Iowa Contractors Guide

Definitions:

Construction contract

The term “construction contract” is defined as an agreement that provides labor and materials to erect a structure for a second party. The provider is sometimes referred to as the “first party.” The contractor can be an individual, corporation, partnership or other entity.

The second party is known as a “sponsor.” The tax liabilities of a sponsor are discussed under “Liability of Sponsors.”

A construction contract always involves changing tangible, personal or “moveable” property into real estate; for example, a change of concrete block and mortar into a foundation. This includes, but is not limited to, lump sum contracts, cost plus contracts, time and material contracts, unit price contracts, guaranteed maximum or upset price contracts, construction management contracts, design built contracts, and turnkey contracts.

For a list of activities and items that could fall within the meaning of a construction contract or are generally associated with a construction contract, see Appendix C.

Contractor

Anyone who provides labor and materials to erect a structure is considered to be a construction contractor for that job, even if his/her usual occupation or profession is something else, such as a repairer or odd-job laborer.

“Contractor” includes a general contractor, special contractor, subcontractor or builder.

Building materials and supplies

Explanations and examples of what constitutes building materials, supplies and equipment are found in Appendix B.

Building equipment

Construction equipment that is intended for use in the performance of an Iowa construction contract is subject to the Iowa sales, use or excise tax. However, all equipment rental is exempt when the equipment is used on or in connection with new construction, reconstruction, alteration, expansion or remodeling of a building or structure. See Appendix B.

First..

In order to correctly pay and charge Iowa sales tax, you must first ask yourself the following questions.

How these questions are answered will determine if you pay sales tax to your suppliers or if you charge sales tax to your customers. The following information explains when sales tax is due.

Labor: Is it taxable?

Certain “enumerated” (taxable) services are commonly performed with construction contracts or with the repair or maintenance of real estate.

When these services are performed on or connected with new construction, reconstruction, alteration, expansion or remodeling of buildings or structures, they are exempt from sales tax.

When these services are a repair job, sales tax must be charged.

Enumerated services related to construction contracts

Services never subject to sales tax

Taxable services performed in repairing real property are not exempt from tax.

The repair of machinery on the job site is subject to sales tax.

Is the job a repair or new construction?

The distinction between (1) repair and (2) new construction, reconstruction, alteration, expansion and remodeling activities can be difficult. The intent of the parties and the scope of the project determines whether certain services are taxable. When in doubt, a construction contract should be treated as being a taxable repair rather than a nontaxable reconstruction. If it is later determined that reconstruction rather than repair was the purpose of the contract, the purchaser may file for a refund of tax paid.

Repair

“Repair” is synonymous with mend, restore, maintain, replace and service. A repair constitutes the restoration of an original existing structure that has been damaged.

Repair work that is not a construction activity is subject to sales or use tax. Examples of taxable repair situations include:

New construction, reconstruction, alteration, expansion and remodeling

This exemption applies to real property and structures only. It does not apply to tangible personal property. The following are examples of new construction, reconstruction, alteration, expansion and remodeling activities. In these examples, the contractor is responsible for paying tax to the supplier on materials; however, the contractor does not charge tax on his/her services and materials.

Additional circumstances...

used to determine whether or not a project is construction or repair:

1. A service that is usually taxable may be exempt if it is performed closely with a construction activity.

For example, the service of excavating and grading of land to clear the land for construction of a building becomes an exempt service because it is being done in conjunction with new construction. However, excavating and grading land without the intent of construction is taxable, even if at a later date plans are made to construct a building and a structure is actually built.

2. Time can also be a factor in determining whether or not a service is taxable or exempt.

For example, if the land is graded for the purpose of seeding a new lawn following construction, the service is exempt from tax. If, however, the lawn does not grow and the land is regraded the following year, the service is taxable because it is not performed in conjunction with new construction.

3. The physical relationship is also considered.

If a building is constructed for machinery, installation of the machinery is exempt. For example, piping services that join two pieces of equipment in separate buildings are exempt if the equipment in either building is installed while new construction, reconstruction, alteration, expansion or remodeling to the structure is also taking place.

