IOWA SALES TAX

Solid waste collection and disposal services

Gross receipts from the sale, furnishing, or service of solid waste collection and disposal are taxable to nonresidential commercial operations.

Solid Waste

The collection and disposal of the following types of waste are taxable: garbage, refuse, or sludge from a water supply treatment plant or air contaminant treatment facility, and other discarded waste materials and sludges, in solid, semisolid, liquid, or contained gaseous form, resulting from nonresidential commercial operations.

The collection and disposal of the following are not taxable: hazardous waste; animal waste used as fertilizer; earthen fill, boulders, rock; foundry sand used for daily cover at a sanitary landfill; sewage sludge; solid or dissolved material in domestic sewage or other common pollutants in water resources, such as silt, dissolved or suspended solids in industrial wastewater effluents or discharges which are point sources subject to permits under Section 402 of the federal Water Pollution Control Act, dissolved materials in irrigation return flows; or source, special nuclear, or by-product material defined by the federal Atomic Energy Act of 1954. Since July 1, 1994, the following are not taxable: auto hulks, street sweepings, ash, construction debris, mining waste, trees, tires, lead acid batteries and used oil.

Nonresidential Commercial Operation

A nonresidential commercial operation is any operation which is an industrial, commercial, agricultural, or mining operation whether for profit or not.

The word "commercial" refers to all organizations that are involved in the buying and selling of goods and services in the marketplace generally. Churches, charities, and fraternal organizations are considered commercial operations.

Examples of nonresidential commercial operation include the following: professional firms (doctors, lawyers, accountants, or dentists); restaurants; hotels, motels; repair persons; persons selling and renting all sorts of tangible personal property; persons selling insurance of all kinds; appraisers; the skilled trades (e.g., plumbers, carpenters, and electricians); construction contractors; banks and savings and loans; barbers and beauticians; day care centers; counseling services; employment agencies; janitorial services; landscapers; painters; pest control; photography; printing; realtors; storage services; not-for-profit hospitals; the United Way; the American Cancer Society; the Elks and Masons; and churches, synagogues, and mosques. These examples are not exclusive.

Agricultural operation

An agricultural operation is any enterprise engaged in the raising of crops or livestock for market on an acreage. Included within the meaning of the term are feed lots; operations growing and raising hybrid seed corn or other seed for sale to farmers; nurseries; ranches; orchards; dairies.

Industrial operation

A business is an industrial operation if its purchases or rentals of machinery or equipment are eligible for the Iowa sales and use tax exemption for industrial machinery and equipment.

Mining operation

A mining operation is one engaged in either underground mining, strip mining, or quarrying.

A nonresidential commercial operation is not...

...apartment complexes, mobile home parks, or single or multifamily dwellings.

Retailers obligated to collect the tax.

Counties and municipalities which provide the service of solid waste collection and disposal to nonresidential commercial operations are obligated to collect Iowa sales tax on the gross receipts.

Any person who has contracted to provide solid waste collection and disposal service to a city or municipality is obligated to collect tax on the gross receipts from the service to nonresidential commercial operations located within the city or county.

Example:

City D contracts with ABC Disposal Service for solid waste removal to persons within the boundaries of City D. In return for this service, City D pays ABC Disposal Service $2 million per year.

ABC collects and disposes solid waste for retail sales businesses, a manufacturing plant, an apartment building, a quarry and a turkey-raising operation located within the city limits. A number of persons whose garbage is collected by ABC are residents who own or rent their homes.

ABC must collect tax from City D on the portion of its business attributed to solid waste collection and disposal service to the nonresident commercial operations only. ABC may use a formula to determine the percent of its gross receipts that are taxable.

Formulas for...

Retailers who provide both taxable and nontaxable service

A retailer who is paid in one lump sum by a customer for providing both taxable and nontaxable solid waste collection and disposal service may, depending upon circumstances, collect tax upon all, none, or some of the proceeds collected from the customer.

A retailer must collect tax on all proceeds from a customer if nontaxable services rendered are only incidental to the retailer’s taxable services.

A retailer does not need to collect tax upon any of its receipts from a customer if the taxable services rendered are incidental to nontaxable services.

If a substantial portion of the service which a retailer performs is taxable and a substantial portion of the service which it performs is nontaxable, then the retailer must collect tax on the taxable portion of the service and exclude from tax the nontaxable service.

Using a formula to determine amount of taxable gross receipts

A retailer may, after filing a petition with and securing the approval of the department, use a formula to determine the amount of taxable and nontaxable services which it performs for any one customer. This formula can then be utilized to calculate the retailer’s taxable gross receipts.

Example:

ABC Disposal Service is providing solid waste disposal service to Company D. Company D owns 100 residential apartment units and a building containing 20 office suites. Under the contract between ABC and Company D, ABC bills Company D $750 per month. Part of this billing is, of course, for the nontaxable service of garbage collection from the residential apartment units and part for the taxable service of collecting garbage from the office building. In this instance, the ideal method of separating taxable gross receipts from nontaxable proceeds would be by a formula. A possible formula would be by weight.

Assume that a total of 1,500 pounds of garbage is collected each month. 1,000 pounds of garbage per month is collected from the apartment building and 500 pounds from the office building. In this case, taxable gross receipts would be computed as follows:

500 lbs. ÷ 1,500 lbs = 1/3 (the portion of the bill that is taxable)

$750 x 1/3 = $250 (the taxable amount)

Other possible bases for a formula include number of units of taxable and exempt operations or number of square feet of taxable and exempt operations if these reasonably reflect the amount of taxable and exempt service performed for any one customer.

The department will approve any formula which realistically reflects the amount of taxable and nontaxable work performed for a single customer and paid in one lump sum. Any petition for use of a formula must contain an adequate description of the petitioner’s operation, the formula which will be applied to it and why this formula accurately reflects the taxable and nontaxable work performed by the petitioner.

Tax imposed upon disposal charges or tipping fees

Nonresidential commercial operations which transport their own solid waste or have someone else transport it without compensation will pay the tax to the collection or disposal facility to which the waste is transported. The tax will apply to the disposal charge or tipping fee imposed by the facility. Tax will not be charged on the portion of the fee for recyclable materials, such as motor oil, paper, glass, metals and batteries, separated from solid waste by the waste generator. These materials must be separated from other solid waste for recycling in order to be exempt.

Example:

John’s Quick Lube hauls its own solid waste to the local landfill. Once a week, John’s Quick Lube pays $50 to dump all the solid waste it generates into the landfill, except for the used motor oil it collects from its customers. John’s Quick Lube pays the landfill operator another $50 per week to collect this used oil and send it on to a different location for recycling into new products. In this case, John’s Quick Lube must pay sales tax on the $50 disposal fee charged for the solid waste which enters the landfill but not on the $50 paid to the landfill operator to store and pass on the used motor oil.

Exemption for a recycling facility

The gross receipts from the service of solid waste collection and disposal provided to a recycling facility which separates or processes recyclable materials and, as a result of that separation or processing, reduces the volume of the waste collected by at least 85 percent are exempt from tax if the waste is collected and disposed of separately from other solid waste.

Recycling facilities are those facilities where recyclable materials are separated or processed for the purpose of reusing the materials in their original form or using them in manufacturing processes that do not cause the destruction of the recyclable materials in a manner that precludes further use. Because of this, facilities that separate or process recyclable materials for use as fuel are not eligible for this exemption.

An example of a qualifying recycling facility is a facility which produces insulation from used glass.