# South Dakota Contractor Taxes: Excise Tax, Taxed Services and No Income Tax

South Dakota taxes contractors differently from most states. Prime contractors on realty improvement projects owe a 2% contractor's excise tax on gross receipts, and they also pay sales or use tax on materials. Most services, including repair work, are subject to sales tax. South Dakota has no personal or corporate income tax.

## Key takeaways

- Prime contractors on construction and realty improvement projects pay a 2% contractor's excise tax on gross receipts, which include the tax collected from the customer.
- Contractors also owe sales or use tax on the materials they furnish.
- Sales tax applies to the gross receipts of all retail sales, and South Dakota counts most services as retail sales.
- The state sales tax rate is 4.2%, a reduction scheduled to sunset June 30, 2027.
- South Dakota doesn't require employers to carry workers' comp, but going without it exposes you to lawsuits.

## What is South Dakota's contractor's excise tax?

It's a tax on a contractor's gross receipts, not on the customer's purchase. The South Dakota Department of Revenue's 2026 sales and use tax guide says it is "imposed on the gross receipts of all prime contractors engaged in construction services or realty improvement projects in South Dakota. The gross receipts include the tax collected from the consumer." The rate is 2%. Few states have anything like it, so contractors moving in from [Nebraska](https://www.brix.so/taxes/nebraska), [Minnesota](https://www.brix.so/taxes/minnesota) or [North Dakota](https://www.brix.so/taxes/north-dakota) need to plan for it.

Subcontractors on non-utility projects are exempt from the excise tax if they hold a prime contractor exemption certificate from the prime. That puts the responsibility on whoever signs the contract with the owner. Get the certificate from your prime before you invoice.

> **Example: a $50,000 garage addition (illustrative)**
>
> The prime contractor owes 2% contractor's excise tax on gross receipts from the job. If the contract price is $50,000 and that's the full gross receipt, the excise tax is $1,000.
>
> Separately, the contractor paid sales or use tax on the lumber, concrete and roofing it furnished.
>
> A framing sub holding a prime contractor exemption certificate doesn't owe excise tax on its share.
>
> Ask your CPA how to price the excise tax into your bids and how it's reported.

## Is labor taxable in South Dakota?

Often, yes, because South Dakota taxes services broadly. The Department of Revenue says sales tax "applies to the gross receipts of all retail sales," and services count. Repair services are taxed where the repaired product is delivered. That's why South Dakota is the go-to example of a state that taxes many services. Realty improvement work is handled through the contractor's excise tax instead, so the key question for any job is: is this a construction or realty improvement contract, or a taxable service?

**South Dakota: which tax applies?**

| Type of work | Tax that usually applies | Who pays |
| --- | --- | --- |
| Construction or realty improvement contract | 2% contractor's excise tax on gross receipts | Prime contractor |
| Materials furnished on that contract | Sales or use tax on the purchase | Contractor |
| Repair or other service | Sales tax on the service | Customer, collected by the business |
| Floor covering sale and installation | Most are subject to sales or use tax, not the excise tax | Customer, collected by the business |

_Summarized from the SD Department of Revenue contractor's excise tax page and 2026 sales and use tax guide, checked 2026-10-19. Check with the department on mixed jobs._

For how other states draw these lines, see [sales tax on labor vs. materials](https://www.brix.so/learn/sales-tax-on-labor-vs-materials).

## Sales tax rate and use tax on materials

South Dakota cut its state rate from 4.5% to 4.2% "on July 1, 2023," and the department notes that HB 1137 "includes a sunset clause which repeals the rate reduction effective June 30, 2027." The July 2026 guide still lists 4.2%. If the Legislature doesn't extend the cut, the rate goes back up in mid-2027, so check with the department before you price longer jobs. Municipalities add a 1–2% municipal sales tax, and the state's GIS rate lookup gives the rate for an address.

Because contractors owe sales or use tax on materials they furnish, buying from out-of-state suppliers that don't collect South Dakota tax means you owe use tax yourself. See [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors).

## South Dakota contractor licensing

Licensing in South Dakota is trade-specific. The State Electrical Commission "licenses all electricians within the state," and the State Plumbing Commission licenses plumbers, sewer and water installers and others. We found no state general contractor license; cities may require their own contractor licenses and building permits, so check locally.

**South Dakota contractor licensing by trade**

| Trade | Agency | License | Official page |
| --- | --- | --- | --- |
| Electrical | State Electrical Commission (Dept. of Labor and Regulation) | Apprentice, journeyman, electrical contractor (bond required), Class B | [Electrical licensing](https://dlr.sd.gov/electrical/licensing.aspx) |
| Plumbing, sewer and water, appliance installers, septic, water conditioning | State Plumbing Commission | Plumbing and installer licenses; expire December 31 | [State Plumbing Commission](https://dlr.sd.gov/plumbing/default.aspx) |
| General contractor, roofing, HVAC | No state license found; check with your city | Local license or permit where required | Your local building department |

_Checked 2026-10-19._

Our [contractor license guide](https://www.brix.so/learn/contractor-license) explains how state and local licensing fit together.

