<%@LANGUAGE="JAVASCRIPT" CODEPAGE="1252"%> Iowa Department of Revenue electronic newsletter: Iowa Tax eNews
SEPTEMBER 2010
graphic for Iowa Department of Revenue Tax eNews electronic newsletter

 

Message from the Director:

We are continuing to update our Web site with information of importance to Iowans. It is available at www.iowa.gov/tax.

Recent additions include information on the Iowa Court Debt Amnesty Program. Court Debt Amnesty is an opportunity for people to reduce their outstanding Iowa court debt. The amnesty is only available until November 30, 2010, for certain types of court debt more than four years old. Under Court Debt Amnesty if you pay 50 percent of the total amount of your eligible court debt, the remainder will be waived and your eligible debt will be considered paid in full. For more details, including a link to additional information, please see the article below. 

We have also posted information regarding 2010 Severe Storm and Flooding Disaster Relief. Links are provided for Iowa Homeland Security & Emergency Management Division, FEMA, County Disaster Recovery Centers and the IRS. Please see the article further below for answers to sales tax questions about services performed as part of the recovery effort.

Summaries of 2010 Iowa Legislation with tax implications are also available.

Federal extenders have not been passed by the U.S. Congress at this time. The federal income tax extender provisions include: Educator Expenses, Tuition and Fees, and Itemized Deduction for State Sales / Use Tax Paid. We will update you on their status as information is made available. We will not know whether Iowa will adopt the federal extenders until the 2011 Legislative session occurs.

Mark R. Schuling
Director

Iowa Court Debt Amnesty Program

The Iowa Court Debt Amnesty program applies to certain types of court debt imposed on cases before December 1, 2006. With the amnesty, debtors who pay 50 percent of their overdue fines and fees in one lump sum will have the remaining debt forgiven. The amnesty program is part of a larger effort to capture significant amounts of debt owed to state entities approved by the legislature and signed by the governor last spring.  

Applications for the amnesty program must be received by the Department of Revenue between September 1 and November 30, 2010. Eligible debt includes most fines, fees, penalties and court costs.

The amnesty program does not include delinquent restitution, child support, alimony, sheriff fees, room and board fees, fines payable to cities or counties, and civil penalties or reinstatement fees assessed by the Department of Transportation. A person who is in jail or prison, or under supervised probation or parole is not eligible. Debtors who are already making payments through the state centralized collection unit (CCU) of the Department of Revenue or their county attorney are not eligible.

The Iowa Department of Revenue began mailing notices to persons with delinquent court debt in September. The mailing includes a notice of the cases eligible for the amnesty program and an application form. Additional information is available at www.PayTheFineIowa.gov or by contacting the Department of Revenue at 888-9-Pay-Fine (888-972-9346) or paythefine@iowa.gov. To participate in the amnesty program, all payments must be paid to the Department of Revenue by November 30, 2010.

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 or 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 Exemption – Contracts made directly with the federal government vs. with federal employees

Contracts made directly with the federal government are exempt from Iowa sales/use tax. The federal government is also exempt from both the state 5% excise tax and local hotel/motel tax on lodging. However, sales to federal government employees who are paying with cash, personal check, or personal credit card are subject to tax. This is true even if the employees will be reimbursed by the federal government.

The determination of whether the contract is directly with the federal government can sometimes be difficult when a credit card is used. Please use the following as guidance in those situations:

  • Cards that are the sole responsibility of the government and that are billed directly to the government (centrally billed) – No taxes should be collected when this type of credit card is used.

  • Cards that are the responsibility of the employee, are billed to the employee, and are the sole responsibility of the employee (the government is not responsible if the cardholder fails to pay) – Taxes must be collected on purchases made with this card.

