Iowa Acts 2012 Senate File 2342, effective May 25, 2012, created a new sales and use tax exemption for "[t]he sales price from the sales of water, electricity, chemicals, solvents, sorbents, or reagents to a retailer to be used in providing a service that includes a vehicle wash and wax, which vehicle wash and wax service is subject to section 423.2, subsection 6." Because this exemption became effective upon enactment, the Department is providing the following guidance for retailers and utilities in advance of actual rulemaking.
What Items Are Exempt?
- Chemicals, solvents, sorbents, or reagents: examples of items that could qualify are soaps, waxes, sealants, and drying agents. We will work with industry groups to develop a more comprehensive list for the administrative rules.
- Water and electricity:
- For stand-alone vehicle wash and wax facilities ("car washes"), the Department's presumption is that 100% of the electricity and water purchased will be used for the exempt vehicle wash and wax service.
- For other businesses that provide vehicle wash and wax services (convenience stores, gas stations, automobile dealerships, etc.), the Department's presumption is that less than 100% of the water and electricity purchased will be used in the vehicle wash and wax service. The best solution would be to have separate meters for the water and electricity used in the vehicle wash and wax service. If that is not possible, the retailer should determine and document a reasonable basis for the exempt percentage of water and electricity. That amount should be affirmatively communicated to the local water and electricity carriers so that they may bill appropriately.
- The exemption for water and electricity is effective for billing dates on or after May 25, 2012.
Claiming the Exemption
To claim the exemption, retailers should submit to their suppliers and water and electricity providers a completed Iowa Sales Tax Exemption Certificate: http://www.iowa.gov/tax/forms/31014.pdf
The Exemption Certificate should indicate the purchaser is doing business as a "Retailer." For the "reason purchaser is claiming exemption," retailers should check the "Other" box and indicate "Car Wash Exemption."