Message from the Director:
It has been my opinion that the Department is a service organization. The economic situations the states are currently facing make funding for improvements to services more challenging. The Department recently sought changes that could be made within the limits of its budgets that would provide improved services to the most people and at the same time provide benefits to the Department in addressing its responsibilities as a tax agency. Specifically, last spring we redesigned our official Web site and Public Tax Research Library.
The original Iowa Department of Revenue Web site had grown from a resource for a handful of tax forms created by third-party vendors to more than 1,500 Web pages, exclusive of forms and statistical publications. Since its last redesign in 2003, the Department had added hundreds of additional pages of tax publications and historical data to the Web site. Ten online services had been added to help Iowa taxpayers and tax professionals comply. The Department’s research services had expanded to better respond to the needs of state and local agencies, and elected and administrative officials. The Web site needed a better way to organize information for the different audiences it served. Site evaluation concluded the need for uniformity, improved navigation, and visual appeal. Consistency would be created throughout the site through uniformity in presentation. Navigation should be simple, logical, and understandable. Every section of a site should be reached from the home page, either directly or with no more than two or three clicks. These changes were made.
The Iowa Tax Research Library had existed since 1997. By 2007 this resource for compliance had grown to hold 1,500 statutes, 1,800 administrative rules, 1,000 court cases, and 4,000 Department policy rulings. Over time, innovation in Web site, server, and search technologies rendered Iowa’s original Tax Research Library antiquated. The Department knew the public’s needs were not being met and sought to discover what those needs were. Contact was made with public users and internal staff in an attempt to develop a new library to support voluntary compliance and meet the Department’s mission to collect all taxes required by law, but no more. Two surveys were conducted to identify needs and purpose for the new Tax Research Library. One focused on individuals within the general public who used or were attempting to use the library. The other survey focused on an audience of Department staff who utilize the library in its audit, discovery, and collection efforts. The conversion to a new easy to use application was accomplished.
Please take advantage of these resources. Join more than 1 million visitors used the Department’s Web site and Tax Research Library. The Department’s communication with you is essential to accomplish its mission to serve Iowans and to support government services in Iowa by collecting all taxes required by law, but no more.
Mark R. Schuling
Bars, Restaurants, Hotels, and Motels Complimentary Beverages and Meals
The Department was asked by taxpayers to review its corrections to a June 2008 eNews article on bars and restaurants complimentary beverages and meals. The Department agrees the original interpretations in June 2008 were correct. Please follow the guidance presented in the June 2008 article which is reprinted below. The Department regrets any confusion that may have been caused.
Complimentary beverages and meals
Bars, restaurants, and other similar businesses may owe Iowa sales or use tax on complimentary items given to customers or employees.
For example, if you provide complimentary alcoholic beverages or soft drinks to customers or employees, Iowa tax is due on the value of the beverages. These beverages are taxable as "goods consumed" since the bar or restaurant originally purchased them for resale and did not pay sales tax. Instead of selling them, the business gave them away.
The value of the beverages is reported on line 2 of the quarterly sales tax return as goods consumed. The amount entered on line 2 is the purchase price paid by the bar or restaurant to its supplier, not the amount normally charged a customer.
On the other hand, complimentary meals provided to customers or employees are generally not taxable as goods consumed. The reason for this difference can be traced back to the original purchase of the items. Alcohol and soft drinks are ordinarily taxable at the time of purchase. They are purchased tax free by the business only because they are intended for resale. Unprepared food, with some exceptions, is not taxable at the time of original purchase because it is a grocery item.
Tips or Gratuities
Tips or gratuities are often added to a bill as a mandatory charge, particularly when large groups are served. In these cases, tax is due on the full amount charged for the meal, including the gratuity. Tips or gratuities paid voluntarily by the customer are not subject to sales tax.
To Learn More...
For additional information concerning food and beverage sales, you may wish to review our Food/Restaurants and Grocery Stores publication.