4. The magnitude of the job can be a factor.

The “size” of a job should be considered when deciding if the job is a repair or new construction. For example, replacing damaged or missing shingles on a roof is repair and taxable; recovering an entire roof is construction and exempt.

5. Whether an item being replaced is defective can be another factor.

For example, if a building’s existing furnace is not defective, but the owner of the building has a new more energy efficient furnace installed, this would be considered reconstruction or remodeling. However, if the building’s furnace has become defective and is replaced, the replacement of the defective furnace will be considered a repair.

What if both construction and repair are occurring?

It may not be possible to categorize an entire job as repair only or new construction only. If this happens, the contractor will have to itemize the bill and charge sales tax on repair labor.

For example, a homeowner hires a contractor to add a new room to the existing home. This is new construction, which is not subject to tax. However, the home is also in need of the restoration of its original wiring and replacement of a broken window. These are repairs and the labor is a taxable service.

Gambling boats

Gambling boats are not real property; they are tangible personal property. The builder of the boat is considered a manufacturer, not a contractor. Therefore, the new construction exemption does not apply.

Services otherwise performed on the boat are only taxable if they are specifically mentioned or listed as taxable in the Iowa Code.

Types of construction contractors in Iowa

How a person is classified – as a contractor, contractor-retailer, manufacturer-contractor, or repair person – is the basis for determining many tax obligations. It can be difficult for a person starting a business to determine if that business will be engaged in contracting, retailing, a combination of the two, or providing repair services. However, one status must be chosen.

A status should not be changed unless it becomes clear that the business has become another status. For instance, if a business begins as a contracting business only, but the owner finds he must sell construction materials at retail if the business is to continue, the status can change to contractor-retailer. Note, however, that a significant portion of the business’ income must come from retail sales in order to have this classification.

Repair companies

To determine if your business is strictly repair, see “Is the job a repair or new construction?”

Businesses that perform only repair jobs may not need to pay sales tax on their purchases of building materials and supplies. Instead, they may make their purchases for resale and give their supplier a valid exemption certificate as long as materials and labor are itemized separately on the bill to the customer.

If the repair person does not itemize materials and labor on billings, the repair person will pay tax on the materials purchased and collect tax on the total bill.

Construction contractors

Construction contractors are considered to be the consumers of building materials and supplies purchased for use in construction contracts. They are responsible for paying sales tax at the time the purchases are made. If tax is not collected by their supplier, the contractor is responsible for paying it directly to the Department. A contractor’s purchase of materials delivered in Iowa for use in a construction contract is subject to tax whether the materials are purchased for use in construction contracts performed in Iowa or outside this state.

Suppliers should not accept sales tax exemption certificates from contractors, except those certificates provided to a contractor by a Designated Exempt Entity. Contractors are not allowed to make purchases for resale merely because they have a sales tax permit number. There is no exemption to contractors when their job is for nonprofit organizations, including churches. Please refer to the section later in this publication regarding contracts with governmental units, schools or museums.

Typical contractor situations:

  1. A contractor performs new construction. The contractor must pay tax on materials at the time they are purchased. The contractor does not collect any tax from the final customer.
  2. A contractor performs a taxable service. The contractor must pay tax on the materials at the time they are purchased. The contractor collects tax on both the labor and the materials. The contractor may take credit for tax paid on materials on the sales tax return.
  3. A person who is not in the construction business is building his/her own house. The person must pay sales tax on the purchase price of the materials, supplies and equipment. Owners are considered final consumers in the same way as contractors.

Contractor-retailers

In some cases, a contractor may also sell supplies and materials. This contractor is referred to as a contractor-retailer. A contractor-retailer is an individual or business that makes frequent retail sales to the public or other contractors and builds residential or commercial structures.

A contractor-retailer must purchase tax free the supplies and materials to be resold. The contractor-retailer provides the supplier with a valid sales tax exemption certificate. The contractor-retailer then charges sales tax when the items are resold or pays tax if inventory is removed for use by the business.

When a contractor-retailer sells materials, supplies and equipment but does not install them, sales tax must be collected on the selling price.

