A message from the director:

Welcome to the latest edition of eTax News. Our department is always interested in your feedback, and I am particularly interested in your comments and suggestions about the new eFile & Pay program.

As you know, the program began in January with the filing of withholding returns and payment of withholding taxes online and by telephone. Sales and retailer's use taxes became available on eFile & Pay in July, and consumer's use will be added in October. Other applications are being developed so that, when completed, Iowa businesses will have total electronic interaction with the Department of Revenue. You'll be able to file returns, make payments, check histories and otherwise totally manage your tax accounts at YOUR convenience, not ours. We've made changes based on taxpayer suggestions, and your ongoing comments are encouraged.

In addition to the eFile & Pay program, your comments on other topics are welcome. Is this newsletter meeting your needs? What issues would you like to see addressed in future editions? The bottom line is that our newsletter staff wants to hear from you. As always, thank you very much.

Mike Ralston

Sales Tax Forms

Since the eFile & Pay system is now available, paper sales tax monthly deposit and quarterly return forms are no longer mailed to permit holders by the department. In addition to filing deposits and returns electronically, we recommend electronic payment for all filers as well. If you received payment vouchers from the department, you have the option of mailing a paper check with the voucher.

Please remember that this payment voucher is not a substitute for the deposit or return. Monthly and quarterly returns need to be completed either on the Internet or telephone. A confirmation number will be supplied to write on the voucher.

Buying a Boat?

Sales of boats and other watercraft in Iowa are subject to the state sales tax rate of 5 percent and any applicable local option taxes. As of July 1, 2005, this is the case not only for sales by dealers, but also for sales between individuals. The "casual sale" exemption no longer applies to sales of boats and other watercraft by individuals who are not regularly engaged in making such sales.

Anyone purchasing a boat from an individual should obtain a receipt that shows the purchase price of the boat and the cost of the trailer if one was purchased with the boat. The buyer will then pay the 5 percent sales tax, plus any applicable local option tax, on the cost of the boat to the county recorder when the boat is registered. The rate of local option tax is based on where the buyer takes possession of the boat.

The 5 percent motor vehicle use tax on the cost of the trailer is paid to the county treasurer when the trailer is registered with them. Local option tax does not apply to purchases subject to motor vehicle use tax, so the trailer will be taxed at the 5 percent rate only.

If a buyer takes possession of a boat in another state, then brings the boat to Iowa, only the state use tax of 5 percent is due.

If you have questions about sales tax on boats - or on any Iowa tax law - call Taxpayer Services at 1-800-367-3388 or e-mail us.

2005 Legislative Summary

The department's legislative summary is now available. This summary provides a brief description of actions affecting tax issues that were taken by the 2005 session of the Iowa General Assembly.

Some highlights are:

Shipping and handling

Delivery charges are exempt from sales tax, as long as they are separately stated, reasonable in amount and related to the cost of transportation. Delivery charges are currently defined as follows:

"Delivery Charges" means charges assessed by a seller of personal property for preparation and delivery to a location designated by the purchaser of personal property including, but not limited to, transportation, shipping, postage, handling, crating, and packing charges.

Prior law indicted that if stated as a single item and mandatory to obtain the merchandise, shipping and handling charges were considered part of the purchase price of the merchandise and were subject to sales tax. However, handling charges now fall under the definition of delivery charges and are exempt from tax on that basis.

Exempt from sales tax

Sales of building materials, supplies, and services to Habitat to Humanity are now exempt from sales tax if used in the construction or repair of one-family or two-family dwellings for low income families.

Sales of toys to nonprofit organizations such as Toys for Tots, which received donations for the purchases of the toys, are exempt from sales tax. To qualify, the organization must be exempt from federal income tax under Internal Revenue Code section 501 and the organization must distribute the purchased toys to children at no cost.

Military tax exemption

The Military Family Tax Relief Act of 2003 allows the exclusion of income for federal tax purposes for the amount of the death gratuity benefit payment received by survivors of deceased members of the armed forces for deaths occurring after September 10, 2001. Since the references to the Internal Revenue Code were updated through January 31, 2005, a separate Iowa exclusion for the death gratuity benefit was not needed and the same exclusion can be taken on the Iowa return.

The Military Family Tax Relief Act of 2003 also allowed a deduction for overnight travel expenses of individuals in the National Guard and military reserves who travel away from home more than 100 miles in the performance of their duties. This deduction was not capped for federal tax purposes. Once again, since the Iowa references to the Internal Revenue Code were updated through January 31, 2005, a separate Iowa deduction was not needed. National Guard and military reservists are allowed the same deduction for Iowa tax purposes for overnight travel that is allowed for federal tax purposes.

Construction exemptions

The determination as to whether a particular construction activity is considered new construction or a repair can sometimes be difficult to make. Construction activity that involves repairing a structure or realty is subject to sales tax. Services that improve or change in a material way a structure that isn't damaged or in need of repair would likely be considered new construction/remodeling and are exempt from sales tax.

More information is available in the contractors guide.

If you haven't already, please sign up for the construction contractors eList. We will be sending examples to subscribers in the near future that point out the differences between a repair and new construction/remodeling.

Classes About Iowa Business Taxes

Our tax classes are held all year statewide. In addition, we make house calls! If your business would benefit from training on Iowa taxes, contact us.

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