<%@LANGUAGE="JAVASCRIPT" CODEPAGE="1252"%> Iowa Department of Revenue electronic newsletter: Iowa Tax eNews

JUNE 2010

graphic for Iowa Department of Revenue Tax eNews electronic newsletter


Message from the Director:

The Department continues to be one of the leaders among state revenue agencies in electronic filing of individual income tax returns. For the returns filed in 2010 we will have received almost 80 percent of the individual income tax returns electronically. We appreciate the taxpayer’s and the practitioner’s acceptance of electronic filing. We believe it is better for the taxpayer and for the Department. The taxpayer can receive refunds in less than two weeks and acknowledgement from the Department that the return was received. The Department does not have to manually process the return. As state government reduces spending and the Department employs fewer people, reductions in paper returns and related manual processing is beneficial to the Department.

The Department is pleased to announce that it now accepts corporate 1120 filings electronically. You must use a software provider that makes available an Iowa corporate 1120 electronic filing. We have received several 1120 returns as of this date. In January, 2011, we will be making available S corporation 1120S and partnership 1065 electronic filings. This will be followed with modernized electronic filing for individual income tax returns in August, 2011. The modernized electronic filing will provide improvements for the taxpayer.

We are excited about these upcoming improvements and the benefits they will bring to taxpayers and practitioners. We will continue to seek out new ways to improve our services and always appreciate any suggestions you may have.

Mark R. Schuling
Director

Iowa Legislative Summaries

Summaries of tax-related 2010 Iowa legislation are now available here.

Sales Tax Holiday

Iowa's annual Sales Tax Holiday will be held Friday, August 6, and Saturday, August 7, 2010.

For more information, please see our Sales Tax Holiday information.

New Local Option Sales Tax Jurisdictions - July 1, 2010

Black Hawk County (#7) 1% - Jesup

Clarke County (#20) 1% - Murray

Dallas County (#25) 1% - Perry

Retailers NOT Allowed to Absorb Sales Tax

Retailers must add sales tax to the price of taxable goods or services and collect the tax from the purchaser. The retailer cannot advertise or in any way indicate that the sales tax is being absorbed or paid by the retailer.  

A retailer may include the sales tax in the price, which is often done when selling concessions or admissions to movie theaters and sporting events. When this happens, the retailer must post a notice or make a statement on the invoice / receipt that the purchase price includes the sales tax.

Also remember that sales tax is due when taxable goods are delivered or taxable services are performed, not when payment is received from the customer.

Temporary Events and Sales Tax Permits

Are you the sponsor of a temporary event, such as a flea market, craft show, or antique show?  Are you a vendor or exhibitor at such an event?

If so, please review the information at the following links to our Web site:

Sales Tax and Special Events - Temporary Permits

Temporary Sales Tax Permit FAQs

Pension / Retirement Income Exclusion – Changes for 2010 Tax Year

Effective for tax years beginning on or after 1-1-2010, a change to Iowa Administrative Rule 701-40.47 may impact how the pension / retirement income exclusion is determined for married individuals. This exclusion is taken on line 21 of the IA 1040, Iowa Individual Income Tax Return.

The exclusion can be up to $6,000 for individuals who file status 1, 5, or 6 and up to $12,000 for married taxpayers who file status 2, 3, or 4. The eligibility requirements are as follows:

  • 55 years of age or older on the last day of the tax year, or

  • disabled, or

  • a surviving spouse or a survivor having an insurable interest in an individual who would have qualified for the exclusion on the basis of age or disability.


Prior to the rule change, if either spouse was eligible for the exclusion, both spouses could potentially take the exclusion on line 21. Even a spouse who did not qualify on their own might have been able to take the exclusion if the other spouse was eligible.

Beginning with tax year 2010, only the pension income of the spouse who meets the eligibility requirements can be shown on line 21. Please see the examples below for further guidance.

Example: A married couple elected to file separately on the combined return form. One spouse was 52 years of age and received a pension income of $20,000. The other spouse was 55 years of age and received no pension income. Since the spouse receiving the pension income was not 55 years of age, no exclusion is allowed on the Iowa return.

Example: A married couple elected to file separately on the combined return form. One spouse was 52 years of age and received a pension income of $10,000. The other spouse was 55 years of age and received a pension income of $8,000. Since only one spouse receiving the pension income was 55 years of age, an exclusion of $8,000 is allowed on the Iowa return. The exclusion of $8,000 is allowed since a married couple is allowed a combined exclusion of up to $12,000.

Example: A married couple elected to file a joint return. One spouse was 52 years of age and received a pension income of $10,000. The other spouse was 55 years of age and received a pension income of $5,000. Since only one spouse receiving the pension income was 55 years of age, an exclusion of $5,000 is allowed on the Iowa return.