When a contractor-retailer installs the items being sold, it can be a construction contract. A contractor-retailer purchasing materials that will be used in a construction contract must pay the sales tax on them at the time of purchase. These are materials that will not be placed in inventory. For example, sales tax must be paid when wet concrete is purchased.

A contractor-retailer performing a construction contract does not collect sales tax from the final customer.

Contractor-retailers do not pay tax on materials withdrawn from inventory for use in construction projects performed outside Iowa.

A contractor-retailer performing a taxable service (repairs) must charge his customers sales tax on the labor and materials.

A contractor-retailer must obtain a tax permit to report sales tax from retail sales and taxable repairs and to pay tax on materials withdrawn from inventory for use in a construction contract.

A contractor who rarely makes sales to individuals or other contractors is not considered a contractor-retailer and must pay sales tax to suppliers on all purchases or a corresponding use tax.

Consider the following examples:

  1. ABC Company operates a retail outlet that sells lumber and other building materials and supplies. ABC is also a contractor that builds residential and commercial structures. Since ABC is a contractor-retailer, it purchases all inventory items for resale. When using materials to fulfill a construction contract, however, ABC will need to pay tax on the acquisition price of the materials. This should be reported as “goods consumed” on the sales tax return. Items that are sold by ABC are subject to sales tax at the over-the-counter selling price.
  2. EFG Company is a mechanical contractor and has no retail outlets. EFG rarely sells any of its inventory to other persons or contractors; therefore, EFG is not considered to be a contractor-retailer. Since EFG is considered to be a contractor only, it must pay sales tax to its suppliers when it purchases building supplies and materials. On those rare occasions that EFG sells an item to another person or contractor, EFG must collect sales tax on the selling price. EFG must have a sales tax permit to report this tax. Since tax was already paid on the item when EFG purchased it, an adjustment can be made on the sales tax return by entering the amount EFG paid for the item as an “other” exemption on line 4 of the quarterly return.
  3. Home Town Construction Company is owned and operated by two individuals in a rural Iowa farming community. They do not have a retail outlet but they frequently make sales of building materials from their inventory to local residents. Home Town Construction Company is a contractor-retailer because of the frequency of the sales and should purchase all inventory for resale. Items that are used in construction contracts are subject to tax on Home Town’s buying price at the time they are withdrawn from inventory. Items that are sold are subject to tax on the selling price.
  4. Down Home Construction Company is operated by two individuals in a rural Iowa farming community. They do not have a retail outlet and rarely sell building materials from their inventory. Because its sales are rare, Down Home is considered a contractor only and must pay sales tax to its suppliers when making purchases. However, since Down Home makes occasional sales, it must have a sales tax permit to collect and remit the tax on those retail sales.
  5. Intown Home Construction Company places modular homes on slabs or basement foundations, makes electrical, plumbing and other connections, and otherwise prepares the modular homes for sale as real estate. Intown also has a sales tax permit, maintains an inventory of modular homes for sale, and sells homes from the inventory as tangible personal property to owners who later convert the property to real estate. Intown is a contractor-retailer and is obligated to pay tax when a modular home is withdrawn from inventory for use as material in a construction contract. It must collect the sales tax when the home is sold directly to an owner.
  6. Smith’s Plumbing has a retail store in Davenport, but they also install plumbing fixtures and lines in new construction and remodeling projects. As a contractor-retailer, plumbing supplies that are taken from their inventory for a new home being built in Rock Island, Ill., are exempt from sales tax because the construction contract is outside of Iowa. However, those supplies may be subject to Illinois use or sales tax.

Manufacturer-contractors

Sales by manufacturers

Manufacturers who sell to contractors or other consumers are required to collect sales tax or use tax on the gross receipts of the sale. Manufacturers who make retail sales are required to hold an Iowa sales tax or use tax permit.

Manufacturers of building materials, supplies and equipment may sell their products and also use their products in construction contracts. How sales or use tax applies depends on whether or not the business is primarily a manufacturing or a contracting business.

If a business is primarily a manufacturer, the tax is computed on “fabricated” costs. Fabricated costs include both direct and indirect expenses. This includes the cost of all materials, labor, power, transportation to the plant and other plant expenses such as overhead, but it does not include installation on the job site.

If a business is primarily a contractor that also manufactures, then the tax is computed on the cost of raw materials.