## Does South Dakota have an income tax?

No. The Department of Revenue's guide says "South Dakota does not have a corporate, unitary, or personal income tax." The one business income-type tax is the bank franchise tax, which applies to financial institutions, not trades businesses. You still owe federal income and self-employment tax, so quarterly estimated payments to the IRS still apply; see [quarterly estimated taxes for contractors](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors) and the [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator).

## Workers' comp in South Dakota

South Dakota is unusual here too. The Department of Labor and Regulation says "there is no law in South Dakota requiring any employer to carry workers' compensation insurance." It strongly advises coverage, because an uninsured employer can be sued in civil court by an injured worker. General contractors and commercial customers may also ask for proof of coverage before you start work. Read [workers' compensation](https://www.brix.so/learn/workers-compensation) before deciding to go without.

## Local taxes in South Dakota

Cities levy a municipal sales tax of 1–2% on top of the state rate. A separate 1% municipal gross receipts tax applies to alcohol, eating places, lodging and admissions, which rarely touches trades work. Check the rate for each job address.

> **General information, not tax advice**
>
> The excise tax, exemption certificates and taxable services can interact in ways that change your bid. A CPA who works with South Dakota contractors, plus the Department of Revenue, are the right people to confirm how they apply to you.

BRIX keeps every quote, invoice and payment in one place and syncs with QuickBooks, so gross receipts by job are easy to pull when excise and sales tax returns are due. BRIX doesn't calculate excise tax or file returns.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

### Neighboring state guides

- [North Dakota](https://www.brix.so/taxes/north-dakota): State-fund workers' comp
- [Minnesota](https://www.brix.so/taxes/minnesota): Taxable lawn care and cleaning
- [Nebraska](https://www.brix.so/taxes/nebraska): Option 1, 2 and 3
- [Iowa](https://www.brix.so/taxes/iowa): Repair labor taxable

## Frequently asked questions

### What is the contractor's excise tax in South Dakota?

It's a 2% tax on the gross receipts of prime contractors on construction services and realty improvement projects in South Dakota. Gross receipts include tax collected from the customer. Subcontractors with a prime contractor exemption certificate don't owe it on non-utility projects.

### Is labor taxable in South Dakota?

Many services are. South Dakota's sales tax applies to the gross receipts of all retail sales, including services such as repair work. Construction and realty improvement contracts are instead subject to the 2% contractor's excise tax.

### Do South Dakota contractors pay sales tax on materials?

Yes. Contractors owe sales or use tax on the materials they furnish, in addition to the contractor's excise tax on gross receipts. Buying from an out-of-state supplier that doesn't charge South Dakota tax means you owe use tax.

### What is the South Dakota sales tax rate?

The state rate is 4.2%, cut from 4.5% on July 1, 2023. The reduction is set to sunset June 30, 2027 under HB 1137. Cities add a municipal sales tax of 1–2%.

### Does South Dakota have a state income tax?

No. South Dakota has no personal, corporate or unitary income tax. Only financial institutions pay a bank franchise tax. Federal income and self-employment taxes still apply to your business profit.

### Is workers' comp required in South Dakota?

South Dakota law doesn't require employers to carry workers' compensation, according to the Department of Labor and Regulation. The department strongly recommends it, since uninsured employers can be sued by injured workers.

### Do I need a license to be a contractor in South Dakota?

Electricians and plumbers need state licenses from the State Electrical Commission and State Plumbing Commission. There's no state general contractor license that we found, but cities may require local licenses and permits.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [North Dakota Contractor Taxes and Licensing: Materials, the $4,000 Rule and WSI](https://www.brix.so/taxes/north-dakota)
- [Minnesota Contractor Taxes and Licensing: Taxable Services, DLI Licenses and 2026 Rates](https://www.brix.so/taxes/minnesota)
- [Nebraska Contractor Taxes and Licensing: Options 1, 2 and 3 Explained](https://www.brix.so/taxes/nebraska)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [South Dakota Department of Revenue — Sales and Use Tax Guide (2026-7)](https://dor.sd.gov/media/avyep2sr/2026-7_sales-use-tax-guide.pdf) (checked 2026-10-19)
- [South Dakota Department of Revenue — Contractor's excise tax](https://dor.sd.gov/businesses/taxes/contractors-excise-tax/) (checked 2026-10-19)
- [South Dakota Department of Revenue — Sales and use tax](https://dor.sd.gov/businesses/taxes/sales-use-tax/) (checked 2026-10-19)
- [South Dakota Department of Revenue — Tax system update for state rate decrease](https://dor.sd.gov/newsroom/department-of-revenue-updates-tax-system-for-decrease-in-state-tax-rate/) (checked 2026-10-19)
- [South Dakota Department of Revenue — Bank franchise tax](https://dor.sd.gov/businesses/taxes/bank-franchise-tax/) (checked 2026-10-19)
- [South Dakota DLR — Electrical licensing](https://dlr.sd.gov/electrical/licensing.aspx) (checked 2026-10-19)
- [South Dakota DLR — State Plumbing Commission](https://dlr.sd.gov/plumbing/default.aspx) (checked 2026-10-19)
- [South Dakota DLR — Workers' compensation](https://dlr.sd.gov/workers_compensation/default.aspx) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/south-dakota