IOWA SALES AND USE TAX GUIDE
This sales and use tax document should not be considered an all-inclusive discussion of Iowa sales and use tax law. For additional assistance, contact Taxpayer Services at 515-281-3114 or 1-800-367-3388 on specific issues that apply to your business situation. If needed, we will assist in your research on the Department’s Iowa Tax Research Library, which contains statutes, rules, regulations, and more.
Other Types of Permits |
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Obtaining a Permit
Anyone selling taxable goods or services from an Iowa location must obtain
a sales tax permit. Selling without a permit is a serious misdemeanor. The
permit is available at no charge.
You can apply for an Iowa tax permit one of two ways:
You will receive your permit number faster by applying online. The permit number will be printed on a postcard and mailed to you. You are not required to display it; however, it should be readily available to prove you have a permit.
You may begin making sales and collecting sales tax when you apply; you do not have to wait to receive your permit number.
A retail sales tax permit is not a license to purchase items tax free. It is a permit to collect and remit sales tax.
Effective Dates
Once issued, a sales tax permit is effective until it is canceled by the retailer
or revoked by the Department.
Business Location
A sales tax permit must be obtained for each Iowa business location.
A business owner who changes location in the same county does not need a new
permit, but should notify the Department of the change. If the location is in
a different county, the owner must apply for a new permit. A new permit is not
required when a mailing address changes; the permit holder should, however, notify
the Department. Changes
to permit information can be made online or by using form
92-033, Request for Change, Correction or Cancellation of Tax Permit (pdf).
Changing Ownership
If the owner or type of ownership changes, the sales tax permit must be
canceled by notifying the Department. For example, if ownership of a business
changes from a sole proprietor to a partnership or other type of ownership, the
current permit must be canceled and application for a new permit must be made.
The permit is not transferable from one owner or ownership type to another. The
permits
may be canceled online or by using form 92-033,
Request for Change, Correction or Cancellation of Tax Permit (pdf).
Consolidated Permit for Multiple Locations
If a business has two or more Iowa locations and, therefore, two
or more sales tax permits, it may request to file a consolidated return. Please
contact Taxpayer
Services at 1-800-367-3388 or 515-281-3114 for more information.
Temporary Businesses
The Department issues a nonpermit identification certificate free
of charge to temporary businesses. A form is provided to report any taxes collected
and must be returned whether there were sales or not. Business people such as
concessionaires and those who sell from trucks or roadside stands should obtain
this type of permit. Call our office in Davenport at 563/386-6484 x1.
Not sure you need a permit? Contact Taxpayer Services first; 1-800-367-3388 or 515-281-3114.
Temporary Event Sponsors
Sponsors of flea markets, craft shows, antique shows and other temporary
events are liable for payment of the sales tax, penalty and interest of the retailers
selling at the event, unless they verify that the exhibitors are licensed to
collect and remit sales tax. Sponsors should obtain from each exhibitor a valid
sales tax permit or retailer’s use tax permit number or confirmation
they have applied for a temporary selling permit by calling the Davenport office
at 563/386-6484 x1.
Businesses that have regular sales tax permits or retailer’s use tax permits may remit the sales tax collected under their regular number and usual return.
Special events application for a temporary sales tax permit
Denying a Permit
The Department may deny permits to applicants who are substantially delinquent
in paying any tax, interest or penalty.
The application of a partnership may be denied if a partner is delinquent. If the applicant is a corporation, the application may be denied if an officer having substantial legal or equitable interest in the ownership of the corporation owes any delinquent tax, penalty or interest.
A permit may be denied to any individual applicant if the Department has received a Certificate of Noncompliance from the Child Support Recovery Unit.
Revoking a Permit
The Department may revoke the permit of a permit holder who is substantially
delinquent in paying any tax, interest or penalty. When a return is not filed
for a particular period, the Department might assume a delinquency exists,
even if no sales occurred during the period. Returns must be filed showing
zeroes, even if there are no sales.
When a permit is revoked, the retailer may wait as long as 90 days before the permit can be restored or a new permit issued. Anyone knowingly making sales after a permit has been revoked and before it is restored may be found guilty of an aggravated misdemeanor.
A revoked permit will not be reinstated if the Department has received a Certificate of Noncompliance from the Child Support Recovery Unit if the permit holder is an individual requesting reinstatement.
Loss or Destruction of Permit
The Department will furnish a duplicate copy when an active permit is lost
or destroyed. Permits are mailed in a postcard format. The permit number is
not required to be posted on the wall of the business establishment. It must,
however, be available if a Department representative requests to see it.
Use Tax
The use tax is complementary to sales tax. The general rule is when a transaction
is subject to sales tax but occurs outside of Iowa for use in Iowa (a taxable
use), it is subject to use tax.
Two types of use tax recognized by the State of Iowa are retailer’s use tax and consumer’s use tax. The difference between the two is who is initially responsible for remitting the tax.