Designated Exempt Entities - Construction
Contract Exemption Certificates

Designated exempt entities awarding construction contracts may issue special exemption certificates to contractors and subcontractors, allowing them to purchase, or withdraw from inventory, building materials for the contract free from sales tax. To do so, designated exempt entities should review the Construction Contract Registration page on our Web site.

It is important for designated exempt entities to provide the exemption certificates to their contractors and subcontractors in a timely manner. For the exemption to be allowed, contractors must present the exemption certificate to their suppliers when making purchases of building materials for the project.

"Designated Exempt Entity" Includes Only the Following:

  • private nonprofit educational institution in Iowa

  • nonprofit private museum in Iowa

  • tax-certifying or tax-levying body or governmental subdivision of Iowa, including the state board of regents, state department of human services, state department of transportation

  • municipally-owned solid waste facility which sells all or part of its processed waste as fuel to a municipally-owned public utility

  • all divisions, boards, commissions, agencies, or instrumentalities of state, federal, county, or municipal government which do not have earnings going to the benefit of an equity investor or stockholder

  • Habitat for Humanity

  • rural water districts organized under Iowa Code Chapter 357A

Nonprofit hospitals are NOT designated exempt entities for this purpose.

Consumer's Use Tax

Information for businesses and individuals

Do you purchase items from out of state or from catalogs, magazines, vendors who advertise on television or radio, or through the Internet? Will those items be used in Iowa? Would they be subject to Iowa sales tax if purchased in Iowa?

Are you paying tax on those purchases? If not, you owe Iowa use tax on the purchase price.

If you purchase tangible property for use in Iowa and the seller does not charge you Iowa tax on the purchase, you owe a 6% tax known as the consumer’s use tax on the price of the purchase.

This tax was established in 1937, three years after the sales tax was enacted, to create a fair playing field for Iowa businesses. The rate of the consumer's use tax is always equal to the state sales tax rate.

Individuals:

To pay your consumer's use tax, send a check payable to “Treasurer State of Iowa” to the Iowa Department of Revenue, PO Box 10412, Des Moines IA 50306-0412 with a note explaining that it is for consumer’s use tax. Include a list of the items purchased and their prices. Keep copies for your records. Anyone who regularly purchases merchandise from out of state for his or her own use in Iowa should register for a consumer’s use tax permit and pay the tax on a quarterly basis.

Businesses:

Businesses making taxable purchases on a regular basis should register with our Department to file consumer's use tax returns. However, some businesses may only occasionally make purchases for their own use and owe Iowa consumer's use tax. If this type of purchase is not typical for your business, instead of separately registering for consumer's use tax, you can report the purchase on Line 2 "goods consumed" of your quarterly sales tax return or file and pay the tax as outlined for individuals above.

For more information, see our Consumer's Use Tax publication.

Temporary Employees – Are Their Services Subject to Sales Tax?

The charge made by an agency providing temporary workers employed by the agency is taxable to the entity to which those temporary employees are provided, if the services performed by the temporary employees are taxable services.  For a list of services subject to Iowa sales tax, please reference our publication titled Services: Which Ones Are Taxable?

“Temporary employee services” is not on the list of taxable services; however, to determine taxability, it is necessary to look at the underlying work being done by the temporary employee. The employee may perform services that are subject to sales tax, like operating the client's machinery or performing janitorial services. If the primary function of the temporary employee is the performance of a taxable service, and not merely incidental to the work being done, then the charge by the temporary agency to the client is subject to sales tax.

Example: A temporary employee that does data entry on a computer is considered to be performing the taxable service of a machine operator. The primary function of a data entry operator is to operate the computer.

Example: A temporary employee that does computer programming is not considered to be performing a taxable service. Computer programming is not a taxable service; and while a programmer will work on a computer, the primary function is to design a program, not to operate the machine. 

Example: A temporary employee agency provides workers when needed to supplement the janitorial staff of a business. These temporary employees are performing taxable janitorial services.   

When services are performed on or connected with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure, they are exempt from sales tax. Services may be purchased tax free for resale if the entity to which the temporary employees are being provided resells those services to their customer. An exemption would also exist if the temporary employees were, for instance, operating machines used in a manufacturing process.

Example: A temporary employee agency provides workers to a building contractor.  The temporary employees perform the taxable service of carpentry in the construction of a new building. The charge made by the agency to the contractor is exempt from tax because the carpentry services are performed on new construction.

Example: A repair shop has a backlog of items that need to be fixed. Temporary employees are provided to assist in clearing up the backlog of repairs. Since the repairs will be resold to the repair shop’s customers, the repair services provided by the temporary employees are for resale and not taxable. 

Example: A temporary employee agency furnishes temporary workers to a manufacturer. The workers operate a press and manufacture parts to build lawn mowers which are ultimately sold at retail. The services of these temporary employees are not taxable.

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