Staffing agency license in South Dakota: no license since 1981, but sales tax on staffing fees

South Dakota does not license staffing or employment agencies. The state once regulated private employment agencies, but the Legislature repealed that chapter of the code in 1981, and nothing has replaced it. What a South Dakota staffing firm does face is unusual: the state taxes most services, so temporary staffing invoices carry sales tax on the full amount, and professional employer organizations need Department of Revenue approval to deduct payroll from their taxable receipts.

This page covers the repeal, the sales tax rules, PEO approval, health care staffing, the noncompete limits on nurses and other practitioners, and the employer accounts every firm needs. For other states, see employment agency license requirements.

The repeal: no license since 1981

South Dakota's employment agency law started out in Title 36, the professions and occupations title, as chapter 36-17. In 1977 most of its sections were transferred to Title 60 as chapter 60-6A, "Private Employment Agencies." The Legislature's code site now shows chapter 60-6A as "[Repealed by SL 1981, ch 367, §§ 1 to 4]," and chapter 36-17 as repealed and transferred.

I could not find the old chapter's text on the Legislature's site, so I cannot say what fee or bond it set. No current section of Title 60 regulates employment agencies, temporary help or search firms, and I found no 2023 to 2026 bill that would bring a license back.

What that means in practice:

• No license, bond or fee filing for direct-hire agencies, executive search, or temporary staffing, whoever pays the fee.
• Vendor forms. If a client's onboarding form asks for a South Dakota employment agency license number, answer that the state has had no such license since chapter 60-6A was repealed in 1981.
• Candidate fees have no statutory cap. General consumer protection law still applies: SDCL 37-24-6 makes it a deceptive act to knowingly use false promises or misrepresentation in connection with the sale or advertisement of "merchandise," which SDCL 37-24-1 defines to include a service, and SDCL 37-24-31 lets a person harmed sue for actual damages.

Sales tax: the rule that actually bites

South Dakota taxes services broadly. SDCL 10-45-4 imposes sales tax on the gross receipts of "any person from the engaging or continuing in the practice of any business in which a service is rendered," unless the service is specifically exempt. The exemption list in SDCL 10-45-12.1 does not mention employment agencies or help supply services.

For temporary staffing the Department of Revenue is explicit. Its March 2024 tax fact on professional employer organizations says a temporary help agency "is required to pay sales tax on all fees charged to the client with no deduction for actual disbursements to the employee or for employee expenses." SDCL 10-45-98 confirms that the PEO deduction does not apply to temporary help services or any arrangement where a firm temporarily assigns its own employees to supplement a client's workforce for absences, skill shortages, seasonal workloads or projects.

The state rate in the department's July 2026 guide is 4.2%, and municipal sales tax of 1 to 2% applies to products and services subject to the state tax. The code as published shows SDCL 10-45-2 and 10-45-5 returning to 4.5% on July 1, 2027 under SL 2023, ch 32, so build the rate into your billing system as a variable.

Direct-hire placement fees are grayer. No exemption covers them, so under SDCL 10-45-4 the starting point is that they are taxable, but I could not find a Department of Revenue publication that addresses placement or search fees by name. Ask the department's Business Tax Division in writing before you invoice your first South Dakota client, and keep the answer.

What applies, by business model

PEOs: Department of Revenue approval, not a license

South Dakota has no PEO registration act of the kind Nebraska and Kansas run. Instead, PEOs are handled through the sales tax. SDCL 10-45-96 makes a PEO's gross receipts taxable but lets it deduct its actual disbursements for its co-employees' wages, salaries, payroll taxes, payroll deductions, workers' compensation costs, insurance premiums, welfare and retirement benefits. SDCL 10-45-97 defines a PEO as a firm that enters into a co-employment contract for payroll, benefits and other human resources functions, covers at least 75% of the client's full-time or full-time equivalent employees domiciled in South Dakota, and keeps separate books for each client.

Under ARSD 64:06:02:89.01, each PEO doing business in South Dakota must be approved by the Department of Revenue. The department's tax fact includes the Request for Approval form. To apply, you:

• submit a sales tax license application first, since PEO status will not be considered without one;
• complete the Request for Approval with client details, including the number and location of the client's full-time South Dakota employees and the contract and co-employment dates; and
• send a copy of the signed client contract (a sample contract is not acceptable), marking where it covers each of the six terms in ARSD 64:06:02:89, including that the client keeps primary control over hiring, firing, pay and day-to-day direction.

