

Laws, regulations and frequently asked questions regarding contractor’s excise tax on businesses in South Dakota.

Record Keeping

Record keeping is a responsibility of those paying sales tax or contractor's excise tax. Keeping accurate and complete records makes filling out tax returns and other reports easier. It also helps us correctly determine your tax liabilities during an audit.