A manufacturer performing new construction does not collect sales tax from the final customer.

A manufacturer performing a taxable repair service may withdraw materials from inventory tax free. Tax is collected from the final customer on the labor and materials.

Out-of-state projects

When tangible personal property is used by a manufacturer in construction contracts outside of Iowa, no Iowa sales or use tax is due.

Is the contract with a governmental unit, private nonprofit educational institution, museum, business in an economic development area, or rural water district?

Designated exempt entities signing construction contracts on or after January 1, 2003, may issue exemption certificates to contractors and subcontractors, allowing them to purchase, or withdraw from inventory, building materials for the contract free from sales tax. This special exemption certificate would also allow a manufacturer of building materials to consume materials in the performance of a construction contract with a designated exempt entity, without owing tax on the fabricated cost of those materials.

Designated exempt entities include only the following:

NOTE: Nonprofit hospitals are NOT designated exempt entities.

The exemption certificate process works as follows:

1. Designated exempt entities register contracts, including information on contractors and subcontractors, through an online application developed by the Iowa Department of Revenue.

2. Designated exempt entities provide each contractor/subcontractor with an exemption certificate/authorization letter developed exclusively for this purpose. These are printed directly from the online application. The letter/certificate can be obtained only through this application.

3. Contractors and subcontractors give a copy of the certificate to each of their material suppliers. This allows them to purchase building materials for the contract free from sales tax.

4. Suppliers should retain this certificate in their records for at least three years.

The exemption certificate option benefits designated exempt entities in several ways:

The exemption certificate process is an option; designated exempt entities may also use a claim for refund process.

The claim for refund process works as follows:

1. The contractor pays Iowa sales tax on all building materials and includes that cost in the bid.

2. The contractor then submits a “Contractors Statement” (form 35-002) to the exempt entity documenting the amount of Iowa sales/use tax paid on the contract materials incorporated into real property.

3. The exempt entity applies to the Iowa Department of Revenue for a refund of that tax by using the “Construction Contract Claim for Refund” (form 35-003).

NOTE: The claim for refund process must be used when the contract is with businesses in economic development areas or rural water districts organized under Iowa Code Chapter 504A. They do not qualify as “designated exempt entities.”

If the contract includes machinery or equipment, the contractor must purchase it for resale and give the supplier a regular exemption certificate. The contractor should not charge sales tax on machinery and equipment sold to governmental entities, nonprofit hospitals, nonprofit private museums, and private nonprofit educational institutions. The same exemption applies to businesses in economic development areas unless the equipment is furniture or furnishings.

Manufactured Housing

Manufactured housing

Twenty percent of the installed purchase price of a manufactured home is subject to Iowa use tax. The tax is paid at the county treasurer’s office by the title holder. However, a manufactured home is exempt from use tax if the tax has already been paid. For instance, when a manufactured home is resold, the new owner does not pay the 20 percent use tax again.

“Installed purchase price” is the amount charged by building contractors to convert manufactured housing from tangible personal property to realty. This includes, but is not limited to, amounts charged for installing a foundation and electrical and plumbing hookups. It does not include any amount charged for landscaping in connection with the conversion.

Modular homes

Twenty percent of the sale of a finished modular home is subject to Iowa sales or use tax.

The circumstances of the sale determine who pays the tax. Consider the following:

Sectionalized housing and panelized construction

Sectionalized housing and panelized construction are considered prefabricated structures but not manufactured or modular homes. Sales tax is due as with typical construction projects.

Machinery and equipment

Contractors who sell machinery or equipment that is not exempt from tax must purchase it for resale and then charge sales tax as part of the contract. The contract must either itemize sales tax separately or state that sales tax is included in the contract price. When a construction contract is mingled with a machinery and equipment sales contract (a mixed contract), the two parts should be separated for sales tax purposes.

Contracts with machinery and equipment

Construction contracts with machinery and equipment sales, commonly known as mixed contracts, place a dual burden on the contractor. In these contract situations, the contractor is the consumer of the construction materials and is also a retailer of the machinery and equipment. The contractor must have a sales tax permit.

