Starting a contracting business in South Dakota is a big step. Just like those men on the side of Mt. Rushmore, it takes leadership and bravery. But, as a business owner, you’ll get to choose the types of projects you take and the customers you want to partner with. One area where you won’t have any say is South Dakota contractor license requirements.
But the beginning stages of building a business are hectic, and looking up all the nuances of getting a South Dakota contractor license is time-consuming. This guide will help, as it lays out all the need-to-knows in one article to ensure you start your business on the right path.
Contracting in another state? Check out The Ultimate Guide to Contractors License Requirements in Every State.
Who needs a contractors license in South Dakota?
If you think about South Dakota, it’s full of ranches of wide-open spaces, with many people living miles away from each other. The majority of the population lives in just a few centralized areas, and it affects how the state handles contractor licensing.
Rather than spread its resources far and wide across the Mt. Rushmore State, South Dakota leaves the majority of licensing up to the local jurisdictions. The only contractors required to carry state-issued licenses in South Dakota are electricians and plumbers. Everyone else has a local city or county to deal with.
With that said, contractors aren’t off the hook with the state completely. All contractors engaged in construction need to register for a South Dakota Contractor’s Tax License with the Department of Revenue.
Is there a general contractor license in South Dakota?
While there are licenses for general contractors in South Dakota, they aren’t issued by the state. Instead, some individual cities and counties issue residential building licenses, which are generally the same.
However, general contractors specializing in commercial construction have very little regulation to deal with.
Do you need a license to file a mechanics lien in South Dakota?
South Dakota does have some rather serious penalties when it comes to unlicensed contracting, and we’ll cover them in a bit. However, the state’s approach to mechanics liens is a bit more relaxed.
South Dakota’s mechanics lien laws do not explicitly require a contractor to carry a license to file a mechanics lien. But, just because the state’s law doesn’t require a license doesn’t mean you shouldn’t carry one.
Consider what would happen if you file a lien and the project owner still doesn’t pay. You’ll have to present your case in front of a court. How is that court going to look upon your unlicensed status as you attempt to foreclose on someone’s property? Probably not great.
How to get a contractor’s license in South Dakota
The rules about who needs a license and how they can get them depend on several variables. Electricians and plumbers need state-issued licenses, while GCs in one city might need a license — but not in the neighboring town.
We’ll cover these scenarios in a bit, but let’s first look at some tax considerations.
How to get a South Dakota contractor’s excise tax license
The South Dakota Department of Revenue requires all contractors who enter “into a contract for construction services” to carry a South Dakota contractor’s excise tax license. This includes contractors who repair or remodel existing real property and those who build new structures.
Contractor tax license applicants can find their application listed on the Department of Revenue’s website under “Apply for Business Tax License,” and they can apply entirely online. The information required is fairly straightforward, requiring just business type and company or owner identifying information.
How to get a South Dakota electrical contractor license
Electrical contractors in South Dakota must pursue licenses through the Department of Labor and Regulation. The requirements are relatively minimal:
- Carry a South Dakota journeyman electrician’s license for at least two years (4,000 hours)
- 2,000 hours must be commercial work
- Fill out this application, and have it notarized
- Secure a $10,000 surety bond
- Complete this verification form
The cost for applying is $50, and the cost for biannual renewal is also $50.00.
How to get a South Dakota plumbing contractor license
Like electricians, plumbers will have to pursue licensing through the Department of Labor and Regulation. To apply for a contractor’s license, you must:
- Have six years of experience as a plumber
- Have spent at least 1,900 hours per year during those six years as a plumbing contractor, plumber, or plumber’s apprentice
- Fill out the plumbing contractor application (which is the same application for all plumbing license types)
- Pay for the exam and licensing fee, totaling $375
How to get a South Dakota contractor license at the local level
Several of the cities throughout South Dakota have their own rules for contractors. The following includes some of the most populated cities as well as the regulations they require of contractors.
Sioux Falls doesn’t take the same laid-back approach to licensing that the state does. Instead, it requires all contractors performing work on residential 1 and 2-family homes to carry licenses for work that requires a permit. And just about everything requires a permit in Sioux Falls — including sheds, decks, shingles, sheetrock, replacing exterior doors, and more.
