Iowa Code sections 423.3(92), 423.3(93), and 423.3(95) provide various sales tax exemptions for qualifying data centers and Web search portal businesses. These businesses are able to claim exemption on qualifying purchases by providing their suppliers with a completed Iowa Sales Tax Exemption Certificate. This is the case when the qualifying business is making the purchase directly.
In situations where a construction contract is involved, purchases of qualifying items may be made by the contractor, rather than by the business. If the contractor purchases items that will remain tangible personal property, such as computers and equipment, the contractor can purchase these items tax-free for resale. The qualifying data center / Web search portal business then provides the contractor with an exemption certificate for those items. If the business has paid tax in error, it should file an IA 843 Claim for Refund with the Iowa Department of Revenue.
Refund of Tax Paid by Contractor
If the contractor purchases items that will become part of real property, they are considered the final consumer of those building materials. Since the contractor doesn’t qualify to purchase building materials tax-free, they must pay the tax and pass it along to the business as part of the contract amount. In those cases, the qualifying data center / Web search portal business must file a claim for refund with the Iowa Department of Revenue to receive a refund of the sales tax passed on to them by the contractor. The following steps should be taken in those situations:
- The contractor pays Iowa sales / use tax on all building materials and includes that cost in the bid.
- The contractor then submits a "Contractors Statement" (form 35-002 pdf) to the qualifying business documenting the amount of Iowa sales / use tax paid on the materials incorporated into real property.
- The business applies to the Iowa Department of Revenue for a refund of that tax by using the "Construction Contract Claim for Refund" (form 35-003 pdf).
Data center businesses in Iowa not meeting the requirements for exemption or refund above, may be eligible for a refund of 50% of the sales / use tax paid on certain computers, equipment, fuel, and electricity used in the operation of the data center business. The data center must meet the requirements of Iowa Rule 701-230.13 to be eligible.
Qualifying data center businesses should file an IA 843 Claim for Refund with the Iowa Department of Revenue. The claim should be filed annually, no later than one year after the purchase of the qualifying computers, equipment, fuel, or electricity and within three months after the end of the refund year. In addition to filing the IA 843, the owner of a data center business seeking a refund must also file an affidavit with the Department certifying that qualifications for the refund have been met. The affidavit must be filed prior to any refund request and must be approved by the Department before a refund claim can be filed. Please see Rule 230.13(7)d. for the format of the affidavit.
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