School Infrastructure Local Option (SILO) Sales Tax Q&A

NOTE: Effective 7-1-08, SILO was eliminated as a separate tax.
The information in this publication applies to periods prior to 7-1-08.

For information about:

Q. How is a school infrastructure local option sales tax imposed?

A majority of voters at an election must approve the school local option sales tax.

Q. How does the issue get on the ballot?

There are two ways:

The ballot for this tax must be substantially similar to the petition of the board of supervisors or motions of a school district(s) requesting the election and include the rate of tax, imposition and repeal dates, and the specific purpose(s) for which the revenues will be expended. Sample ballots are available from the Iowa Secretary of State.

Q. When can a vote on school local option tax be held?

The school local option tax can be voted on at either a general election or at a special election. The special election can be held at any time other than at a city regular election. The vote cannot be held sooner than 60 days after the notice of the ballot proposition is published. The question of repeal or rate change or use change of the tax can also be voted upon at a general or special election.

Q. Is the election countywide?

The election is countywide, and if the election is favorable, the tax is imposed countywide.

Q. For what can the revenue from this tax be used?

School local option tax can be used for activities in which a school district is authorized to contract indebtedness and is sue general obligation bonds under Iowa Code section 296.1. Qualifying activities would include construction, reconstruction, repair, purchasing, or remodeling of schoolhouses, stadiums, gymnasiums, fieldhouses, or bus garages. School infrastructure activities also include the procurement of school house construction sites and making site improvements. Additional qualifying activities include the payment or retirement of outstanding bonds previously issued for school infrastructure purposes. However, “school infrastructure” does not include activities related to a teacher's or superintendent's home or homes.

Effective May 30, 2003, three new areas were added on which revenues from this tax can be expended: (1) Property tax relief, (2) Demolition work, and (3) Activities listed in Iowa Code sections 298.3 and 300.2.

Prior to the use of certain funds for particular projects, a school district may be required to obtain a “certificate of need” from the Iowa Department of Education.

In addition, a school district in a county that has imposed this tax may enter into an Iowa Code chapter 28E agreement with a city or cities whose boundaries encompass all or a part of the school district. The city may then receive a portion of the revenues from this tax as determined by the 28E agreement. A city may utilize revenues from this tax for school infrastructure purposes or any valid purposes authorized by the governing board of the city. As of May 30, 2003, a school district is also allowed to enter into an Iowa Code chapter 28E agreement for the sharing of revenues with another school district, a community college, or area education agency.

Q. Can a school district specify how the funds will be used?

Yes. Each school district located within the county may submit a revenue purpose statement to the county commissioner of elections no later than 60 days prior to the election indicating the specific purpose, or purposes, for which the school local option sales and services tax will be expended. If a revenue purpose statement is not submitted 60 days prior to the election or revenues remain after fulfilling the purpose specified in the revenue purpose statement, the revenues shall be used in the order listed in Code section 423E.2.

Q. What is the duration of the tax once imposed?

The tax automatically expires 10 years from the date of being implemented, unless an earlier date has been provided by ballot. The tax can be re-imposed by a vote of the taxpayers following the same process that was followed initially. However, all school local option tax will be automatically repealed as of December 31, 2022.

If a city or county has already passed a “regular” local option sales and services tax authorized under Iowa Code chapter 423B, can that county elect and impose a school infrastructure local option sales and services tax pursuant to Iowa Code chapter 423E ?
Yes. A jurisdiction may impose one or both of the local option taxes.

Q. Who needs to be notified of election results?

Imposition, repeal, or change: Within 10 days after the election, the county must give written notice to the director of the Iowa Department of Revenue of the results. This must be 90 days before the effective date.

Q. Can a school local option sales tax be repealed?

Yes. To repeal the tax, an election may be called and held in the same manner and under the same conditions as the election which approved the tax. This election is countywide. School local option sales and service tax cannot be repealed by election before the tax has been in effect for one year.