Taxable Use
“Taxable use” is defined as the exercise of any right of ownership
over tangible personal property by any person owning the property. This includes
any taxable services rendered, furnished or performed for use in Iowa or if the
product or result of service is used in Iowa.
Retailer’s Use Tax
Every out-of-state retailer who has “nexus” in Iowa and makes sales
of tangible personal property or taxable services in Iowa must obtain a retailer’s
use tax permit. The permit is free of charge.
To apply for a retailer’s use tax permit, complete the Business Tax Registration form online or by using form 78-005 (pdf).
Nexus
Businesses located outside of Iowa frequently have representatives and/or
employees in Iowa to maintain, establish, or further their market share within
the state. The activities of these persons may create an Iowa
tax filing requirement (nexus) for these businesses.
Consumer’s Use Tax
Persons regularly purchasing taxable goods or services for their own use
in Iowa from an out-of-state source not collecting Iowa tax must register
with the Department to remit consumer’s use tax. Registration is free. A physical permit is
not issued, although a consumer’s use tax number is assigned.
To apply for a consumer’s use tax permit, complete the Business Tax Registration form online or by using form 78-005 (pdf).
The consumer's use tax rate through June 30, 2008, is 5 percent. Beginning July 1, 2008, the rate is 6 percent.
Occasionally, a business will make a purchase for its own use and owe Iowa consumer’s use tax. The business can report the purchase and pay the tax due on its quarterly sales tax return on line 2 “goods consumed.”
Iowa customers who order items from catalogs, by Internet or other sources and have not paid the tax may send the tax to the Department with a note to Sales/Use Tax Processing, Iowa Department of Revenue, P.O. Box 10412, Des Moines, IA 50306-0412.
Consumers who make out-of-state purchases and pay another state’s sales tax pay only the difference of tax due to Iowa. For example: An Iowa business or resident purchases furniture with delivery taken in another state and pays a 4 percent sales tax to that state. Iowa’s use tax rate is 6 percent (as of July 1, 2008). The business or resident then owes Iowa 2 percent use tax. Additional information is available in “Consumer’s use tax.” (78-535)
Direct Pay Permit
A few qualified purchasers, users, and consumers of tangible personal
property or enumerated (taxable) services may remit the tax directly
to the Department rather than to their suppliers. To qualify for a Direct
Pay Permit, both of the following must be met:
Application for Direct Pay Permit (pdf)
Streamlined Sales Tax
Iowa is participating in the Streamlined Sales
Tax Project (SSTP), an initiative
to encourage businesses in all states to collect and remit sales tax in every
state in which they make taxable sales.
Certain corporate or associate officers and partners of a partnership are personally liable for paying sales and use taxes, interest, and penalty when the corporation, association or partnership fails to do so.
A person selling his or her business must file final tax returns and pay all taxes due. If the seller fails to pay the final tax due, the new owner must withhold a sufficient amount of the purchase price to pay any unpaid tax, interest and penalty. If the new owner intentionally fails to do this, he or she is personally liable for the tax.
State Sales Tax
The state sales tax rate and the use tax rate are the same. Through
June 30, 2008, the rate is 5 percent. Beginning July 1, 2008, the rate is 6 percent.
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 addition
to the state tax, local jurisdictions may impose the local option sales 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 rural area of a county may or may not have the tax. The rate is up to 1 percent.
“Delivery”
Tax applies if “delivery” of taxable goods or services occurs
within a local option jurisdiction. “Delivery” is the location
in which ownership of tangible personal property is transferred from
the seller to the buyer or the location in which a service is rendered,
furnished or performed. If delivery occurs in a local option tax
jurisdiction, then the local option tax must be collected on the transaction.
Destination and means of delivery determine if tax applies. Examples (pdf)
Exceptions
As a general rule, local option sales tax is collected on the sale
of the same services and tangible personal property that are subject
to the state sales tax and delivered in those jurisdictions.
However, the following are exceptions in which state sales tax may be imposed, but local option tax is not:
There is no local option use tax; therefore, sales that are subject to a use tax, such as motor vehicles, are not subject to local option sales tax. However, out-of-state retailers will be required to charge LOST in some cases.
Jurisdiction lists by county or city are updated January 1 and July 1 of each year. Rate charts are also available.
For more detailed information about local option sales tax, obtain “Local Option Tax Questions and Answers.”
Hotel/Motel
Tax
Certain cities and counties in Iowa have adopted a
local option hotel/motel tax which is assessed on the
renting of rooms in any hotel, motel, inn, public lodging
house, rooming house, tourist court, mobile home, bed
and breakfast or in any place where sleeping accommodations
are furnished to transient guests for rent. These rentals are subject to a
state rate of 5 percent.
The rate of local hotel/motel tax can range from 1 to 7 percent. Jurisdictions and rates are updated January 1 and July 1 of each year.
