Bonding in South Dakota

A surety bond is a 3-party promise. The contractor (principal) pays a surety company for a bond that a customer, subcontractor, or a public body (obligee) can draw against if the contractor breaks the rules the bond covers. The surety pays valid claims up to the face value. The contractor then owes the surety for what the surety paid out. A bond protects the public. It is not insurance for the contractor. South Dakota does not issue a general statewide contractor license and does not attach a statewide license bond to the SD Electrical Commission or SD Plumbing Commission credentials. South Dakota contractors instead register for a Contractor's Excise Tax license with the Department of Revenue under SDCL Title 10 Chapter 46A for tax purposes, and carry municipal licenses for trade work where the city requires it. Bonds in South Dakota show up in 3 distinct places. Keep them separate. 1. Public works payment and performance bonds (South Dakota's Little Miller Act, SDCL 5-21). Under South Dakota Codified Laws (SDCL) Title 5 Chapter 21, the contractor on a public improvement contract must furnish a performance bond and a payment bond, each in an amount prescribed by the public body, before starting work on projects exceeding the statutory threshold. The performance bond protects the public body if the contractor fails to complete. The payment bond protects subcontractors and suppliers. Both must be written by a surety authorized in South Dakota. These are project bonds, not license bonds. Source: South Dakota Legislature (https://sdlegislature.gov/). 2. Mechanic's-lien bonds (SDCL Title 44 Chapter 9). A contractor or property owner can post a surety bond under SDCL Title 44 Chapter 9 to release a mechanic's lien from a property. The claim attaches to the bond instead of the real estate. This is a project-specific lien tool, not a license bond. 3. Municipal contractor bonds. South Dakota cities sometimes require a small surety bond for mechanical, plumbing, or general contractor registration inside city limits. Amounts vary by city. Sioux Falls, Rapid City, Aberdeen, and other cities each run their own registration programs. Verify with the city's building or licensing department before posting. Contractor's Excise Tax. South Dakota imposes a 2 percent contractor's excise tax on gross receipts from construction services, under SDCL 10-46A. The tax is a contractor-level gross-receipts tax rather than a sales tax on the customer, but it is typically passed through on invoices. Registration with the SD Department of Revenue for an Excise Tax license is required for any contractor operating in South Dakota. Premium math. A surety charges an annual premium, typically 1 percent to 3 percent of the bond face value for a contractor with strong credit and no prior claims. Weaker credit, tax liens, prior surety losses, or a new business can push the rate to 5 percent to 10 percent or more. Project payment and performance bonds on South Dakota public works are priced per job, usually 0.5 percent to 3 percent of the contract price. What claims look like. A homeowner, subcontractor, or public body files a complaint or sues. If the claim falls within the bond's coverage and is reduced to a judgment or administrative order, the surety pays and then pursues the contractor for reimbursement. Bond, insurance, and workers' compensation are separate requirements. A South Dakota contractor carries any applicable project or municipal bond, general liability insurance at whatever level the work and contract require, workers' compensation as required by SDCL Title 62 (Workers' Compensation), and the applicable trade license (SD Electrical, SD Plumbing, or municipal mechanical).