Out-of-state Contractors – Building Materials Used In Iowa

Contractors from outside Iowa who perform construction contracts in the state may owe Iowa sales / use tax on building materials used in those contracts. The state sales tax rate is 6% and the state use tax rate is 6%; however, local option sales tax (LOST) of an additional 1% may apply depending upon how and where delivery of the materials occurs. The list of local option tax jurisdictions can change effective January 1 and July 1 of each year.

If delivery does not occur in a local option jurisdiction, local option tax is not due. If delivery occurs within a local option jurisdiction, the local option sales tax may be due.

Delivery usually occurs where the seller transfers physical possession of the property to the buyer. In most instances, this transfer takes place at the seller's place of business.

If the seller transfers the property to the buyer from the seller's own vehicle, then delivery takes place at the location of transfer.

Finally, if the seller transfers the property to the buyer by common carrier or the U.S. Postal Service, delivery occurs at the customer's location.

The use of FOB (free on board), FAS (free along side), or a similar term when goods are shipped by common carrier does not affect where “delivery” occurs, but it will determine if a sales tax or a use tax applies, and if local option tax applies.

Sales or Use Tax and LOST

Whether or not the tax is a sales tax or a use tax is another important distinction in determining if local option tax is imposed.

Local option tax is a sales tax; therefore, in order for local option tax to apply, the transaction must be subject to sales tax.

There is no local option use tax; therefore, local option tax is not imposed on use tax transactions.

The following helps to determine if a transaction is subject to sales or use tax and, therefore, local option tax.

Type of Transaction

A. Intrastate (in-state delivery and in-state seller) – Sales Tax
B. Interstate (in-state delivery – out-of-state seller) – See below

Consider how it is delivered:
1. Vendor's Vehicle – Sales Tax
2. Common Carrier – See below

Consider:
1. With no FOB or FAS – Use Tax; no LOST
2. With FOB or FAS – See below

Consider:
1. Origination – Use Tax; no LOST
2. Destination – Sales Tax

The Department knows these concepts can be difficult to interpret. We encourage you to contact us if you have questions.

Credit for Tax Paid to Another State

Contractors who purchase building materials for use in Iowa where delivery of those materials occurs in another state, will be given credit for tax required to be paid to the other state.

Example: An Illinois-based construction contractor frequently builds in Iowa. The contractor purchases and takes delivery of materials in Illinois for use in an Iowa building project. If the contractor paid Illinois sales tax on the materials, Iowa allows a credit for those taxes. If the other state’s sales tax rate is higher than or equal to Iowa’s 6% rate, no Iowa tax is due. If the sales tax rate in the other state is less than 6%, the contractor owes the difference to Iowa. If the contractor did not pay Illinois sales tax on the materials used in Iowa, the contractor must pay Iowa 6% use tax on the materials. This can be done by applying for an Iowa Retailer’s Use Tax Permit and reporting the tax due for out-of-state purchases on line 2 of that return.

Snow Removal - Applying Sand, Salt, Ice-melt

Snow removal is not subject to Iowa sales tax. 

The service of applying sand, salt, or ice-melt is likewise not taxable.

However, the materials applied – sand, salt, ice-melt – are taxable products.  Sales tax is due on these materials.

  • When the snow removal business applies these materials for their customer and does not make a separately itemized charge for them, that business is the consumer of the materials and owes sales tax to its supplier when they are purchased.  No tax is charged to the snow removal business’ customer for services or materials.
  • In some cases, the snow removal business may separately itemize charges to their customer for the materials. If so, the business may be able to purchase the materials for resale and not pay sales tax to its supplier when three conditions are met.
    1. The business and its customer must agree that the product is being sold separately from the service, and
    2. The product must be sold to the customer in a definite form or amount and with a specific price attached, and
    3. The cost of the product must be itemized on the bill.  

When purchasing products for resale, a valid Sales Tax Exemption Certificate (pdf) will be provided by the snow removal business to the supplier who sells them the materials.  In this situation, the snow removal business must charge sales tax to their customer on the materials, but not on the services.

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