Q. Can the rate of tax be increased or decreased?

Yes. The criteria for placing the proposition on the ballot are the same as previously explained. The rate cannot exceed 1 percent.

Q. Can a change be made to the designated use of the school local option tax revenue?

Yes. An election may be held on the question of change in use in the same manner and under the same conditions as provided for the election on the imposition of the tax. However, an election on the change in use shall only be held in the school district where the change in use is proposed to occur.

Q. What are the dates that the tax can be imposed, changed, or repealed?

Effective April 1, 2000, this tax can be imposed on either January 1 or July 1 only. Repeals can only occur on June 30 or December 31. Any jurisdiction with a repeal date specified in the ballot prior to April 1, 1999, may repeal on the date specified. Imposition or change in rate or use can occur no sooner than 90 days following the election. The school local option tax cannot be repealed or reduced in rate if bond obligations are outstanding unless sufficient funds to pay the principal, interest, and premium, if any, on the outstanding obligation at and prior to maturity have been properly set aside and pledged for that purpose.

Revenue Estimates

Q. How can a school district estimate what amount of school local option sales tax it might receive?

The Department of Revenue is able to provide an estimate based on general state sales tax data. This estimate would represent the potential collections that would be generated in a county by the retailers collecting local option sales tax for that county. By August 15 of each fiscal year, a written notice of the monthly estimated school local option payments for the fiscal year will be sent to school districts.

House File 683 passed in the 2003 legislative session appropriated a maximum of $10 million for supplemental funding to the school infrastructure local option fund. This appropriation is to be prorated to counties that passed the school local option tax but do not generate collections equal to the guaranteed per pupil amount. The Department will release this supplemental amount by county when the official estimates are released on August 15 of each year.

Since the school local option sales tax and the state sales tax are imposed differently based on each transaction, the data is adjusted. For example, the school local option sales tax is imposed on goods delivered into a locality. State sales tax statistics are kept on the basis of sales made by merchants within a locality. School local option sales tax is not imposed on room rental or on the sale of natural gas or electric energy in a city where these receipts are subject to a users fee or a franchise fee, to mention just a few differences.

Q. If a school district has made its own estimates, will the Department of Revenue review them?

Yes. Often, local officials are better economic predictors, because they are familiar with the occupation, purchasing and spending patterns in a locality. The Department will review the logic and the variables considered in compiling the estimate.

Q. Can a school district obtain information about sales tax payments made by specific retail establishments?

Yes. The Department may enter into a written information exchange agreement for tax administration purposes with a school district entitled to receive school local option sales tax funds. The agreement allows no more than two paid school district employees to have access to actual return information. This information cannot be shared with anyone else due to confidentiality requirements.

Note: There are severe penalties in place for any illegal disclosure of this information to any unauthorized individuals. [IA Code “Information Confidential Penalty” 422.20,72, IRS Code 6103(b)]

Distribution of Funds

Q. How soon after a school local option sales tax is imposed will a school district get its money?

By August 15 of each fiscal year, a written notice of the monthly estimated school local option payments for the fiscal year will be sent to school districts. Ninety-five percent of estimated tax receipts are paid monthly. For example, school districts' estimated monthly tax distributions will be is sue d for July by August 31. A final payment of any remaining tax due to a school district for the fiscal year will be made before November 10 of the next fiscal year. If an overpayment to a school district exists for the fiscal year, a reduction of monthly distributions to reflect the overpayment will begin with the November payment.

Q. Explain the distribution if a county has more than one school district in it.

If more than one school district or a portion of a school district is located within the county, tax receipts will be prorated to each. The ratio is the actual certified enrollment for the school district that attends school in the county to the total combined actual certified enrollments for all school districts that attend school in the county. According to the Iowa Department of Education, a student's enrollment is based on the residency of the student.

The formula to compute this ratio is actual certified enrollment for the school district at issue divided by combined actual certified enrollment for the county.

The combined actual certified enrollment for the county is determined by the Iowa Department of Management based on the actual certified enrollment figures reported by October 1 of each year by the Department of Education pursuant to Iowa Code section 257.6(1). Enrollment figures to be used for the purpose of this formula are the certified enrollment figures reported by the Department of Education for the preceding year.