Motor Vehicle Use Tax
Sales of vehicles subject to registration are exempt from sales
tax, but are subject to a 5 percent motor vehicle use tax. The tax
is paid upon registration to the county treasurer.
Motor Vehicle Lease Tax
To be subject to tax, a vehicle subject to registration must have a gross
vehicle weight rating of less than 16,000 pounds and be
leased for a period of 12 months or more. (Motorcycles and motorized bicycles
are excluded.)
The 5 percent tax is computed on each lease transaction based on the lease price. The lease price includes the number of months of the lease multiplied by the monthly lease payments, plus certain adjustments. The tax is paid to the county treasurer.
Automobile Rental Tax
In addition to the state sales tax and local option tax (if applicable),
the lease or rental of automobiles is subject to a car
rental tax of 5 percent. This applies to vehicles designed to carry nine or
fewer passengers. It does not apply to delivery trucks designed to carry cargo
or to motorcycles or motorized bicycles.
The automobile rental tax is reported and remitted on the quarterly sales tax return. No permit other than an Iowa sales tax permit is required to collect and report this tax.
The basis for Iowa tax is the purchase or sale price of tangible personal property or enumerated (taxable) services. “Purchase price” or “sale price” means the total amount of consideration, including cash, credit, property and services, for which personal property or services are sold, leased or rented.
All sales of tangible personal property in Iowa are subject to sales tax unless exempted by state law. Sales of services are exempt from Iowa sales tax unless taxed (enumerated) by state law.
The retailer must add the tax to the price of the goods or services and collect the tax from the purchaser. The retailer cannot in any way indicate that the sales tax is being “absorbed.” A retailer may include the tax in the price, which is typically done, but not limited to, when selling alcoholic beverages and admissions to movie theaters and sporting events. When this happens, the retailer must post a notice or make a statement on the invoice that the purchase price includes the sales tax.
Sales tax is applied and due when taxable services are rendered, furnished or performed or when taxable goods are delivered, not when payment is received from the customer.
It is important to file and pay the returns and tax due by the due date to avoid penalty and interest. A return should be filed with zeros if a business does not have sales to report.
eFile & Pay
Iowa sales and use tax returns are filed electronically through eFile & Pay.
The eFile & Pay system is a paperless
method of filing Iowa tax deposits and returns.
It also provides the option to pay electronically.
A Business eFile Number (BEN) is assigned
at the time a permit number is issued and
is used to gain access to the eFile & Pay
system. If you have questions about eFile & Pay,
please contact our eFile
Service Unit or call 515-281-8453 or
1-866-503-3453 (toll free).
FILING
FREQUENCY
A retailer is assigned a filing frequency
based on the estimated amount of sales tax
to be collected. Local option tax collections
should not be included in the amount used
to determine which filing frequency should
be used.
A change of filing frequency may be necessary if tax collections increase or decrease substantially over multiple filing periods. Retailers who feel a change in filing frequency is required should request the change online or by using form 92-033, Request for Change, Correction or Cancellation of Tax Permit (pdf). Returns must be filed as usual until the filing frequency is changed. The change is usually effective at the beginning of the next year or quarter.
If a retailer does not have taxable sales during a filing period, he or she must file a timely return showing zeros.
If a due date falls on a Saturday, Sunday, or holiday, the taxpayer has until the following business day to remit the return and payment to the Department. The postmark date is accepted as the filing date.
Sales Tax Filing Frequencies and Return Due Dates
Retailer’s Use Tax Filing Frequencies and Return Due Dates
Consumer’s Use Tax Filing Frequencies and Return Due Dates
COMMON PROBLEMS WITH COMPLETING THE RETURN
Goods Consumed
This line on the return is commonly misunderstood. “Goods consumed” are
items that you originally purchased tax free for direct resale or to
be incorporated into a product for resale, but you used them in the course
of your business or for other personal use instead.
Example: A hair salon purchases bottles of shampoo to be sold out of their display case. The salon did not pay sales tax to its supplier since it intends to directly resell the shampoo. However, several bottles were taken out of inventory and used in the performance of their service. The shampoo that was used is goods consumed. The salon must report the price it paid to its supplier on the goods consumed line of the return and pay tax on it.
Example: A clothing store purchases suits tax free for resale. The owner of the store needs a new suit. The suit removed from inventory is goods consumed and the price the owner paid to the supplier must be reported and the tax must be paid.
Example (not goods consumed): A person who makes craft items to be sold at craft shows does not pay sales tax to suppliers for materials. These materials are incorporated into the craft items to be sold. They are not goods consumed and should not be reported on line 2.
Exemptions
Another misunderstood area is the exemptions/deductions area. Many taxpayers
confuse this with the same types of deductions
they are able to take on their income tax returns. Expenses of the business
are reported on the IRS Schedule C, Profit or Loss from a Business, for income
tax purposes, but are not included as exemptions on the sales/use tax
return.