The tax fact lists no approval fee. A firm that does not qualify pays sales tax on everything it bills, like a temp agency. A staffing firm that employs its own temps is not a PEO.

Health care and nurse staffing

South Dakota does not register or license health care staffing agencies. I found no such requirement in Title 34 (public health), in the nursing chapter of Title 36, or in the Department of Health's facility rules, and no bill creating one in the 2023 to 2026 sessions. The closest 2026 measure, House Bill 1138, would have licensed non-medical home care agencies; the Governor vetoed it on March 30, 2026, and the House failed to override.

The rules that do reach health care staffing firms sit elsewhere:

• Worker licensure. South Dakota belongs to the Nurse Licensure Compact under SDCL 36-9-98, so a nurse with a multistate license from another compact state can work there; others need a South Dakota license.
• Noncompetes. SDCL 53-9-11.2 makes voidable any provision in a contract entered into on or after July 1, 2023 that restricts a "practitioner" from practicing after the employment or relationship ends. The list in SDCL 53-9-11.1 includes registered and licensed practical nurses, nurse practitioners, physicians, pharmacists, therapists and others. SB 153, signed on March 9, 2026, extends the rule from July 1, 2026 to community services providers serving people with developmental disabilities. Narrow nonsolicitation clauses within the limits of SDCL 53-9-11 survive.

The noncompete rule restricts what you can impose on the clinician, not what you charge the facility. South Dakota has no statute like Nebraska's 2026 act limiting conversion fees, so a client-paid conversion fee is a contract matter; see temp-to-perm conversion fee for how those clauses are usually drafted.

Other rules worth knowing

• General noncompetes. SDCL 53-9-8 voids contracts restraining a lawful trade except as SDCL 53-9-9 to 53-9-12 allow. Under SDCL 53-9-11, an employee may agree not to compete or solicit existing customers for up to two years in a specified area where the employer still does business. That covers your internal recruiters too.
• E-Verify. House Bill 1209 (2026) would have required employers to use E-Verify. It died on March 11, 2026 when the Senate rejected the conference committee report. See E-Verify for staffing agencies for the federal rules and client contract clauses that still drive E-Verify use.

Employer accounts every South Dakota staffing firm needs

• Sales tax license with the Department of Revenue, if your services are taxable.
• Reemployment assistance (unemployment insurance) with the Department of Labor and Regulation. The department's tax FAQ says all new businesses must register; it lists a first-year rate of 1.20% for non-construction employers, plus a 0.55% investment fee. The staffing firm is the employer of record for its temps.
• Workers' compensation. SDCL 62-5-1 requires covered employers to secure payment of compensation through insurance or approved self-insurance. See staffing agency insurance requirements.
• No state income tax withholding. The Department of Revenue states that South Dakota has no personal income tax, so there is no state withholding account.
• Secretary of State registration for out-of-state entities.

The full setup sequence is in how to start a staffing agency. Neighbors differ: see Nebraska (no license, but PEO and coming health care staffing registration), Iowa (licenses agencies that charge workers) and Minnesota (license repealed in 2015, fee rules kept).

A South Dakota checklist

SOUTH DAKOTA CHECK — [date] — owner: [name]

Model:
  [ ] Direct hire / search / temp: no state agency license
      (chapter 60-6A repealed, SL 1981, ch 367)
  [ ] Sales tax license with DOR
  [ ] Temp invoices: tax on full bill rate (4.2% state + city)
  [ ] Direct-hire fees: written DOR answer on taxability
  [ ] Rate change scheduled July 1, 2027: billing updated

PEO / co-employment:
  [ ] DOR Request for Approval + signed client contract
  [ ] Contract covers all six ARSD 64:06:02:89 terms

Health care:
  [ ] Nurses: SD license or multistate (compact) privilege
  [ ] No clinician noncompetes in post-7/1/2023 contracts

Employer accounts:
  DLR reemployment assistance; workers' comp; SOS     [ ]
Next review: [date]

Re-check before July 1, 2027, when the state sales tax rate is scheduled to change, and after each legislative session, since bills on E-Verify and home care licensing came close in 2026.