Example: In November 1998, Polk County holds a valid election that results in a favorable vote to impose the school infrastructure local option tax. To determine the proper ratio of funds to be distributed to the multiple school districts located in Polk County, the enrollment figures reported by October of 1997 are used. For additional details regarding the distribution formula, please contact the Iowa Department of Education or reference that Department's rules at 281 IAC chapter 96.

Q. Does the method of distributing school local option tax funds vary depending on the date when the tax was voted on and approved?

Yes. By June 1 preceding each fiscal year, the Iowa Department of Revenue shall compute the guaranteed school infrastructure amount for each school district, each school district's sales tax capacity per student for each county, the statewide tax revenues per student, and the supplemental school infrastructure amount for the coming fiscal year. These amounts will then be used to determine the distribution as follows:

Note: If the funds necessary to provide full funding of the guaranteed supplemental distributions are not available for each district, then the revenues will be distributed in order beginning with the district having the lowest sales tax capacity per student until the funds are fully distributed. This may result in there being insufficient funds to provide some of the districts their guaranteed student amount.

Q. Who will receive the distribution check?

The check will be made out to the school district.

Q. Is it possible for a jurisdiction without the tax to receive a distribution of school local option tax money?

No. Only the districts in which the tax is imposed can participate in the distribution.

Q. Are any adjustments made to the monthly remittance of school local option tax prior to distribution?

Adjustments are possible. For example, school local option taxes can be refunded to school districts if imposed on materials associated with construction projects. Erroneous collections can occur which are also subject to refund. Amended sales tax returns will also be filed. Refunds will most likely be identified after distributions for a given tax period have been made; therefore, account adjustments will be necessary. When a school local option tax is repealed, the school local option tax monies, penalties, or interest received or refunded 180 days after he repeal date are distributed; more than 180 days after repeal, funds are deposited into or withdrawn from the state general fund.

Q. What happens to school local option taxes which are collected, but it cannot be determined which county is the origin of the money?

The funds will be allocated to each active school district by county, in relation to the total active certified student population in all counties. This distribution is based on special rules filed by the Department.

Notification

Q. Once school local option sales tax is imposed, how are businesses informed?

The Department regularly e-mails newsletters and notices to anyone who has signed up on the Department's Web site to receive free information by e-mail . A current jurisdiction list is also maintained on the Department's Web site.

Related Costs

Q. Who pays for reprogramming computers and cash registers for businesses in a jurisdiction imposing a school local option tax?

Businesses are responsible for all programming changes and costs.

Noncompliance

Q. What happens if a business fails to collect or refuses to collect school local option tax?

Anyone aware of a problem may contact our Taxpayer Services Section by e-mail or by calling 1-800-367-3388. In most cases, the problems are the result of misunderstandings and not intentional noncompliance. Whenever the Department audits for state sales tax, it will also audit for local option taxes. The penalties associated with the nonpayment of local option sales taxes are the same as those for state sales tax.

Applying the Tax

Q. Is the school local option sales tax imposed on the same items as state sales/excise tax?

Yes, except on:

*Prior to 7-1-05, the rental of rooms was exempt from LOST/SILO if they were subject to the hotel/motel tax. On or after 7-1-05, lodging is no longer subject to LOST/SILO, whether or not the hotel/motel tax is imposed.

Q. Is school local option sales tax imposed on cars and trucks?

No. Vehicles subject to registration are subject to a use tax under chapter 423 of the Iowa Code rather than a state sales tax. However, the receipts from the rental of cars and trucks can be subject to school local option tax. Also, sales of parts and repair services are subject to tax.

Q. Can a school district with a school local option sales tax impose the tax on items and services not subject to state sales tax?

No. A school local option sales tax cannot be imposed on any property or service not subject to state sales tax, with the exception of residential energy on which the state tax has been phased out, but on which school local option tax still applies.