The following should be reported on line one, gross sales, and then exempted on line four of the return.
Local
Option Sales Tax (LOST)
Local option tax is remitted by retailers whenever
they file and pay their sales tax returns.
Local option sales tax is reported by county on the quarterly
or annual return. The rate may be up to 1 percent. New jurisdictions may enact
local option taxes on January 1 and July 1.
Locations, rates and information
Tax Included in the Price
If sales tax iscollected as part of or included in the selling price
of the item or service, the tax needs to be backed out to arrive at the true
gross receipts before the return is completed. This is allowed if the retailer
makes known to the purchaser that the tax is included in the price which is charged.
For example: A hairdresser includes the 6 percent sales tax in the price of all goods and services; for purposes of this example, assume local option sales tax does not apply. The taxable gross receipts are $17,250. Divide $17,250 by 1.06. The result - $16,273.58 - is the amount to be written on line 1 of the return.
If only the state sales tax of 6 percent applies, divide the gross receipts by 1.06 as shown in the above example. If a 1 percent local option tax applies, divide by 1.07. If a 1/2 percent local option tax applies, divide by 1.065.
Penalty and/or interest may apply if you fail to file a return on time or if you fail to pay the tax due.
If more than one penalty applies, the 10 percent penalty is the only one charged. The penalty for willful failure to file a return is 75 percent of the tax due.
In addition, interest accrues from the due date until paid. The interest accrues every calendar month or a fraction of the month. Interest rates change yearly.
Penalties can be waived only under special circumstances. Interest cannot be waived.
Penalty and interest information
For further details, contact Taxpayer Services at 1-800-367-3388.
Under special circumstances, the Department may require a bond of any permit holder. The Department generally does not require a bond of a new applicant, but may in the following situations:
Existing permit holders may be required to post a bond under the following conditions:
When the Department requires a bond, the minimum amount is determined as follows:
The Department may require a larger amount if necessary. No bond is less than $100. The Department accepts cash, cashier’s checks, certificates of deposit, and surety bonds; personal checks are not accepted. Failure to post a bond when required may result in the revocation of an existing permit or denial of a permit application.
Records must include the normal books of account ordinarily maintained by a person engaged in business activity. This includes all bills, receipts, invoices, cash register tapes or other documentation. These may be maintained in an electronic format. The records are required to be maintained for at least three years. In the event of an audit, the Department may request records for a longer period of time if returns have never been filed.
The Department may audit a return anytime within three years. However, the period for audit is unlimited if a return was filed falsely or fraudulently with the intent to evade tax, or if no return was filed.
Permit holders have the right to contest an assessment, denial of a refund claim or any other Department action, except licensing. Protests must be filed with the Department’s hearing officer within 60 days of the assessment notice date or denial of the refund claim. If a proper protest is not filed, the Department may either require a proper protest or dismiss the protest for failure to comply. If a protest is not filed timely, the Department assumes that the permit holder does not oppose the assessment.
All protests must be filed by certified mail (return receipt requested) or personal delivery to the Department’s hearing section during business hours.
Appeal and protest information
A refund can be made only to the person who actually paid the tax, which in most cases is the retailer’s customer. The IA 843 Claim for Refund may be used to request a refund of tax paid in error. Claims for refund should be filed within three years of the date the tax payment was due.
A seller must obtain a properly completed Iowa Sales Tax Exemption Certificate if a purchaser is claiming exemption from sales/use tax.
Exemption certificate (pdf)
Information (pdf)
Accommodations/Room Rental
Taxable
accommodations include rooms, apartments, or sleeping quarters in any hotel,
motel, inn, public lodging house, rooming house, mobile home, tourist court,
bed and breakfast or in any place where sleeping accommodations are rented
to transient guests. The renting of all rooms is exempt from the tax if
rented by the same person for a period of more than 31 consecutive days. The
renter must contract to rent for a single period of more than 31 days.
The renter may not accumulate more than 31 days by contracting for two or more
rental transactions.
The Iowa hotel/motel tax adopted by some jurisdictions is in addition to the state excise tax of 5 percent. A list of hotel/motel jurisdictions (Excel) is updated January 1 and July 1 of each year.
Lodging is not subject to local option sales tax, whether or not the hotel/motel tax is imposed.
Amusement/Tickets or Admissions
Tickets or admissions to places of amusement, fairs, and athletic
events, except those of elementary and secondary schools, are taxable.
Sales by state and county fairs are exempt.
Gross receipts from fees charged for participation in any game or other form of amusement are taxable. Entry fees are not subject to tax if the admission charge is subject to tax.
Sales from the operation of all forms of amusement devices and games of skill, games of chance, raffles, and bingo games, and commercial amusement enterprises are taxable. A state gambling license may also be required and can be obtained by calling the Iowa Department of Inspections and Appeals at 515-281-6848.
