GAMBLING: IOWA TAX INFORMATION

GAMES OF SKILL OR CHANCE AND RAFFLES

The gross receipts of all gambling activities -- except those noted below -- conducted in Iowa are subject to state sales tax and local option sales tax (if any).

Note: The following are exempt.

• the gross receipts from gambling activities conducted by county and city governments, or
• the gross receipts from gambling activities held by the Iowa State Fair or Fair Society (organized under Iowa Code chapters 173 and 174), or
• the gross receipts from gambling activities held at agricultural fairs (specified in Iowa Code section 99B.5)

Gambling activities conducted by churches and by charitable organizations are subject to sales taxes.

All gambling activity in Iowa must be licensed.

Prize winners must pay income tax on their winnings of any dollar amount.

Withholding tax applies to all cash prizes of more than $600.

PERMITS REQUIRED

Any individual or group conducting gambling activities in Iowa must:

(1) obtain a gambling license from the Iowa Department of Inspections and Appeals, and

(2) have either a permanent sales tax permit with the Iowa Department of Revenue or use a temporary sales tax return

Inspections and Appeals

The following licenses are available:

01 Amusement Concession

02 Amusement Sponsor’s

03 Social Gambling

04 Social Gambling

05 Raffles at Fairs

06 12-Hour Game Night

07 2-year Qualified Organization

08 14-Day Qualified Organization

09 90-Day Qualified Organization

10 180-Day Qualified Organization

Those who have Social Gambling Licenses 03 and 04 do not need sales tax permits, since they do not have gross receipts on which to base sales tax.

Gambling licenses 06, 08, 09 and 10 may only be obtained once per calendar year.

A gambling report is sent every quarter to licensees.

Iowa Department of Revenue

Whether or not a permanent sales tax permit is required depends upon the duration of the gambling activity.

A permanent sales tax permit must be obtained for the following gambling license: 07 2-year Qualified Organization

A temporary sales tax return is included with the gambling quarterly report sent to every active gambling license holder by the Iowa Department of Inspection and Appeals. Do not use the temporary return if you have a permanent sales tax permit.

SALES TAXES

Individuals or groups engaged in gambling activities must report and pay the sales tax, including local option tax, on the gross receipts (not net receipts) of all gambling activities.

The following example is based on the 6 percent state rate effective July 1, 2008:

A group sells raffle tickets for $1 each; the price includes the sales tax. One thousand tickets are sold for a total of $1,000. The prize cost is $200. The $200 cannot be deducted from the $1,000 before calculating the sales tax due. With a state sales tax of 6% and a local option tax of 1% (total 7%), the group will divide the $1,000 by 1.07 = $934.58. The gross receipts from the raffle are $934.58 and the total sales tax due is $65.42. If local option tax does not apply, the gross receipts are divided by 1.06.

The use of the proceeds is irrelevant to the requirement to collect sales tax when the source of the proceeds is gambling activity.

For example, a group that holds a chili supper or sells T-shirts or has a rummage sale to raise money for educational, religious or charitable purposes does not have to collect sales tax on the sales. However, if that same group holds a raffle or sponsors a bingo night to raise money for the same purposes, the proceeds are subject to the sales tax.

Gambling revenue is always taxable.

SALES TAX EXEMPTION FOR NON-CASH PRIZES

Property purchased for use as a prize to players in any game of skill, game of chance, raffle or bingo game is not subject to Iowa sales tax. The winner of the prize is not obligated to pay the sales tax either.

This exemption includes the purchase of a motor vehicle subject to registration. Upon showing proof to the county treasurer that the vehicle was won, no use tax will be charged.

Although the purchase of gift certificates as prizes is exempt, winners of gift certificates must pay sales tax on their purchases when using the gift certificates.

SALES TAXABLE EVENTS

This information is provided because many gambling activities are in conjunction with other events. Sales tax is due on the gross receipts resulting from the sales of the following:

• Tickets, charges to participate and admissions to places of amusement that involve gambling activities
• The operation of all forms of amusement devices and games of skill, games of chance, raffles (except these conducted at agricultural fairs), and bingo games and commercial enterprises
• Lottery tickets
• Musical devices, weighing machines, shooting galleries, billiard and pool tables, bowling alleys, pinball machines, video games, slot operated devices, vending machines of all types and devices or systems where prizes are awarded to patrons
• Fees charged for participation in any game or other form of amusement where prizes are awarded

LOCAL OPTION SALES TAXES

Prior to July 1, 2008, Iowa had two types of local option sales tax: "regular" local option and school local option. Beginning July 1, 2008, the state rate increased to 6 percent and the school local option tax was removed. In jurisdictions with the local option sales tax, businesses collect it in addition to the state sales tax. Local option sales tax applies if the event takes place in one of these jurisdictions. A current list of local option tax jurisdictions and more information is available.

SALES TAX RETURN FILING

Organizations and individuals that have permanent sales tax permits file returns based on the estimated amount of sales tax that was entered on the application form. See current filing frequency thresholds to determine how often a permit holder files returns.

INCOME TAX

The amount or value of a prize in any amount is subject to income tax. Winners report this income on their income tax returns.

WITHHOLDING TAX ON CASH PRIZES

Iowa income tax must be withheld by the group/individual conducting the gambling activity on cash prizes of more than $600. The withholding rate is 5 percent. The group/individual must register with the Iowa Department of Revenue as a withholding agent.

A withholding agent is personally, individually and corporately liable to the State of Iowa to pay taxes due.

GAMBLING INFORMATION AND PERMITS

Iowa Department of Inspections and Appeals
Social & Charitable Gambling Unit

(515) 281-6848 or (515) 281-7357

GAMBLING SALES TAX INFORMATION

Iowa Department of Revenue
401 SW 7th Street; Suite C
Des Moines, IA 50309

515-725-0223

(updated June 12, 2008)