A contractor is required to pay tax on building materials to the supplier at the time of purchase or remit use tax to the Department if the purchases are made from an out-of-state vendor that did not charge Iowa sales or use tax.

Machinery and equipment that do not become real property (remains tangible personal property after installation) must be purchased for resale.

Example:
Company A contracts with Company B to build a new building and install all of the machinery and equipment. Company B pays its suppliers sales tax on all building materials and supplies. Company B also purchases refrigeration units that will remain tangible personal property after installation. Company B buys these units tax-free for resale since they will be resold to Company A; Company B will then charge Company A sales tax on the units.

Distinguishing machinery and equipment from real property

"Machinery and equipment" includes property that is tangible personal property when it is purchased and remains tangible personal property after installation. Generally, tangible personal property can be moved without causing damage or injury to itself or to the structure, and it does not in any other manner constitute an integral part of a structure.

Machinery and equipment that is not permanently annexed to the realty remains tangible personal property after installation. For a list of property that under normal conditions remains tangible personal property after installation, see Appendix D.

Tangible personal property that become structures

Items that are manufactured as tangible personal property can, by their nature, become structures. However, the determination must be made on an item-by-item basis. Following is a list of standards courts have used to make these decisions.

Example: A farm silo, which is a prefabricated glass-lined structure, is intended to be permanently installed. The silo is 70 feet high and 20 feet around, weighs 30 tons, and is affixed to a concrete foundation weighing 60 tons that is set into the ground for the specific purpose of supporting the silo. The assembly kit includes 105 steel sheets and 7,000 bolts. The silo can be removed without material injury to the realty or to the unit itself at a cost of $7,000. In view of its massive size, the firm and permanent manner in which it is erected on a substantial foundation, its purpose and function, the expense and size of the task and the difficulty of removal, it is considered a structure and not machinery or equipment.

Hand tools

All equipment rental is exempt when used on or in connection with new construction, reconstruction, alteration, expansion or remodeling of a building or structure.

Hand tools purchased by contractors are taxable.

Tax responsibilities

Sales tax and use tax

When the tax is imposed determines whether it is a sales tax or a use tax. The sales tax is imposed when property is delivered in Iowa. The use tax is imposed when property is purchased for use in Iowa and no Iowa sales tax has been paid.

Sales tax is applied at the time of delivery of taxable goods and when taxable services are rendered, furnished or performed. The Iowa seller of the items must obtain a sales tax permit and is primarily responsible for collecting, reporting and remitting the tax to the Iowa Department of Revenue. In addition, a local option sales tax may apply to sales or services, depending upon where the sale is occurring.

Two types of use tax are recognized by the State of Iowa: retailer’s use tax and consumer’s use tax. The only difference between the two is the person responsible for remitting the tax.

Iowa retailer’s use tax is collected by out-of-state retailers on their sales of goods and taxable services to persons who will use those goods and services in Iowa. If the state of Iowa cannot require an out-of-state retailer to collect Iowa tax, anyone purchasing goods or taxable services from that retailer for use in Iowa is obligated to pay consumer’s use tax when those goods or services arrive in this state.

Sales or use tax is always computed on the actual selling price of the taxable purchase. Beginning July 1, 2008, the state sales tax rate is 6 percent and the state use tax rate is 6 percent.

Local option sales tax

The school infrastructure local option tax (SILO) does not exist as a separate tax as of July 1, 2008.

In addition to the 6 percent state sales tax, local jurisdictions may impose a local option sales tax. There is no local option use tax.

The “regular” local option sales tax (LOST) began in 1986. Within a county, some cities may have the regular local option tax, some may not. Also, the unincorporated area of a county may or may not have the tax. The rate may be up to 1 percent.

The list of local option tax jurisdictions is updated in June and December.

If a contractor receives taxable goods or services in a local option jurisdiction, the tax must be paid. If a contractor receives taxable goods or services outside a local option jurisdiction for use inside a jurisdiction, the local option tax of the jurisdiction in which the taxable goods or services are delivered or performed is due.

The following are not subject to local option sales tax. In addition, the state rate remains at 5 percent:

Self-propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to them, including auxiliary attachments which improve their performance, safety, operation, or efficiency and including replacement parts.