Q. When school local option sales tax is figured, is it imposed “on top” of the state sales tax?

No. It is imposed in addition to, but not on top of, the state sales tax. A taxable sale will be subject to the state sales tax and the school local option tax. However, the amount of the sale for purposes of determining the amount of school local option sales tax does not include any amount of state sales tax or other local option taxes if a jurisdiction imposes more than one local option tax.

Q. Do retailers have to obtain a special sales tax permit in order to collect school local option sales tax?

No tax permit other than the state sales tax permit is required or available. School local option tax is remitted to the State of Iowa along with the state sales tax; retailers make no payment directly to a school district.

Q. How and when is school local option sales tax remitted to the Department?

School local option tax is remitted whenever state sales tax is remitted. Retailers show a breakdown of school local option taxable sales and tax by county on quarterly and annual returns. Paper deposits and returns are not mailed; filing is through eFile & Pay. (Note that the amount of school local option tax collected is not used to determine how frequently a retailer should file.)

Q. When does the tax apply to a sale?

As with the state sales tax, the school local option sales tax is remitted for the tax period in which the tangible personal property is delivered to the customer. Even if the customer has not paid for the merchandise, the tax is due when delivery occurred. For taxable services, the retailer remits the school local option tax when the service is rendered, furnished, or performed.

Q. What does delivery have to do with the taxability of a sale?

Where tangible personal property is delivered determines whether or not a sale is taxable. If delivery occurs within a school local option jurisdiction, the school local option sales tax may be due. If delivery does not occur in a school local option jurisdiction, school local option tax is not due.

Delivery usually occurs when the seller transfers physical possession of the property to the buyer. In most instances, this transfer takes place at the seller's place of business. If the seller transfers the property to the buyer from the seller's own vehicle, then delivery is considered to take place at the place of transfer. Finally, if the seller transfers the property to a common carrier or the U.S. Postal Service for subsequent transport to the buyer, the “delivery” of the property occurs at the customer's location as of July 1, 2004.

Q. How is the delivery or sale of tangible personal property affected by the use of FOB or a similar term when it is moved by a common carrier?

It does not affect the sourcing of a transaction, but an FOB designation will determine whether it is a sales tax or a use tax, and whether school local option applies.

Q. If a resident in a school local option tax jurisdiction buys something in a county that does not have a school local option sales tax, does that mean that they avoid paying the school local option tax?

Maybe. If a resident of a taxing jurisdiction takes physical possession of the item in a non-taxing jurisdiction, no school local option tax can be imposed. However, if the Iowa seller delivers it by the seller's vehicle or through a common carrier to the purchaser who lives in a school local option tax jurisdiction, then the seller must collect the school local option tax applicable in the buyer's location.

Q. If an Iowa seller who sends an item through the mail or by common carrier to the purchaser does not have “nexus” in the purchaser's location, must he/she charge the school local option tax?

Yes. The seller will charge the school local option tax applicable where the customer receives the item.

Q. What happens if the seller is located in a taxing jurisdiction and delivery of an item is made into a jurisdiction where no school local option tax has been imposed?

School local option tax cannot be charged on a transaction where delivery occurs in a non-taxing jurisdiction.

Q. What happens when an item is purchased outside Iowa? Would school local option sales tax be due?

Q. What about vending machines?

The location of each individual vending machine determines whether or not the school local option sales tax applies. If it is in a school local option jurisdiction, the tax applies.

Q. What happens when a business uses its own inventory?

If a retailer located in a taxing jurisdiction purchases items for resale or processing and later withdraws them from inventory for other purposes, the school local option tax is imposed. It does not matter where or when the items were first purchased.

Owners, contractors, subcontractors, or builders purchasing building materials, supplies, and equipment for use in a construction project must pay school local option sales tax on these items if they take delivery in a taxing jurisdiction.

Contractors, subcontractors, or builders who are also retailers located in a taxing jurisdiction must pay school local option tax when they withdraw building materials, supplies and equipment from their resale inventory for construction projects in Iowa even if the construction project is outside the taxing jurisdiction.