Gross receipts from musical devices, weighing machines, shooting galleries, billiard and pool tables, bowling alleys, pinball machines, slot-operated devices, vending machines of all types and devices or systems where prizes are awarded are taxable.
Gross receipts from the operation of any card game tournament are subject to Iowa tax.
Athletic Fees/Facilities
Private club fees paid for the privilege of participating in athletic sports,
fitness centers,
or commercial recreation are taxable. This generally includes any special
assessments.
Fees paid to cities and counties for the privilege of participating in any athletic sport are taxable.
Automatic Data Processing
The sale of canned software is subject to tax.
The sale of custom software is exempt from
tax. See “Computers: Is yours exempt?” (78-575).
Boat
Sales
The sale
of boats
is subject
to Iowa sales
or use tax
if delivery
is taken in
Iowa. If sold
by an individual,
the county will collect
the tax upon registration. The
purchase of a boat does not qualify
for exemption as a “casual sale.”
Communication Service
The gross receipts from the following are taxable:
Conditional Sales / Installment Sales
A conditional sales contract allows the purchaser to use the item purchased,
but title to the property doesn’t pass to the buyer until a condition
has been met – usually full payment of the purchase price. Thus,
an installment sale is a conditional sales contract. Sales tax is due
on the full contract price at the time the purchaser takes delivery
of the property, except interest and finance charges when separately
stated and reasonable in amount. No further tax is due on the periodic
payments. Once the final payment has been made on an installment contract,
the title to that merchandise passes to the buyer.
Construction
Contractors
Contractors,
subcontractors,
builders, and owners are consumers
of building materials, supplies
and equipment they use in performing
construction contracts. Tax applies to the
purchase of these items by the construction
contractors. Contractors who are also retailers
are subject to other statutory provisions.
Certain machinery and equipment which remains tangible personal property after installation that is sold to contractors can be purchased for resale.
The following are exempt from local option tax when purchased and used by construction contractors: 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.
For more information, see our online publication for construction contractors (78-527).
Designated exempt entities awarding construction contracts on or after January 1, 2003, may issue special exemption certificates to contractors and subcontractors, allowing them to purchase, or withdraw from inventory, materials for the contract free from sales tax. For more information, see “Designated Exempt Entity Registration of Construction Contracts.”
Discounts,
Rebates and
Coupons
Any cash discount allowed
by a retailer and taken on
taxable sales is a proper
deduction when collecting
and reporting tax. If a coupon
is issued by the retailer
it is handled the same as
a cash discount.
Rebates are not discounts and cannot be used to reduce the taxable price.
Manufacturer coupons are not discounts, and tax is due on the full retail price.
Finance Charges
Finance charges included
in the selling price as a
condition of sale are taxable.
Interest or other types of
charges that result from
selling on credit or under
installment contracts are
not subject to tax if separately
stated and reasonable in amount.
Florists
Orders taken by an Iowa florist and telephoned to a second florist in Iowa
are subject to tax. The “sending florist” is responsible for
collecting the tax.
Food
In
general,
food is taxable
under the following
situations:
Prepared food; candy,
candy-coated items,
and other candy products
(unless it contains flour);
beverages, excluding tea and
coffee except when prepared
for immediate consumption, and all
mixes and ingredients used to produce such beverages,
which do not contain a primary dairy product or
dairy ingredient base or which contain more than 50 percent
of natural fruit or vegetable juice.
For more information, see “Food/Restaurants and grocery stores” (78-516).
Gambling
The
gross
receipts
of ALL social
gambling
activities
conducted
in Iowa are subject
to sales tax and local
option sales tax (if any).
The exceptions are (1) the proceeds of activities conducted by county or city governments and (2) for receipts from raffles held at agricultural fairs and (3) for receipts from gambling activities conducted on Indian reservations in Iowa.
For more information see “Gambling / Fundraising: Games of skill or chance and raffles” (78-506).
If needed, a state gambling license may be requested by calling the Iowa Department of Inspections and Appeals at 515-281-6848.
Gifts by Retailer
If a retailer purchases tangible personal property exempt from tax for the
purpose of resale and later gives it away or donates it, the retailer pays
sales tax on the purchase price of the item under “goods
consumed” on
the sales tax quarterly return.
Gratuities
Gratuities
which are mandatory
charges and
automatically
added to the bill
are subject to tax.
Internet Sales
Internet sales of taxable goods delivered in Iowa are subject to tax.
Internet sales shipped to another state are not subject to Iowa tax.
Items delivered to the purchaser electronically or digitally are exempt from tax.
Layaway
Sales
Layaway
sales are
subject
to sales
tax. Tax
is reported on
those sales during
the period in
which delivery
of the layaway occurs, usually
when the final payment has
been made.