These must be used directly and primarily by contractors, subcontractors and builders for new construction, reconstruction, alterations, expansion or remodeling of real property or structures. When these items are rented to contractors for use in connection with new construction, reconstruction, alteration, expansion or remodeling, the rental payments are exempt from tax.

If a local option tax is imposed or increased after a contractor enters into a written contract, the contractor must pay the local option tax applicable at the time it purchases building materials. The contractor may then apply for a refund of the additional local option sales tax based on certain conditions.

All of the following conditions must be met before a contractor is eligible to claim a local option tax refund:

a. The goods, wares or merchandise is incorporated into an improvement to real estate in fulfillment of a written contract fully executed prior to the date of the imposition or increase in rate of the local option tax. The refund does not apply to equipment transferred in fulfillment of a mixed contract.

b. The contractor has paid to the Department or to a retailer the full amount of the state and local option tax.

c. The claim for refund must be filed with the Department within one year from the date the tax is paid. The IA 843 Claim for Refund is used for this purpose.

Liability of subcontractors

A subcontractor who is providing materials and labor on the actual construction of a building or structure has the same tax responsibilities as a general contractor.

Machinery and equipment sold by material suppliers to subcontractors are sold for resale, and the subcontractor must provide the supplier with a valid sales tax exemption certificate. The subcontractor must have a sales tax permit.

A general contractor is not responsible for the tax liabilities of a subcontractor.

Liability of sponsors

A sponsor is the person or business for whom the contractor is performing construction services.

The Department may ask the sponsor of a contract to guarantee the payment of any sales or use tax due by an out-of-state contractor by withholding the final payment due to the contractor. The sponsor may be released from this requirement if the appropriate forms have been completed; the forms include the names of the subcontractors, the suppliers from whom tangible personal property was purchased, and a summary of the provisions of the actual contract.

Filing sales and use taxes

Iowa contractors who are also retailers must have a sales tax permit.

Sales tax returns are filed on a semimonthly, monthly, quarterly or annual basis, depending on the amount of tax remitted. Check our Web site for the current filing frequency thresholds.

Out-of-state contractors required to be registered will be issued a retailer’s use tax permit. Retailer's use tax returns are generally filed quarterly. However, any retailer who collects $1,500 or more a month is obligated to make monthly deposits of tax with the Department. Retailers collecting less than $120 per year may file an annual return.

Iowa contractors filing consumer’s use tax returns must report and pay the tax in the period in which the materials were removed from inventory or brought into Iowa from out-of-state. Consumer’s use tax returns are filed on a quarterly basis, unless the amount of tax is under $120 per year, in which case an annual filing is allowed.

Do not hesitate to contact the Department if you need more information regarding your filing frequency.

Penalties may be assessed for failure to file a tax return and for failure to pay at least 90 percent of the tax by the due date. In addition, interest is due if the tax is paid late. Contact Taxpayer Services for the penalty and interest charges.

Are transportation and delivery charges taxable?

Transportation and delivery services are not subject to Iowa sales or use tax if a separate written contract exists or if no written contract exists but the services are separately itemized on the bill.

Are start-up charges taxable?

Start-up charges are not subject to Iowa sales or use tax if they are separately contracted or if they are separately itemized on the billing from the seller to the purchaser.

Capital improvements

A job that qualifies as a capital improvement is not automatically exempt from tax. The information given is this booklet is the basis to determine the taxability of a job.

Keeping records

All businesses should keep records for at least three years. Business records of contractor-retailers must clearly show whether or not inventory items taken out of stock were retail sales or used in construction contracts.

Contractor registration and bonding

Registration

All contractors who work in the state of Iowa are required to register with the Iowa Division of Labor Services (515/ 242-5871) regardless of the size of their jobs before they begin construction work in Iowa. General contractors, prime contractors and subcontractors are included in this requirement. Online registration is available

A $25 biannual fee is charged, and proof of workers compensation insurance for contractors with employees is required.

Filing a bond

An out-of-state contractor who is awarded a contract in Iowa in excess of $5,000 must file a bond with Contractor Registration, Iowa Workforce Development , 1000 East Grand Avenue, Des Moines, Iowa 50319; 515/281-3606.

