For immediate release:   Thursday, April 1, 2010

For more information:    Jan Talley, Director, or Jane Page, Assistant Director,

                                          Business Tax Division, 605.773.3311

Tax Change on Construction Projects for Municipal Utilities

PIERRE, S.D. – All contracts bid on or after Feb.  25, 2010, for construction services or realty improvements for municipal owned utilities are now subject to contractors’ excise tax under SDCL 10-46A, a law passed by the 2010 South Dakota Legislature.

House Bill 1094 moved the taxation of municipal utility contracts from the alternate excise tax to the regular contractors’ excise tax.  Because the bill contained an emergency clause, the change became effective as soon as Gov. Mike Rounds signed it. Municipal owned utilities including sewer systems, water systems, electric, light, heat and power are now subject to the regular contractors’ excise tax.

Jan Talley, Director of the Business Tax Division for the state Department of Revenue & Regulation, says the change helps to eliminate the confusion over what tax is applicable to municipal mixed contracts.  Examples of municipal mixed contracts include situations in which a municipality approves replacement of a water main and pavement of a street in one contract; a municipality replaces a water main in a residential area; or a municipality approves replacement sewer lines, curb and gutter, and resurfacing of the street in one contract.

“Prime contractors on municipal utility projects owe contractors’ excise tax on their gross receipts, which includes the value of materials furnished by the city, along with any sales or use tax on materials furnished by the contractor or the city,” says Talley.  “Subcontractors may accept a prime contractors’ exemption certificate and will not owe contractor’s excise tax on their receipts.”

Construction projects for municipal telephone systems remain subject to the alternative contractors’ excise tax of SDCL 10-46B.

For more information regarding contracts for municipal construction projects or tax application on contracts bid prior to Feb. 25, 2010, contact the South Dakota Department of Revenue & Regulation at bustax@state.sd.us or call 1.800.829.9188.

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