Lease and Rental
Taxable:
Optional Warranty Contracts
Gross receipts from the sale of optional service
or warranty contracts which
furnish labor and materials are taxable. Residential warranty contracts are
not taxable. Certain computer software maintenance
contracts are partially taxable.
Rent to Own
Sales tax is due on rent-to-own payments in the period in which
the payment is due.
Services
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 taxable service is rendered, furnished or performed. Local option
tax may also apply.
The Department makes every attempt to keep this list current. However, please consider the following a partial listing and non-inclusive. If you need assistance in determining whether or not a service is taxable, please contact our tax specialists by telephone at 1-800-367-3388 or 515-281-3114.
Taxable Services:
The prior services are taxable except when:
NOTE: The following are considered sales of tangible personal property and are taxable:
Snowmobiles and Motorboats
Snowmobiles and motorboats are not vehicles subject to registration.
Their purchases are subject to sales tax and any applicable local option tax
if purchased in Iowa. If purchased out of state for use in Iowa, use tax must
be paid at the rate of 6 percent. Watercraft are not exempt from tax under the
casual sale rule.
Trade-Ins
Trade-ins may reduce the taxable price of a transaction when:
Utilities
Generally, the sales, furnishing, or service of gas, electricity, water, heat,
pay television and communication services, including the sale of these items
by municipal corporations, are taxable.
Residential energy exemption
The sale of residential
energy is exempt from state sales tax; however, local option tax
applies.
Sewage / solid waste
Sewage services and solid waste collection and disposal services billed to
nonresidential commercial operations are taxable.
A nonresidential commercial operation is any industrial, commercial, agricultural or mining operation. These services are taxable to hotels and motels, restaurants, construction contractors, financial institutions, civic/charitable groups, churches, professional firms, skilled trades, insurance and realty businesses, day care centers, counseling/referral services, personal services such as beauticians, printing, storage, pest control, custodial services, landscapers, etc. Apartment complexes, mobile home parks, or single or multifamily dwellings are exempt.
The disposal charge or tipping fee imposed by a solid waste collection or disposal facility is, under certain circumstances, subject to sales tax. See “Solid waste collection and disposal” (78-543).
Tax is collected from both profit-making and nonprofit receivers of the service. The exception is nonprofit entities exempt by law from paying sales tax such as federal, state, county, city governments and non-profit schools. Both private and public service providers must collect the tax.
Vending Machines and
Other Coin-Operated Devices
Candy, candy-coated items, candy products, and certain beverages are taxable
when sold through vending machines.
An operator who places vending or other coin-operated machines in different locations needs only one permit. This could be a sales tax permit for in-state retailers or a retailer’s use tax permit for out-of-state retailers. The Iowa state sales tax and local option tax, if applicable at the location of the machine, are included in the selling price of taxable items sold through vending machines.
911 Surcharge
The surcharge for “enhanced” 911 emergency telephone service is
exempt. The surcharge can be no more than $1 per month per telephone access
line.
Advertising
Envelopes
used primarily
for advertising
are exempt.
Advertising and promotional materials, such as
seed catalogs, brochures, leaflets and return envelopes, and other similar
materials which
are stored in Iowa before being sent for use out of state are also exempt.
Aircraft Sales, Rental and Services
Aircraft subject to registration are subject to
Iowa use tax rather than Iowa sales tax. The 5 percent tax
is collected by the Iowa Department of Transportation
at the time of registration. Aircraft to be registered
out of state are not subject to Iowa use tax. The
purchase of an aircraft does not qualify for exemption
as a “casual sale.”
Aircraft Interstate Operations
The following exemptions apply only to aircraft used in Interstate
Federal Aviation Administration certified air carrier operations.
Agriculture
The
following
are exempt:
Hand tools are not exempt unless they are specifically for agricultural production.
Grain bins and building materials are not exempt for farm buildings.
More information can be found in “Farmers guide to Iowa taxes” (78-507).
Casual
Sales
The casual
sale exemption applies
if:
Two separate selling events outside the regular course of business within a 12-month period are considered nonrecurring. Three separate selling events within a 12-month period are considered recurring. Tax applies beginning with the third separate selling event.
However, when a sale event is planned and occurs consistently over a span of years, the sale is recurring and not casual, even though only one sale event occurs each year.
Sales of capital assets such as equipment, machinery, and furnishings are usually considered to be outside the regular course of business, and the casual sale exemption applies as long as the sales are nonrecurring.
When a retailer sells all or substantially all of the tangible personal property held or used in the course of business in which the retailer is required to hold a sales tax permit, the casual sale exemption applies only when the following circumstances exist:
This exemption does not apply to vehicles subject to registration, to aircraft, or to watercraft.
