South Dakota

Planning a home improvement project in South Dakota involves a unique approach to contractor licensing, with most regulations handled at the local level rather than statewide. However, understanding sales tax and specific trade licenses is crucial for a smooth and compliant project.

Contractor Licensing in South Dakota: Local Focus, State Trades

South Dakota does not have a statewide general contractor license that applies to all home improvement work. Instead, general contractor and residential building contractor licensing is largely determined by individual cities and counties.

• Local (City/County) Requirements for General Contractors:
• Many municipalities in South Dakota, particularly larger ones like Sioux Falls and Rapid City, have their own specific licensing or registration requirements for general contractors and residential building contractors.
• These local requirements often involve:
• Business registration with the city/county.
• Obtaining a surety bond (e.g., Sioux Falls requires a $20,000 bond for residential building contractors).
• Carrying general liability insurance (often $300,000 per occurrence or higher).
• Proof of worker's compensation insurance (if applicable).
• Potentially a local exam or proof of experience.
• It is crucial to contact the building department or permitting office of your specific city or county to understand their local contractor licensing and permitting requirements.
• Statewide Trade-Specific Licenses: While general contracting is local, South Dakota does issue state-level licenses for several key trades:
• Electricians: Licensed by the South Dakota Electrical Commission. This includes Apprentice, Journeyman, and Master Electrician licenses, as well as Electrical Contractor licenses. Requirements involve extensive experience (e.g., 4 years apprenticeship for Journeyman, 2 years as Journeyman for Electrical Contractor), passing exams, and often a surety bond ($10,000 for Electrical Contractor).
• Plumbers: Licensed by the South Dakota Department of Labor and Regulation, Plumbing Commission. Licenses include Apprentice, Journeyman, and Plumbing Contractor. Requirements involve significant experience (e.g., 4 years apprenticeship for Journeyman, 6 years total for Plumbing Contractor), passing exams, and sometimes a surety bond (local requirements like Sioux Falls may require a $10,000 bond).
• HVAC (Mechanical/Refrigeration): South Dakota does NOT have a statewide HVAC license. However, like general contractors, many local municipalities (e.g., Sioux Falls, Rapid City) do require licenses for mechanical or refrigeration contractors. These often involve exams, surety bonds ($10,000 in Sioux Falls), and insurance.
• Federal EPA Section 608 Certification: Any HVAC technician who works with refrigerants must hold a federal EPA Section 608 certification, which is valid nationwide and does not expire.
• Contractor's Excise Tax License:
• All contractors in South Dakota who enter into a contract for construction services (including new construction, repair, or remodeling of real property) are required to obtain a South Dakota Contractor's Excise Tax License from the South Dakota Department of Revenue. This is a tax registration, not a licensing of competency, but it is mandatory for operating legally.

Always confirm your prospective contractor holds the correct local licenses (if applicable) and state trade licenses for the work your project involves.

Sales Tax on Home Service Projects in South Dakota

South Dakota has a state sales and use tax rate of 4.2%. Additionally, local sales taxes (municipal) can apply, typically ranging from 0% to 2%, bringing the combined rate up to 6.2% in some areas.

Here's how sales tax generally applies to home service projects in South Dakota:



• Services are Taxable by Default: South Dakota is one of the states where most services are subject to sales tax, unless specifically exempted. This includes repair services to tangible goods.
• Real Property Improvements (Construction Services):
• For construction services that involve the installation, alteration, repair, or improvement of real property (your home, building, or land permanently attached to it), a specific Contractor's Excise Tax (2% on gross receipts) applies, rather than the general sales tax on services.
• Contractor's Excise Tax: This 2% excise tax is imposed on the contractor's "gross receipts" from construction projects, which includes the cost of both materials and labor. The contractor is responsible for collecting this tax from the customer and remitting it to the South Dakota Department of Revenue.
• Materials: Sales tax (4.2% state + local) is also generally due on the materials purchased by the contractor and incorporated into the real property. Contractors typically pay this sales tax to their suppliers.
• Combined Impact: For a homeowner, this often means that the total invoice from a contractor for a construction project will include the costs of materials (on which the contractor has paid sales tax) plus labor, and then the 2% contractor's excise tax is added to that total.
• New Construction vs. Repair/Remodel: The excise tax applies to both new construction and repair/remodeling of real property. There is a limited "Four-Dwelling Exemption" for contractors building owner-occupied, single-family homes (up to four units).

It is crucial to have a clear, written contract that details how the 2% Contractor's Excise Tax and other sales taxes (on materials) are applied to your project. Consult the South Dakota Department of Revenue for detailed guidance.

How to Verify Licensing in South Dakota

Verifying a contractor's credentials in South Dakota requires checking both state-level trade boards and local municipal offices.

1. South Dakota Electrical Commission:

• Use this agency to verify electrical licenses. They typically have an online license search or can provide verification upon request.
• Contact Phone: (605) 773-3573
• Check the South Dakota Department of Labor and Regulation website for links to the Electrical Commission.

1. South Dakota Department of Labor and Regulation (DLR) - Plumbing Commission:

• Use this agency to verify plumbing licenses. They also often have an online license search or direct contact information.
• Contact Phone: (605) 773-3429
• Check the South Dakota Department of Labor and Regulation website for links to the Plumbing Commission.

1. Local City/County Building Departments/Permitting Offices:

• For general contractors, residential building contractors, and HVAC contractors (since there's no statewide license), you MUST contact the building department or permitting office of your specific city or county.
• Ask about their local licensing, registration, bonding, and insurance requirements. They can confirm if a contractor is properly authorized to work in their jurisdiction and if permits are needed for your project.
• Examples to search for on official city websites:
• City of Sioux Falls Building Services
• City of Rapid City Building Services Division

1. South Dakota Department of Revenue - Business Tax License Verification:

• Verify that any contractor performing construction services holds a valid South Dakota Contractor's Excise Tax License. This is mandatory.
• Apply for Business Tax License / Verification: This can often be done through the SD Department of Revenue's online business tax services.
• Contact Phone: (605) 773-3311

1. South Dakota Secretary of State - Business Entity Search:

• Any legitimate business operating in South Dakota should be registered with the South Dakota Secretary of State. This confirms their legal existence.
• SD SOS Business Search: https://sos.sd.gov/online/businessinquiry (or search "South Dakota Secretary of State business search")

1. Proof of Insurance and Bonding:

• Always request a Certificate of Insurance (COI) directly from the contractor's insurance provider, showing current general liability and workers' compensation coverage (if applicable).
• If local ordinances or specific trade licenses require a surety bond, request proof of that bond as well.

By thoroughly checking these various points of verification, you can significantly enhance your consumer protection when hiring a home service contractor in South Dakota.

Sources and Resources:

• South Dakota Department of Labor and Regulation (DLR) - Boards and Commissions:
• Electrical Commission: (Find contact info/website via DLR main site)
• Plumbing Commission: (Find contact info/website via DLR main site)
• Official Website: dlr.sd.gov
• South Dakota Department of Revenue (DOR):
• Official Website: dor.sd.gov
• Contractor's Excise Tax Information: https://dor.sd.gov/businesses/taxes/contractors-excise-tax/
• Apply for Business Tax License: (Accessible via DOR website)
• South Dakota Secretary of State:
• Business Entity Search: https://sos.sd.gov/online/businessinquiry
• Local City/County Building Departments: (e.g., Sioux Falls, Rapid City)
• You will need to search their specific official websites for local contractor registration and permitting information.
• Harbor Compliance - South Dakota Construction License:
• (Provides a good summary of state and local requirements) https://www.harborcompliance.com/south-dakota-construction-license