Sales by Construction Contractors
Construction contractors are primarily engaged in new construction, reconstruction, alteration, expansion, and remodeling activities. Contractors rarely make retail sales of building materials or perform repair services. They are considered to be the consumers of building materials and supplies purchased for use in construction contracts and are responsible for paying sales tax at the time the purchases are made.
Here is how sales tax on the transfer of materials from a contractor to a customer is handled in various situations:
1. A contractor performs new construction. The contractor must pay tax on materials at the time they are purchased. The contractor does not collect any tax from the customer.
2. A contractor performs a taxable repair service. The contractor must pay tax on the materials at the time they are purchased. The contractor collects tax on the price charged to the customer for both the labor and the materials. The contractor may take credit for tax already paid on materials on the sales tax return.
3. A contractor sells materials at retail. The contractor must collect tax from the customer on the retail sale price, but may again take credit for tax already paid on materials on the sales tax return.
Credit for tax paid can be taken on the sales tax return by entering the amount the contractor paid to their supplier for the item as an “other” exemption on line 4 of the return.
EFG Company is a mechanical contractor and has no retail outlets. EFG rarely sells any of its inventory to other persons or contractors. EFG must pay sales tax to its suppliers when it purchases building supplies and materials. On those rare occasions when EFG sells an item to another person or contractor, EFG must collect sales tax on the selling price. EFG must have a sales tax permit to report this tax. Since tax was already paid on the item when EFG purchased it, an adjustment can be made on EFG’s sales tax return by entering the amount EFG paid for the item as an “other” exemption on line 4.
Down Home Construction Company is operated by two individuals in a rural Iowa farming community. They do not have a retail outlet and rarely sell building materials from their inventory. Down Home must pay sales tax to its suppliers when making purchases. However, since Down Home makes occasional sales, it must have a sales tax permit to collect and remit the tax on those retail sales. Since tax was already paid on the item when Down Home purchased it, an adjustment can be made on Down Home’s sales tax return by entering the amount Down Home paid for the item as an “other” exemption on line 4.
For more details, including information on contractor-retailers, manufacturer-contractors, and repair persons, please reference the Iowa Contractors Guide.
Income Tax Return Extensions and Payment Plans
Automatic Extension of Time to File Income Tax Returns
Iowa does not have an application to extend the time to file your income tax return. In addition, we do not accept a federal extension.
Instead, if you have paid at least 90% of the tax you owe by the due date of your return, you automatically have an additional six months to file your return and pay the additional tax due with no penalty. Interest continues to accrue on unpaid tax during the extension period.
If you need to make a payment to meet the 90% requirement, it must be paid or postmarked by April 30 for calendar year filers. You can make your payment electronically through our eFile & Pay system or by mail using form 41-137 (pdf) for individuals, or form 42-019 (pdf) for corporations.
Iowa does not have a payment plan option for tax shown due on the return. Pay as much as you can, and you will be billed for the balance due. Payment plans can be established only after a bill has been issued and has gone to our collections section for action.
Even if you cannot pay the amount due, file the return on time anyway. Filing the return by the due date will reduce any late payment penalty from 10 to 5 percent.
Vegetable Seeds, Plants, and Fruit Trees
If your customer will be consuming the produce from the seeds, plants or trees, the sale is taxable.
If your customer will be selling the produce, the sale is exempt. Be sure to get a Sales Tax Exemption Certificate (pdf) from your customer.
Do you buy or sell at one of Iowa's many Farmers Markets? Be sure to take a look at our brochure: http://www.iowa.gov/tax/educate/31039.pdf
Landscaping, Lawn Mowing, and Lawn Care
The services of landscaping, lawn mowing, and lawn care are taxable unless performed on or in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure.
“Lawn care” includes but is not limited to the following services: mowing, trimming, watering, fertilizing, reseeding, resodding, and killing of insects, moles, other vermin, weeds, or fungi which may be threatening a lawn.
Persons who mow lawns are providing a taxable service regardless of their ages. However, your services will be exempt if:
you are the owner of your business and the only person performing the service, and
you are the owner of the business and a full-time student, and
the total gross receipts do not exceed $5,000 for a calendar year.
Please see our handout on landscaping and lawn care. (pdf)