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Potential Reduction in Contractor’s Excise Tax From State Legislature

FILE: Construction, Tractor, Bulldozer

South Dakota as a rule is a state where most citizens have an aversion to taxes. One exception to that notion is the Contractor’s Excise Tax.

The South Dakota Department of Revenue explains the fee like this: The contractors’ excise tax is a 2% tax imposed upon the gross receipts of contractors who are engaged in construction services or realty improvements in South Dakota. The contractors’ excise tax and the contractors’ sales and use taxes are part of the contractor’s total bill and are collectible from all entities, both public and private. State law allows contractors to list their tax expense as a separate line item on all contracts and bills.  The contractors’ excise tax is a gross receipts tax. Contractors may use a bid factor to recover the contractors’ excise tax due on their total gross receipts.

This particular tax is rare among governmental entities, but it reaps about $90 million for the state per year. State Representative Don Haggar says repeal of the tax is out of the question, but a reduction is feasible. “When I look at our business climate in South Dakota, the one black mark is that contractor excise tax. It’s a barrier to entrance because in some cases for a new business they can say, “We can build it cheaper in Worthington or Rock Rapids.’ Even if we just slightly decrease that Contractor’s Excise Tax, I think that sends a message that (South Dakota) wants your business.”

Haggar suggests a .25 percent reduction in the excise tax equating to about $5-6 million that the state would lose on the revenue side. However, Haggar is sure that the economic benefit for the state would offset the lost taxes.


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