Manufacturers of building materials located in a taxing jurisdiction who are principally engaged in manufacturing and selling building materials and who withdraw them from inventory for use in a construction contract must pay school local option tax if the construction contract is within Iowa. The tax is computed on fabricated cost. They must pay school local option tax when they withdraw building materials, supplies and equipment from inventory for construction purposes even if the construction project is outside the taxing jurisdiction.

Q. What if a construction contract is entered into prior to the imposition of school local option tax?

It makes no difference when the contract is signed or where it is signed. “Delivery” is the taxing event. If tangible personal property subject to state sales tax is delivered into a jurisdiction after the date school local option sales tax has been imposed, school local option sales tax is due. If a taxable service is rendered, furnished, or performed after the date school local option sales tax has been imposed, school local option sales tax is due.

If a school local option tax is imposed or increased after a construction contractor enters into a written contract, the contractor may apply for a refund of additional school local option tax paid as a result of the imposition or increase if all the following circumstances exist:

  1. The additional tax was paid upon tangible personal property incorporated into an improvement to real estate in fulfillment of a written construction contract entered into prior to the date school local option sales tax is imposed or its rate increased, and
  2. The contractor has paid the full amount of both state and school local option sales tax due to the Department or to a retailer, and
  3. The claim is filed with the Department within one year of the date the tax was paid. The IA 843 Claim for Refund (pdf) is used for this purpose.

This school local option tax right of refund is not applicable to equipment transferred under a mixed construction contract.

Q. What about motor fuel and special fuel?

Beginning July 1, 2001, motor fuel and special fuel are subject to school local option tax when sales tax applies if delivery occurs in a taxing jurisdiction. Fuel subject to motor fuel tax is not subject to sales tax at the time of purchase.

Services

Q. How is school local option sales tax imposed on services?

School local option sales tax is imposed on any service subject to state sales tax which is rendered, furnished, or performed within a taxing jurisdiction.

Q. Does it matter when a contract for services is signed?

No. Sometimes services are contracted before the school local option sales tax becomes effective. The tax still applies when the service is performed.

Q. Does it make any difference if the service contract is signed outside the taxing jurisdiction?

No. School local option tax is due on all taxable services performed in the taxing jurisdiction regardless of where the contract was entered into.

Q. What if there is a single contract and services are performed both within and outside a taxing jurisdiction?

The school local option tax is imposed if the contract is substantially performed in the taxing jurisdiction. However, if service charges are separately stated, separately billed, and reasonable in amount and can be distinguished between those performed in the taxing jurisdiction and those performed outside the taxing jurisdiction, tax is only imposed on services performed in the taxing jurisdiction.

Lease and Rental

Q. How is school local option sales tax computed on rented or leased property?

The general rule is that payments associated with periods when the property is used within a taxing jurisdiction are subject to school local option tax. Motor vehicle, recreational vehicle and recreational boat rentals where state sales tax is imposed are subject to school local option sales tax only if pursuant to the rental contract, possession of the vehicle or boat is transferred to the customer within the taxing jurisdiction and payment is made within the same taxing jurisdiction.

Utilities

Q. How are utility payments taxed?

Delivery of gas and water occurs and the services of electricity, heat, communication, and pay television are rendered, furnished, or performed at the address of the subscriber who is billed for the purchase of this property or services. If that billing address is located in a school local option taxing jurisdiction, the tax will apply.

Q. What about telephone credit card calls made outside a taxing jurisdiction and billed to an address within a taxing jurisdiction?

Assuming that it is an intrastate call (within Iowa) school local option tax applies if the call is billed to an address within a taxing jurisdiction.

Q. What date controls whether school local option tax applies?

School local option tax and state sales tax on utility payments are imposed based on the “billing date.”

Q. Do pay television franchise fees imposed by a local jurisdiction exempt cable television charges from school local option tax?

No. Only franchise fees and users fees for natural gas and electric energy trigger the exemption.

Updated 2/19/08