Containers
Containers, labels, cartons, pallets, packing
cases, wrapping paper, twine, bags,
bottles, shipping cases, and other similar
articles sold to retailers or manufacturers
for the purpose of packaging or facilitating
the transportation of tangible personal property sold
at retail or which will further transfer
the property to the customer in association with the maintenance
or repair of fabric or clothing are exempt.
The above items are also exempt if sold to be used directly and primarily in agricultural, livestock or dairy production.
Coupon Books and Gift Certificates
The sales of coupon books and gift certificates
are not
subject to tax. Tax is due at the time the coupon/certificate is redeemed by
the customer.
Educational, Religious or Charitable Activities
Proceeds from fundraising activities that
are used for educational, religious or charitable
purposes are exempt from sales tax if proceeds
are raised by or donated to an organization
that is exempt from federal income tax pursuant to
IRC § 501(c)(3).
Sales to any private nonprofit educational institution of goods or services used for educational purposes are exempt.
Tangible personal property or services which are purchased and used by churches and other religious and nonprofit organizations are taxable.
See “Nonprofit entities: Sales to and sales by” (78-595).
Finance Charges
Interest or other types of charges
that result from selling on credit
or under installment contracts are
not subject to tax if separately stated.
Charges added as a condition of sale
are taxable.
Food
Please see “Food/Restaurants
and grocery stores” (78-516).
Freight
Charges
Freight,
shipping,
and handling charges
are exempt if separately
invoiced or separately
stated on the bill.
Fuel
The gross receipts from the sale of motor fuel and
special fuel are exempt from sales tax if
Government Entities
The sales of services and goods TO the following are exempt:
NOTE: Sales of goods and services rendered, furnished, or performed and used in connection with the operation of any municipally-owned public utility engaged in selling gas, electricity, or heat to the general public are subject to the tax.
The sales of services and goods BY the following are exempt:
The gross receipts from sales or services rendered, furnished, or performed by a county or city – except for utilities and fees charged for participating in athletic sports – are exempt.
See “Cities and counties: Sales to and sales by” (78-526).
Construction contracts
Construction contractors are by law required to pay sales/use tax on all
materials for new, remodeled, altered, or reconstructed buildings. In the
past government entities had to file a claim for refund to be refunded the
sales tax the contractor was required to pay. Now government tax-exempt entities
are able to apply for and get approval to give
a construction contractor a special exemption certificate for that specific
contractor for a specific contract by applying online in the Local Government
category. See “Designated
Exempt Entity Registration of Construction Contracts.”
Greenhouses
Implements,
machinery,
equipment and
essential replacement
or repair parts
used to produce flowering,
ornamental or vegetable plants in
commercial greenhouses or other places
for sale are exempt from sales tax.
Repair labor is subject to sales/use
tax.
Also exempt is fuel used to create heat, power, or steam for greenhouses or buildings or parts of buildings used to produce plants.
Habitat for Humanity
Habitat for Humanity qualifies as a designated exempt
entity. See “Designated Exempt
Entity Registration of Construction Contracts.”
Hospice
The
sale or
rental of tangible
personal property or services
to a freestanding nonprofit hospice facility that
operates a hospice program is exempt
from sales tax.
Hospitals
Sale or rental of
tangible personal
property or services
used in the operation of a
nonprofit hospital is exempt
from tax if it is licensed
under chapter 135B of the Iowa
Code.
Industrial Machinery, Equipment, Computers, Replacement Parts
Sales of computers and industrial machinery and equipment and
replacement parts that are used directly and primarily in processing by a
manufacturer
are exempt from tax.
“Processing” includes nearly all aspects of manufacturing, beginning with the manufacturer’s receipt or production of raw material and ending with the manufacturer’s delivery for shipment or transfer of the finished product. Processing includes the intermediate steps of manufacturing which involve the movement of the product or the holding of the product in an existing state. See “Manufacturers and processors” (78-530).
Does your computer qualify for exemption? See “Computers: Is yours exempt?” (78-575).
Insulin
Insulin, hypodermic syringes, and diabetic testing materials for human use
and consumption are exempt. Medical sales tax information is online in “Clinics:
Medical devices and equipment” (78-609).
Internet
Access
Internet
access fees are exempt
from sales tax.
Interstate
Commerce
Sales of services
performed on property delivered into
interstate commerce
and sales
of tangible personal property delivered into interstate
commerce
are exempt from Iowa sales
tax under certain circumstances.
Delivery into interstate commerce is made when the seller uses his or her own vehicles to deliver the goods out of Iowa or directly assigns goods to a common carrier for shipment out of Iowa. Delivery to a buyer in Iowa is taxable.
Lease and Rental of Tangible Personal Property
Tangible personal
property purchased for leasing is exempt from tax.
The sale of film, tapes, discs, records and other media which can be seen, heard or read is exempt from tax if the sale is to a person regularly engaged in the leasing or renting of these items. The lease or rental of these items to the ultimate user is subject to the sales tax, unless the ultimate user will be broadcasting it to the public.
