South Dakota Mileage Deduction 2026: Watch the Contractor's Excise Tax

South Dakota levies no personal income tax, so your mileage deduction is a federal-only benefit. At 17,000 business miles that is a $12,622 deduction worth roughly $4,708. The state complication is not income tax at all, it is the contractor's excise tax on gross receipts.

Source: South Dakota Department of Revenue: contractor's excise tax of 2% on gross receipts, with a bid factor of 2.041% used to pass the tax through in bids. Verified August 2026.

Reimbursed mileage can be taxable gross receipts

South Dakota's contractor's excise tax applies to gross receipts from construction work, and gross receipts is a broad term. If you bill a customer separately for mileage or travel, that billing is generally part of the receipt on which the 2% is computed. Drivers in the trades who itemize travel on invoices sometimes assume a pass-through cost is excluded. It usually is not.

The Department publishes a bid factor of 2.041% precisely because of this. Applying a flat 2% to the pre-tax amount under-collects, since the tax itself becomes part of the receipt. If you are pricing travel into a bid, the bid factor is the number to use.

The deduction and the excise tax are unrelated

Two separate systems are at work and they do not offset each other. Your federal Schedule C, Line 9 deduction at 76¢ (the rate from 1 July 2026; 72.5¢ before that) per mile reduces federal income and self-employment tax. The contractor's excise tax is computed on what you bill, before any cost deduction. Reducing your taxable profit does nothing to your excise liability, and paying excise tax does not reduce your deductible mileage.

Filing in South Dakota

There is no South Dakota individual income tax return, so the mileage deduction appears only on your federal return. If you perform construction work you file and remit contractor's excise tax separately on the Department of Revenue's schedule. Keep the mileage record regardless, since it is the federal deduction that carries the value.

FAQ

Does the contractor's excise tax apply to rideshare or delivery drivers?

No. It applies to realty improvement and construction services. A delivery or rideshare driver in South Dakota has no state tax on that income at all.

Why is the bid factor 2.041% instead of 2%?

Because the excise tax is itself part of gross receipts. The 2.041% factor grosses the bid up so that 2% of the final receipt equals the tax owed.

If there is no state income tax, is the log still required?

Yes. The IRS substantiation rules apply nationally. A mileage log recording date, destination, purpose, and miles is what supports the deduction on audit, and South Dakota's tax structure has no bearing on it.

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