The Residential Building Contractor license requires the applicant to take and pass the Construction Supervisor Examination, which is an open book test held by the city. The requirements are:
- Fill out this application
- Submit proof of a $20,000 bond
- Submit proof of $300,000 general liability insurance
- Pay $75 application fee
Electrical and plumbing
The City of Sioux Falls takes electrical and plumbing licensing even further. Applicants must hold a state-issued license, but the city will still require them to take and pass an examination.
Electrical contractors must:
- Fill out this application
- Submit proof of a $10,000 bond
- Pay $75 application fee
Plumbing contractors must:
- Be a master-level plumber
- Fill out this application
- Submit proof of $10,000 bond
- Pay $75 application fee
Rapid City will most likely require the majority of contractors to carry city-issued licenses, but information is sparse. The city’s website states:
“If you are seeking a Contractor’s License, Building Permit, Building Plans Review, Building Inspections or Air Quality Permit, please contact Building Services at 605-394-4120.”
Aberdeen, South Dakota, requires licenses for most contractor types, but the city keeps contractor licensing requirements under wraps. The city’s website states:
“Various licenses required within the city may be obtained at the Auditors Division of the Finance office. Applications may be obtained from City Hall, located at 123 South Lincoln Street.”
Regulated contractors that require licenses include:
- Residential building contractors
- And more additional categories
The only contractor types that Brookings, South Dakota, licenses are plumbing and residential contractors. Applicants will use the same paper application as circuses, carnivals, and pawnbrokers.
The requirements for plumbing contractors are:
- Pay a $50 fee
- Submit proof of a $1,000 bond
- Copy of state-issued plumbing contractor license
- Submit proof of $50,000/$100,000 general liability insurance
The requirements for residential building contractors are:
- Pay a $75 fee
- Supply a tax excise number
- Provide proof of worker’s compensation insurance
- Provide proof of liability insurance in the sum of $500,000 or more for each occurrence
Watertown, South Dakota’s Community Development Building Services Department only requires licenses from residential building contractors. Applicants will use this application, and the requirements are minimal:
- Pay a $60 fee
- Provide proof of $500,000 liability insurance policy
- Proof of worker’s compensation insurance
Penalties for unlicensed contracting in South Dakota
It would seem that a state with such laid-back requirements around contractor licensing would have a similarly laid-back approach to penalties. But that’s not the case in South Dakota.
South Dakota doesn’t require many contractors to carry a contracting license, but it’s serious about its tax excise requirements. Contractors who don’t carry the appropriate tax excise license are guilty of a Class 1 Misdemeanor. These lawbreakers can expect to pay fines up to $1,000 and possibly spend up to a year in jail. Continuing to contract can boost the fines up to $4,000 or up to two years in the pen.
Beyond South Dakota’s laws, each municipality has the ability to impose its own fines and penalties. Unlicensed contractors can expect to pay thousands of dollars if they don’t get the appropriate licenses.
How to protect your payments in South Dakota
South Dakota contractor license requirements might seem a little different than most states, but the hardships that contractors face are the same. Construction is a cash-hungry business, and the best way to grow is by protecting your cash flow. How do you do that? By understanding South Dakota’s requirements to protect your lien rights.
For example, sub-subcontractors and suppliers to subcontractors in South Dakota must send preliminary notice on projects if the general contractor filed and posted a Notice of Commencement. A preliminary notice is a friendly introduction between the company and the project owner, and it reminds them of your right to payment for work. Subs and suppliers have just 60 days from last furnishing to send this document in order to protect their lien rights.
When it comes to actually filing a lien, all contract participants have up to 120 days from last furnishing to file. This is substantially shorter than many states, so it’s important not to miss this deadline.
Unlike the window to file, the window to enforce the lien is much longer than most states. South Dakota contractors have up to six years to actually enforce the lien. However, the property owner can drastically shorten the window for enforcement by requesting to have the lawsuit initiated sooner. This shortened deadline goes from six years to 30 days from the project owner’s request.
For that reason, it’s important that South Dakota contractors take their lien rights seriously and stay on top of the requirements and deadlines.
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