Vehicle Rental – Sales, Use, and Automobile Rental Tax

The rental of motor vehicles in Iowa is subject to sales / use tax. The rental may also be subject to the Iowa automobile rental tax.

Sales Tax

Rental of a vehicle has occurred in Iowa when possession of a vehicle is transferred to a customer in Iowa. Transfer of possession of the vehicle must occur in Iowa; the contract for rental of the vehicle doesn’t need to be executed here. The tax is due when any lump-sum or periodic payment is paid in Iowa.

When both payment and transfer of possession occur in Iowa, sales tax is due regardless of whether the vehicle is subsequently used outside Iowa.

Use Tax

If a customer takes possession of a vehicle outside Iowa and the vehicle is later used within Iowa, rental payments are subject to Iowa use tax if those rental payments are made in Iowa.

Automobile Rental Tax

A 5% state excise tax is imposed on the rental of vehicles designed to carry nine or fewer passengers that are rented for a period of 60 days or less. This is in addition to the 6% state sales / use tax and any applicable local option sales tax. The automobile rental tax is not imposed on delivery trucks, motorcycles, and motorized bicycles.

This excise tax is reported and remitted on a quarterly basis electronically through eFile & Pay. No permit other than an Iowa sales or use tax permit is required to collect the automobile rental tax.

Rentals Exempt from Tax

The following are generally exempt from sales, use, and automobile rental tax:

*limousine service, towing service, and armored car service are subject to sales / use tax, but not to automobile rental tax.

Rental Price – Taxable & Non-taxable Items

The following are included in the rental price subject to tax:

The following are excluded from the rental price subject to tax:

To be excluded from the taxable rental price, the charge must be separately stated, separately itemized, and the charge cannot be required as a condition of the rental.

Iowa One-Time Registration Fee (formerly called Motor Vehicle Use / Lease Tax)

The purchase / lease of vehicles subject to registration is exempt from sales tax. These vehicles are subject to a one-time registration fee at the rate of 5% on the sales or lease price. For purposes of the one-time registration fee, a lease is defined as an agreement for use of a vehicle for a period of 12 months or longer.

For more information on the one-time registration fee, including a potential exemption from the fee when vehicles are purchased for rental, please see our UT510 Manual (pdf).