Manufacturing
Exempt: Machinery and equipment, including mold-making machinery; replacement
parts; energy used in manufacturing/processing; design and installation
services. More
information is available in “Manufacturers
and processors” (78-530).
Medical
The
gross
receipts
from the
sale or rental
of certain medical
devices intended for
human use are exempt
from sales tax when sold
or rented to the ultimate
user.
Sales and rentals of oxygen equipment and oxygen for human consumption or use are exempt; prescriptions are not required.
Insulin, hypodermic syringes, and diabetic testing materials for human use and consumption are exempt.
Prescription drugs which are dispensed for human use or consumption by a registered pharmacist or licensed physician, surgeon, dentist, or podiatrist are exempt.
More information can be found in “Clinics: Medical devices and equipment” (78-609).
Motor
Vehicles – Leased
The
purchase
of vehicles subject
to registration
with a gross vehicle
weight rating of
less than 16,000
pounds, except
motorcycles and
motorized bicycles,
is exempt from
use tax if purchased
for lease by a
licensed lessor.
under Iowa Code
chapter 321F, to
be leased for a
period of 12 months
or more and are
subject to lease
tax. pursuant to
Iowa Code section
423.27. Additional information is in “Motor vehicle
use and lease
tax information.”
Trucks, truck tractors, road tractors, trailers and semi trailers purchased for lease and actually leased to a lessee for use solely outside Iowa are exempt from tax.
Motor Vehicles – Rental
The purchase of motor vehicles subject to registration for rental which are
designed primarily for carrying nine or fewer passengers are exempt from the
motor vehicle use tax when:
The 5 percent excise/rental tax is levied in addition to the state sales tax rate of 6 percent. The 5 percent excise tax is paid with the quarterly sales tax return. See “Automobile Rental Tax.”
Newspapers
Newspapers,
free newspapers,
and shoppers’ guides are exempt.
Nonprofit Organizations
Taxation of nonprofit organizations
can be difficult to understand. Nonprofit entities such as churches and religious
and social organizations are not automatically exempt from paying sales tax
simply because
they are described as nonprofit. Sales tax must be paid unless some
other general sales tax exemption applies.
Additional information is online in “Nonprofit
entities: Sales to and sales by” (78-595), which includes a list
of
nonprofit entities that do qualify for exemption.
Prescription
Drugs
Prescription
drugs which are dispensed by
a registered pharmacist
or licensed physician,
surgeon, dentist, or podiatrist for human use or consumption
are exempt. For
more information, please see “Clinics: Medical
devices and equipment” (78-609).
Printers
and Publishers
Sales and rentals
to printers and publishers of more than 115
supplies used to complete a finished printed product
for retail sale are exempt. The items do not
have to be purchased from a “trade shop.” See “Printers
and
publishers: A list of supplies exempt from tax” (78-570).
Prizes
The
sale
of tangible
personal
property
which will
be given
as a prize
to a player in games
of skill, chance, bingo,
or in a raffle is exempt
if purchased by the sponsor.
Processing
Electricity or steam or any taxable service purchased and used in the actual
processing of tangible personal property intended to be ultimately sold at
retail is exempt from tax.
Exempt:
Tangible personal property,
including containers, sold
for processing when it:
To find more information, see “Manufacturers and processors” (78-530).
Railroads
Sales
of personal property
used or to be used as
railroad rolling
stock or as materials
or parts thereof are exempt. Also, fuel and lubricants
used in railroad rolling stock
are
exempt from tax. Taxable services do not qualify under the railroad
rolling stock exemption.
Repair
Sales of services
used in reconditioning
or repairing tangible
personal property
normally sold in the
regular course of
the retailer’s business and
upon which sales or use tax will be paid when the tangible personal property
is sold are exempt.
Resale
Tangible
personal
property
and services
purchased for resale
are exempt. The purchaser
should provide to the seller
a properly completed Sales
Tax Exemption Certificate.
Resale of tangible personal property
Tangible personal property is sold for resale when it is sold to retailers,
wholesalers, jobbers or any person who are not the ultimate user or consumer
of the property and who holds property for the purpose of selling it to another.
Resale of a service
An example of a service sold for resale is when an auto repair shop
subcontracts a job to another auto repair shop.
Resale of property connected with a service
Property that is resold
in connection with a service is exempt when all of
the following occur:
Examples:
Transportation
Receipts from the sale or furnishing of transportation services are exempt,
except those from armored car services, limousine services, and certain
car and airplane rentals.
Vehicles subject
to registration
The gross receipts
from sales of vehicles subject to registration
are exempt from sales tax but subject to
Iowa motor vehicle use tax. The
use tax is paid when the vehicle
is registered with the county treasurer. This
use tax also applies when vehicles
are sold between private individuals.
Updated 8/23/08