Iowa Sales and Use Tax: Taxable Services

At the time of a taxable purchase, Iowa state sales/use tax is collected by the retailer from the buyer. Unlike tangible personal property, which is subject to sales/use tax unless specifically exempted by Iowa law, services are subject to sales/use tax only when specified by Iowa law. Iowa sales tax is due when the first use of a taxable service occurs, or potentially could occur. The Iowa use tax complements the Iowa state sales tax. Generally, when a taxable service is purchased or obtained outside of Iowa for use in Iowa, it is subject to Iowa use tax.

The Department makes every attempt to keep this list current. However, please reference IAC chapter 26 for the official listing of taxable services in Iowa. If you need assistance in determining whether or not a service is taxable, please contact our tax specialists by e-mail or telephone at 1-800-367-3388.


The following are considered sales of tangible personal property and are taxable:



When services are performed on or connected with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure, they are exempt from sales and use tax. Repair services remain taxable.

Employee Services

Services rendered, furnished, or performed for an “employer” are exempt.

Exempt Entities

Services provided to the following entities are exempt from sales and use tax: Iowa private nonprofit educational institutions, the federal government, Iowa governmental subdivisions, Iowa government agencies, certain nonprofit care facilities, nonprofit museums, and nonprofit legal aid organizations. However, services provided to most nonprofit entities, churches, and religious organizations are usually taxable.

Purchases for Resale

Tangible personal property purchased by one who is engaged in the performance of a service may be purchased for resale and is not subject to tax if (1) both the provider and the user of the service intend that the property will be sold, (2) the property is transferred to the customer in a form or quantity capable of a fixed or definite price value, and (3) the sale of the identifiable piece or quantity of property is evidenced or shown by a separate charge.

Tangible personal property not sold as specified above is considered to be consumed by the purchaser who is engaged in performing a service and is subject to sales/use tax at the time of purchase.


A beauty or barber shop purchases shampoo and other items to be used in the performance of its service. Tax is due at the time the shop buys the items from its supplier. Tax is due because the items are not transferred to the customer in a form or quantity capable of a fixed or definite price value and because the items are not specifically invoiced.

Services for Resale

Services purchased for resale are exempt from sales and use tax. A service is purchased for resale when the person who is contracted to perform the service subcontracts another to perform the service.


An auto repair shop contracts with a customer to repair a damaged car. The shop does most of the repairs, but subcontracts the repair of the radiator to another shop. No sales tax is charged to the shop for repairing the radiator since the service was purchased for resale to the owner of the car. Tax is paid by the customer to the original repair shop.

Restoring Tangible Property

Similar to services for resale, services that recondition or repair tangible personal property are exempt from sales and use tax when that property is normally sold in the regular course of the retailer’s business. Sales and use tax will be paid when the property is finally sold to a consumer.

Example 1

The owner of a retail appliance store hires someone to repair a refrigerator that the owner is going to resell in the store. The owner can purchase the repair service tax free because the store regularly sells refrigerators and tax will be collected when it is sold to a final consumer.

Example 2

Chris operates a retail farm equipment dealership and accepts a motor boat as partial payment for a piece of farm equipment. Chris then contracts with Don to repair the motor on the boat. After Don repairs the boat, Chris sells the boat at his dealership. Chris does not normally sell motor boats in the regular course of business. Therefore, the service performed by Don for Chris is taxable.

Casual Sales

Services that qualify as casual sales are exempt from sales tax. In order for sales of services to qualify for exemption as casual sales, the sale must be made by a person who is not a retailer; or, if the seller is a retailer, the current sale must be unrelated to the retailer’s regular business and must not involve a liquidation of the business. Casual sales are exempt from the Iowa sales and use tax except for the casual sale of vehicles subject to registration and of aircraft.

Two separate sales unrelated to the seller’s regular business within a 12-month period are not considered to be typical and, therefore, are not taxable. Three separate sales within a 12-month period are considered recurring or typical. Tax applies beginning with the third sale. If a sale occurs consistently over a span of years, it is considered recurring and not casual, even though only one sale occurs each year.