Resale Exemption Information: Shooting Ranges

Claiming the Resale Exemption on Tangible Personal Property Used in the Performance of a Service

Featured Service:  Shooting Ranges


A shooting range is in the business of providing the taxable service of “commercial recreation.”  Iowa Code §423.2(6). Some of the items purchased by ranges for use in the performance of its service of commercial recreation include:

  • Clay Pigeons
  • Scorecards
  • Trophies
  • Ammunition
  • Targets
  • Shot
  • Gun powder
  • Primers
  • Wads

Businesses must determine whether these items are "purchased for resale" or "consumed in the performance of the service" in order to know whether or not they can purchase them tax-free.

Understanding Resale Exemption

Businesses performing services sometimes purchase items that are used or “consumed” in the performance of that service.  The consumer is purchasing and the retailer is selling the service, not the individual items that are used in the performance of the service.  For that reason, service retailers typically do not qualify to purchase those items tax free using the resale exemption. 

However, there are certain circumstances under which businesses providing a service may purchase items using the resale exemption. To do so, all of the following three criteria must be met:

 

(1) Both the provider and the user of the service intend that the item will be sold; and

(2) The item is transferred to the customer in a form or quantity capable of a fixed or definite price or value; and

(3) The sale of the identifiable piece or quantity of property is evidenced or shown by a separate charge.


Items not sold as specified above is considered are to be consumed by the seller in the performance of the service.  Those items are deemed to be purchased by the seller for its own use so sales/use tax must be paid at the time of purchase by the seller.  Iowa Code §§ 423.1(37); 423.3(2).

Whether or not a shooting range meets the three criteria and can claim the resale exemption on its purchases of these and other items is a fact-based determination dependent upon several factors.  A key factor is how the range charges and invoices its services. 

Lump Sum Billing

If a range charges an all-inclusive, lump sum fee, the entire amount charged represents the service.  If the service is taxable, the entire fee is taxable. Because the items included in the service are not itemized, the items are deemed to be consumed in the performance of the service. Therefore, the range must pay sales/use tax on any items of tangible personal property it purchases.

Because the seller has elected to bill for the tangible personal property in a lump sum with the purchase, the law identifies two separate and distinct transactions.  The first transaction is the purchase of tangible personal property by the range for its own use in the delivery of a bundled service.  The second transaction is the purchase of a service by a customer.

Example 1:  This example pertains to a tournament that consists of all the participants going the same number of rounds, then receiving trophies based on their overall scores. The Beaver Creek Shooting Club sponsors an annual shooting tournament each year.  Every participant competes in the same number of rounds and shoots at the same number of targets. In its advertisements, the Club indicates that the $200 tournament entry fee entitles the purchaser to the number of clay pigeons allotted for every participant and a scorecard.  The clay pigeons and scorecard are transferred to the customer when he checks-in for the tournament. Trophies are awarded to top total scorers in each division.  The purchaser pays $200 and is provided with a non-itemized receipt for the tournament entry fee.  There is no admission charge to spectators watching the event.

In this example, the first two criteria for resale are met on some of the items.  The purchaser is aware that in addition to the service of commercial recreation, he is purchasing clay pigeons and a scorecard.  In addition, the clay pigeons and scorecard are transferred to the purchaser in an identifiable, fixed quantity capable of being measured.  However, the sale of the identifiable items is NOT evidenced or shown by a separate charge.  The Shooting Club must pay sales tax upon its purchase of those items.

Example 2: Assume the same set of facts as in example 1, except the clay pigeons and scorecard are not transferred to the purchaser. The number of clay pigeons allotted for each participant and the scorecard for each are retained for use by the range during the tournament. In this case, none of the three criteria is met on those items. The Shooting Club must pay sales tax upon its purchase of these items.

Finally, the Shooting Club must also pay sales tax upon its purchase of trophies as the purchase of the trophies does not meet all three criteria.

Itemized Billing

If a separate fee is charged for each item, some items may qualify to be purchased tax free for resale by the range.

Example 3:  Assume the same general set of facts as in the prior examples, except the range advertised the tournament entry fee along with separate prices of clay pigeons and scorecards. The receipt given to the purchaser separately lists each item with the tax allocated to each. The clay pigeons and scorecard are transferred to the customer when he checks-in for the tournament. In this case, the three criteria are met and the range can purchase the clay pigeons and scorecards for resale.  In contrast, the trophies still do not meet the criteria.  The purchaser does not intend to purchase a trophy.  The Club awards the trophies to the winners of the tournament.  The Club purchases trophies for its own use and should not claim the resale exemption on its purchase.

Over-the-Counter Sales

Example 4.  Jeff Allen, an avid sportsman, owns several acres of land.  He also owns his own target launcher so he can practice his shooting whenever he wants.  He goes to the Beaver Creek Shooting Club, which sells clay pigeons separately from the fee for using the range.  Jeff purchases a dozen clay pigeons and pays sales tax on that purchase.  It is appropriate for the Club to use the resale exemption to purchase the clay pigeons since it sells them on a standalone basis.

Conclusion

The nature of each transaction must be studied carefully to determine whether the resale exemption applies when service providers purchase items used in the performance of their service.  ALL THREE of the criteria must be met to qualify.

Checklist for Determining Sales/Use Tax Obligations for Shooting Ranges

1. Does the shooting club charge an all-inclusive fee for services or activities at the shooting club?

2. Do the club and the customer intend that the items used in the performance of the service or activity are being purchased?

3. Are the items provided with the service in a form/quantity capable of fixed or definite price/value?

4. Are the items purchased with the services separately itemized on the receipt with sales tax applied to the taxable items?

New businesses/owners: register your business and apply for a Sales Tax permit.

Questions? 

Additional information about this issue may be found on the Iowa Tax Research Library at http://itrl.idr.iowa.gov/, and Iowa Administrative Rule 701—225.4 in particular.

You may also contact Taxpayer Services:

          515-281-3114 or 1-800-367-3388 (Iowa, Omaha, Rock Island, Moline)

07/13/11