Building a New Home in South Dakota? Find the 2% Excise Tax

What is South Dakota’s contractor’s excise tax?

If you are moving to South Dakota and thinking about building, plan for a tax that sits inside the construction price. South Dakota imposes an excise tax of two percent on the gross receipts of prime contractors engaged in realty improvement contracts. That is SDCL 10-46A-1, and the Department of Revenue’s July 2026 Contractor’s Excise Tax Guide lists the rate as 2%.

A prime contractor, in the department’s words, is anyone entering into a contract for construction services or realty improvements with the project owner. When you hire a builder to put a house on your lot, that builder is the prime contractor. Subcontractors who work for the builder generally do not owe the tax on their own receipts when the builder gives them a prime contractor’s exemption certificate for the project, under SDCL 10-46A-2.1 and the guide.

Two details affect what the 2% is figured on:

• It is figured on the builder’s whole receipts. The guide and the department’s speculative builders tax fact both say the gross receipts include the tax collected from the customer.
• Materials you supply still count. The guide and the tax fact both say the tax reaches materials the owner furnishes for the contractor to install.

Sales tax is a separate tax. The department lists state sales and use tax at 4.2%, municipal sales and use tax at 1 to 2%, and the contractor’s excise tax at 2%, as separate taxes. If you will buy appliances or materials yourself, check the city rate where you receive or use them on the department’s municipal tax rate chart.

Where does the tax show up when you build?

It shows up in the builder’s price. SDCL 10-46A-12 says a contractor may list the contractor’s excise tax, and certain use taxes, as a separate line item on contracts and bills. The same section, and the guide, say that line item is part of the contractor’s total bill and is collectible from the customer.

So when you compare bids, check whether each one shows the excise tax on its own line or folds it into the total, so you are comparing the same thing. Ask each builder to show you how the tax is handled before you sign.

There is also a quick check you can do on the job itself. SDCL 10-46A-12.1 says a contractor shall post its excise tax license number with the building permit for a realty improvement project. The guide repeats that rule. If the city or county where you are building requires a permit, look for the number near the permit when work starts.

For a sense of scale, if a building contract were $400,000, 2% of it would be $8,000. That is simple arithmetic on the statutory rate, not a quote, and the guide’s rule that gross receipts include the tax collected means the figure on a real bill can come out a little higher.

What about rural water or utility line work on an acreage?

If you are building on an acreage, some of the work to bring service to the site may fall under a different chapter. SDCL 10-46A-1.2 says realty improvement contracts for certain utilities, including any rural water system, are not subject to this chapter and are subject to the contractor’s excise tax in chapter 10-46B instead. Ask the utility or its contractor how a line extension or hookup will be billed before you budget for it.

What if you act as your own general contractor?

If you plan to hire each trade directly, the tax still applies, and the question becomes who owes it. The department’s guide says an owner is a prime contractor when building or remodeling with the intention of selling the property or building property to lease, and its speculative builders tax fact says a person who builds a home intended as a personal residence is not a prime contractor on that project. The tax fact says every contractor hired is responsible for reporting the contractor’s excise tax on its own receipts. Because each trade is contracting with you as the project owner, each one is a prime contractor under the guide’s definition.

The guide and the tax fact draw one more line that matters for this plan. A construction manager who only manages the project, while the contractors contract with the owner, provides a service subject to sales tax. A manager who takes on construction work under its own contract is a prime contractor and owes the contractor’s excise tax.

What if you buy a home a builder just finished?

The Department of Revenue has a name for a seller who owns the land and builds with the intent to sell: a speculative builder. Its tax fact and its guide both describe that person, and both say it includes remodeling existing structures to sell, also known as flipping. Both say the spec builder needs a contractor’s excise tax license. The tax fact says the spec builder is responsible for the tax when the improvement is sold within four years of completion, and that the tax does not apply when it is sold more than four years after completion.

The statute behind this is SDCL 10-46A-5, and it also uses a four-year window tied to completion. It has its own scope language, so whether it reaches a particular seller is a question for the Department of Revenue, not something to settle from a listing.

The tax is figured on the sale price less certain deductions, and the land is one of them. Both the statute and the tax fact value the land at its cost or fair market value, whichever is greater, for that deduction. Ask the Department of Revenue about the other deductions that can apply.

A seller the department treats as a speculative builder is responsible for the tax on that sale. When you compare a newly finished home with an older one, ask the listing agent when the home was completed and whether the seller built or remodeled it to sell. That tells you which rules the seller is working under. It does not tell you what the price should be.

How do you compare building, buying new and buying existing?

Lay the new-construction paths side by side before you choose:

An existing home is the other path, and the simplest on this point. When an improvement is sold more than four years after it was completed, the tax fact says the contractor’s excise tax does not apply to that sale, and SDCL 10-46A-5 only reaches sales within four years. Price is a separate question. If you are still deciding on a town, the moving to South Dakota guide covers the bigger picture.

Then work through this short list:

1. Get every bid in writing with the excise tax shown or explained.
2. Ask for the completion date on any newer home you are looking at, and who did the work.
3. Check the license number posted with the building permit once construction starts.
4. Keep sales tax separate in your budget for anything you buy yourself, such as appliances.
5. Take tax questions to the source. The Department of Revenue publishes the guide and the tax facts, and a tax professional can apply them to your plans.

If you are weighing a new build against an existing home in a specific town, the guide to comparing new construction in southeast South Dakota walks through the other trade-offs. The tax on a newer property can also change after you buy, which is covered in how discretionary formulas phase in property taxes. For the wider budget, start with the cost of living in South Dakota guide.