“Financial institutions” include all national banks; federally chartered credit unions; banks organized under Iowa Code chapter 524; savings and loan associations and savings banks organized under Iowa Code chapter 534; and credit unions organized under Iowa Code chapter 533. As of July 1, 2007, the definition of a financial institution also includes all banks, savings banks, credit unions and savings and loan associations chartered or otherwise created under the laws of any state and doing business in Iowa.

Service charges.

• Service charges subject to tax are those which relate to a depositor’s checking account.

  An account is a checking account if withdrawals may be made from the account by, including but not limited to, checks, drafts, or negotiable orders of withdrawal (NOW). A checking account may or may not pay interest. NOW and Super NOW accounts are specifically included as checking accounts. Certificates of deposit are not included. This definition is not all-inclusive. In the future, other types of checking accounts may be created which are not described in this publication.

• ATM (automatic teller) fees are subject to sales tax when
  • the charge is to a customer of the financial institution that owns the ATM, and
  • the charge is connected with the customer’s checking account.

  However, these same fees are exempt from sales tax when they are charged by a financial institution to a non-customer or person who doesn’t have a checking account with the ATM’s financial institution.

• Service charges not related to a checking account could be exempt if it is performed in relation to another type of account.

  EXAMPLE 1: A bank’s customer loses the bank’s monthly statement. The bank sends the customer another monthly statement but assesses the customer’s account a duplicate statement fee. If the duplicate statement fee is assessed on a Super NOW account, the gross receipts of the duplicate statement fee are subject to tax. If the duplicate statement fee is assessed against a savings account, the gross receipts from the duplicate statement fee are not subject to tax.

  EXAMPLE 2: Charges for withdrawals by bank card from a checking account are subject to tax. Charges for withdrawals by bank card from a savings account are not subject to tax.

Various taxable charges.

The following are nonexclusive examples of bank and financial institution service charges which, if related to checking accounts, are subject to tax:

1. Fees for transferring funds from one account to another (if billed to a checking account).
2. Stop payment charges.
3. Debit card replacement fees.
4. Copy and research fees.
5. Bill payment fees.
6. Returned deposit item fees.
7. The fee for issuing a certified check. A certified check is drawn from a particular account. This is in contrast to a bank cashier’s check. (See below.)

Bank and financial institution service charges not subject to tax.

The following are examples of exempt charges because they have no relationship to checking accounts. The list is not exclusive:

1. Safe deposit box fees for safe deposit box rentals.
2. Mortgage and loan fees.
3. Fees charged by trust departments for probating estates or administering trusts, for administering agency accounts, for administering pension and profit-sharing plans, for serving as a stock transfer agent or registrar, for serving as a farm manager, and fees or commissions charges to customers for handling security transactions. However, some of their services may be taxable as investment counseling.
4. Real estate appraisal fees.
5. Fees for servicing real estate loans.
6. Fees charged for contract collection and other collections not related to the maintenance of a checking account.
7. Special lockbox handling charges.
8. Escrow agent fees.
9. Charges for handling and cashing coupons or certificates kept in the bank’s possession (safekeeping charges).
10. Finance charges, including credit card charges.
11. Penalty charges (interest forfeiture) on early withdrawal for savings certificates.
12. Charges for purchasing or selling securities for customers (if not a disguise for investment counseling fees).
13. Fees charges for collecting and transferring mortgage payments for a customer (real estate collection exchange).
14. Charges for travelers or similar type checks, bank cashier’s checks, bank drafts, or money orders when these instruments have no relation to a customer’s checking account.
15. Exchange fees for all check exchanges.

Miscellaneous.

Fees charged to a checking account depositor for a depositor’s failure to adhere to contractual obligations with a bank or financial institution are not subject to tax, because they are more in the nature of penalties than service charges. For example, charges for overdrafts and returned checks are not subject to tax.

Bank service charges which are never assessed against the expense of maintaining a checking account are not subject to tax.

EXAMPLE: Bank B normally charges $10 per month for individual customer’s checking accounts. However, if a customer maintains an average monthly balance of at least $750, the bank will charge only a $5 service fee. Customer C maintains an average balance in an account of $1,000 during the month of February. As a result of this, Bank B charges Customer C a service charge of $5, and Customer C never owes Bank B a service charge of $10. Customer C owes sales tax on the $5 rather than the $10 amount.

78-574 (11/01/07)