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

What a beautiful fall in Iowa! At the Department, we are engaged in fall activities that include addressing tax changes in new legislation. This affects our electronic and paper forms, as well as education internally and externally about those changes.

One change effective July 1, 2008, is that Iowa 's sales and use tax rate changed from 5% to 6%. In addition, Iowa's school local option (SILO) sales tax was discontinued. “Regular” local option sales tax (LOST) continues where applicable. Filers still need to track and report all sales by county. This affects all Iowa sales and use tax permit holders, both in-state and out-of-state.

There are some exceptions to the rate change. The state sales tax rate remains at 5% for hotel, motel, and bed and breakfast room rental, sales of certain construction equipment, and for the auto rental tax.

Sixteen amendments affected individual or corporate income tax. They are contained in our legislative summary referenced in this newsletter and located on our Web site. Where appropriate, changes are being made to our instructions and forms. We will communicate those changes as they are made through our eList system.

Our Research Library is being replaced with a new and better version. It is anticipated it will be up and running in November. Additionally, our Web site is being redesigned. You will find it easier to access the Department information you are seeking.

I hope you have an opportunity to enjoy the great weather. Please let us know how we can be of further assistance.

Mark R. Schuling

Flood & Storm Damage – No New Sales Tax Exemptions

The natural disasters that impacted Iowa earlier this year have generated sales tax questions about services performed as part of the recovery effort.

Please see our publication titled Services: Which ones are taxable? (78-524) for a list of services that are normally subject to Iowa sales/use tax.

One of the services listed which could be performed as part of flood or storm clean-up is that of “janitorial and building maintenance or cleaning; non-residential only.” This service is taxable only for non-residential customers.

At this time there are no new sales, use, or local option tax exemptions specifically addressing clean-up and reconstruction due to flood or storm damage. However, there is an existing exemption for services performed on or connected with new construction, reconstruction, alteration, expansion or remodeling of real property.

Rebuilding a structure damaged by flood, fire, other uncontrollable disaster or casualty is considered reconstruction.  In this situation, the contractor is responsible for paying tax to the supplier on materials; however, the contractor does not charge tax to the building owner on services and materials. 

Repairs remain taxable.

Our construction contractors (78-527) publication explains the difference between taxable repairs and exempt reconstruction.

If you have questions, please contact the Department.

Sales tax on residential energy

Fuel used by residential dwellings, apartment units, and condominiums is exempt from state sales tax. It is, however, subject to local option tax, if applicable.

"Fuel" includes metered gas, electricity, propane, kerosene, and heating oil.

This exemption was established in 2001 by House File 705.

Tax exemption on manufactured, mobile, and modular homes

The Iowa Department of Revenue has reviewed the 2008 legislation that increased the exemption percentage on manufactured housing and mobile homes from 40 percent to 80 percent. We have changed our initial interpretation of that legislation. Originally, we believed that modular homes were also impacted by this legislative change. That is not the case. 

Effective July 1, 2008, manufactured housing and mobile homes are subject to use tax at the rate of 5 percent on 20 percent of the purchase price.

Modular homes are subject to 6 percent state sales tax, plus local option tax, if applicable, on 60 percent of their purchase price. 

Replacement parts for farm machinery

Prior to July 1, 2008, replacement parts used to repair farm machinery or equipment were exempt from Iowa sales/use tax only if the parts were “essential to” the machinery or equipment's use in agricultural production.  Therefore, items such as cigarette lighters and radios did not qualify for exemption.

However, a legislative change became effective on 7-1-08 that replaced the words “essential to” with “used in.”  This change means that any replacement parts used in the operation of eligible farm machinery or equipment are now exempt from sales tax.

Replacement parts should not be confused with supplies, most of which are taxable.  Oil and grease used in the routine maintenance of a tractor, for example, are not considered exempt replacement parts.  They are considered taxable supplies.

For more information on tax issues related to agriculture, you may reference our Farmers guide to Iowa taxes (78-507).  Please contact the Department if you have any additional questions.

Legislative Summary

The 2008 Legislative Summary has been posted on our Web site.

Purchases of TV Converter Boxes

The upcoming conversion of television signals from analog to digital will require the purchase of converter boxes in some cases.  The purchase of these boxes is subject to Iowa sales/use tax.  Coupons, often in the amount of $40, may be available that allow customers to purchase the converter boxes at a reduced price; however, the taxable amount will be the price prior to the reduction for the coupon.  This is the case even when the coupon is issued by a governmental entity.         

For additional information on coupons and other price reductions, please see our publication titled Discounts, rebates and coupons: How to apply tax .

Classes about Iowa taxes

Are you a new business? Or just need to know more? Our tax classes are held all year statewide.

In addition, we make house calls! Gather your employees or your organization's membership. We will come to you and address your Iowa business tax concerns. This service is free of charge. Just e-mail us to contact you.

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