The bond is released when all taxes or money due to the State or its subdivisions have been paid.

The Iowa Department of Revenue may at any time require that the bond be increased to cover tax liabilities. The Department may order the bond forfeited if the contractor has failed to pay the total amount of the tax due and does not make a timely request for a hearing.

Bond release from Iowa Workforce Development

The contractor’s surety may make a written request for release of an out-of-state contractor’s bond. Debts owed to the state and resulting from covered work must be paid before the bond will be released.

Release letter from Iowa Department of Revenue

Before the contract sponsor or building owner will release the final payment owed to the contractor, the contractor must obtain a release letter from the Iowa Department of Revenue showing that all taxes due are paid in full.

Corporation registration

In addition to registering with the Iowa Department of Revenue, contractors doing business as a corporation should register with the Iowa Secretary of State, Corporations Division at 515/281-5204.

Appendix A

The following are exempt from Iowa sales or use tax when they are performed on or in conjunction with new construction, reconstruction, alteration, expansion or remodeling of a building or structure. In all other circumstances, such as repair work, they are taxable.

  • carpentry
  • roof, shingle and glass repair
  • electrical and electronic repair and installation
  • janitorial and building maintenance or cleaning
  • excavating and grading
  • house and building moving
  • landscaping
  • machine operator services
  • oilers and lubricators
  • painting
  • papering and interior decorating
  • pipe fitting and plumbing
  • rental of machinery/equipment
  • termite, bug, roach and pest eradicators
  • tin and sheet metal repair
  • tree trimming and removal
  • welding
  • well drilling
  • wood preparations
  • wrecking /demolition

General contractor services: If the service is not taxable, list separately on bill

Architect services: Never taxable, list separately on bill

Engineer services: Never taxable, list separately on bill

NOTE: The repair of machinery used on the job site is taxable.

Appendix B

Building materials

The term “building materials” means materials used in construction work and incorporated into real property. It is not limited to materials used in constructing a building. It may also include any type of materials used for improvement of the premises or anything essential to the completion of a building or structure for the use intended. Carpeting is not considered to be a building material.

Building supplies

The term “building supplies” means anything that is furnished for and used directly in the carrying out of the work of an owner, contractor, subcontractor or builder and is consumed entirely. Such items do not have to enter into and become a physical part of the structure like materials, but they do become as much a part of the structure as the labor performed on it.

The following is a partial list of building materials and supplies:

  • asphalt
  • bricks
  • builders hardware
  • caulking material
  • cement
  • central air conditioning
  • cleaning compounds
  • conduit
  • doors
  • ducts
  • electric wiring, connections and switching devices
  • fencing materials
  • floor covering other than carpeting
  • flooring
  • glass
  • gravel
  • insulation
  • lath
  • lead
  • lighting fixtures
  • lime
  • linoleum
  • lubricants
  • lumber
  • macadam
  • millwork
  • modular and mobile homes
  • mortar
  • oil
  • paint
  • paper
  • piping, valves, and  pipe fittings
  • plaster
  • plates and rods to anchor masonry foundations
  • plumbing supplies
  • polyethylene covers
  • power poles, towers and lines
  • putty
  • reinforcing mesh
  • rock salt
  • roofing
  • rope
  • sand
  • sheet metal
  • steel
  • stone
  • stucco
  • tile
  • wall coping
  • wallboard
  • water conditioners
  • weather stripping
  • windows
  • window screens
  • wire netting and screen
  • wood preserver

Building equipment

The term “building equipment” means any vehicle, machine, tool, implement or other device used by a contractor in erecting structures for others, or reconstructing, altering, expanding or remodeling property of others that does not become a physical component part of the property upon which work is performed and is not necessarily consumed in the performance of such work.

The contractor must pay tax on any purchases of building equipment but may rent building equipment exempt from tax.

Rental of the following are exempt when used in new construction, reconstruction, alteration, expansion, or remodeling (this list is illustrative, not exclusive):

Carpeting

Carpeting is considered to be tangible personal property, not a building material. When contractors are building spec homes, they are the consumers of carpeting and must pay tax to their suppliers. However, in other instances, contractors may purchase carpeting for resale and provide the seller with a sales tax exemption certificate. If contractors purchase carpet tax free for resale, they must collect tax from the final consumer. Contractors must have sales tax permits to purchase carpet tax free for resale.

Note that carpet installation is exempt from sales tax. However, the bill must be itemized to show that sales tax is being charged on the cost of the carpet only. If the installation charge is not separately itemized, the entire bill is subject to sales tax.

Floor coverings

Floor coverings other than carpeting are considered to be building materials if they are shaped to fit a particular room and are permanently attached to the floor. When this occurs, they are taxable in the same manner as building materials that are used in the performance of a construction contract.

The gross receipts from the sales of linoleum and other types of floor covering other than carpet that are not attached but simply laid on finished floors are subject to tax unless purchased for resale.

Landscaping materials

The gross receipts from the sale of sod, dirt, trees, shrubbery, bulbs, sand, rock, woodchips, and other similar landscaping materials are subject to sales or use tax when used for landscaping and sold to final consumers. The final consumer means the owner of the land or a general building contractor.

When a landscaping contractor uses materials to fulfill a contract, the landscape contractor is considered the retailer of the landscaping materials and is obligated to collect sales tax on the selling price from the final consumer.

In the following examples, assume that the contractor is a landscaping contractor.

Example: A sodding contractor furnishes and installs 20 yards of sod at $20 per yard for a total of $400. The sodding contractor also charges the customer $24 sales tax (6% x $400).

Example: XYZ Company landscapes a new office building. XYZ furnishes the shrubs at $25 each, white rock for $5 per bag and woodchips for $4 per bag. Under a separate contract XYZ installs all of the landscaping materials for a fee of $25 per hour. XYZ’s taxable gross receipts include the shrubs, white rock and woodchips. The labor charge is exempt because it could be the taxable service of landscaping new construction.

The gross receipts from the sale of uncut sod and unexcavated trees, shrubs, and rock are not subject to sales/use tax. They are considered to be the sale of real estate.

Appendix C

The following is a partial list of activities and items that could fall within the meaning of a construction contract or are generally associated with a construction contract. The list is provided merely for the purposes of illustration and should not be used to distinguish machinery and equipment from real property or structures since those determinations are based upon the facts of each situation.

  • ash removal equipment, installed
  • automatic sprinkler systems for fire protection
  • awnings and venetian blinds that are attached to real property
  • boilers, installed
  • brick work
  • builder’s hardware
  • burglar alarm and fire alarm fixtures
  • caulking materials work
  • cement work
  • central air conditioning installation
  • coal handling equipment, installed
  • concrete work
  • conveying systems, installed
  • drapery installation
  • electric conduit work and related items
  • electric distribution lines
  • electric transmission lines
  • flooring work
  • floor covering installation, permanent
  • furnaces, heating boilers and heating units
  • glass and glazing work
  • gravel work
  • lathing work
  • lead work
  • lighting fixtures
  • lime work
  • lumber and carpenter work
  • macadam work
  • millwork installation
  • modular home installation onto foundation
  • mortar work
  • oil work
  • paint booths and spray booths, installed
  • painting work
  • paneling work
  • papering work
  • passenger and freight elevators
  • piping valves and pipe fitting work
  • plastering work
  • plumbing work
  • prefabricated cabinets, counters and lockers, installed
  • putty work
  • refrigeration units, central plants installation
  • reinforcing mesh work
  • road construction
  • roofing work
  • sheet metal work
  • signs, other than portable
  • steel work
  • stone work
  • stucco work
  • tile work, ceiling, floor and walls
  • underground gas mains
  • underground sewage disposal
  • underground water mains
  • vault doors and equipment
  • wallboard work
  • wall coping work
  • wallpaper work
  • water heater and softener installation
  • weather stripping work
  • wire net screen work
  • wood preserving work

 

Appendix D

The following is a list of property that under normal conditions remains tangible personal property after installation. The list is not complete and is for illustrative purposes only.

The following is a list of property which under normal circumstances becomes a part of realty. The list is not complete and is offered for illustrative purposes only.

78-527 (6/20/08)