Iowa Tax

graphic for Iowa Department of Revenue Tax eNews electronic newsletter
October 2001
Electronic Newsletter of the
Iowa Department of Revenue & Finance
Welcome to the inaugural issue of the department's Iowa Tax
e-News newsletter. This new service will enable us to keep you up to date on recent developments that affect tax professionals.
e-mail us with your comments, questions and suggestions for future issues.

Iowa Package X no longer available

Limited resources have required us to discontinue the printing and mailing of the Iowa Package X. Forms will remain available on Tax-Fax and on our Web site. Income tax forms for 2001 will be uploaded onto these systems at the end of November.

Iowa income tax return filing changes

Processing electronic returns is significantly cheaper than processing paper returns. Taxpayers who file their Iowa income tax returns on paper will wait at least 12 weeks for their refunds. Errors may add an additional 6 months. E-filed returns will generate refunds within 2 weeks, and sooner if direct deposit is requested.

Tax professionals not yet offering electronic filing to their customers should enroll with the IRS to file electronically next year. To do so, go to department’s E-Services page to learn more about this program.

Taxpayers who have never e-filed their Iowa returns before may go to the department’s E-Services page to learn about e-filing options.

The department will promote e-filing in the following ways:

  • The short form booklet has been replaced by an e-file booklet. This will include a TeleFile worksheet, WebFile worksheet and a 1040A, but with a message that using the paper form will delay receiving any refund. [Editor's Note: The WebFile option is no longer available.]
  • TeleFile, WebFile and 1040A will now be offered to taxpayers with income up to $100,000. (Certain limitations will apply to each of these options.)
  • The 1040 booklet will contain several messages encouraging taxpayers to use e-file options rather than the paper return, and telling taxpayers of the longer wait time for refunds requested on paper returns.
  • A direct mailing is planned to encourage individuals who filed a paper return to take advantage of the various e-filing opportunities.
  • Tax booklets and other information will include our Web site address to find a list of tax professionals offering e-filing. Taxpayers will enter their ZIP code to obtain a complete list of tax professionals offering electronic filing in their area.
  • The department will no longer provide tax preparation service in our offices, but will offer a series of sessions across the state assisting taxpayers in filing their returns by WebFile.
  • Tax booklets will no longer be mailed to taxpayers who electronically filed their return last year. In addition to reducing forms distribution costs, it is hoped that this will encourage the individual to return to their tax preparer this year where an electronic return can be created.
  • All long and short form booklets that are sent as part of our initial mass mailing will include a Personal Identification Number (PIN) needed to WebFile the return. While not everyone will qualify to use the WebFile program, more taxpayers than last year will qualify.

We look forward to working with you to have a dramatic increase in e-filed tax returns this season.

Federal employees not necessarily exempt from Iowa sales tax

Federal employees must pay Iowa sales tax and local option or hotel/motel tax, if any, unless they pay with a credit card that specifically says "tax exempt." Credit cards used by the Federal government are usually issued by MasterCard, VISA, or American Express, but may include other credit card companies.

Two types of credit cards are issued to government employees.

The less commonly-used card usually says, "United States of America For Official Government Purchases Only US Government Tax Exempt." No taxes should be collected when this credit card is used.

The most common card used usually says, "United States of America For Official Government Travel Only." Taxes must be collected on purchases made with this card.

Do not accept exemption certificates from Federal employees or give a tax exemption unless they are using the credit card that specifically has the words "US Government Tax Exempt."

This applies to purchases of supplies, rooms, meals, and services.


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New Local Option Jurisdictions

Several new local option jurisdictions taking effect January 1, 2002, will be posted by Nov. 1. We will notify the public via our Sales/Use eList. If you have not already signed up for eLists, please click on the logo to the left.

Iowa Sales and Use Tax Forms

Important Change Beginning January 1, 2002

Monthly and Quarterly Filers: Forms will be mailed to you only twice each year, rather than four times a year. The forms in each mailing will cover two calendar quarters. The period end and due dates will not change. Annual filers will continue to receive their forms once each year.

2002 interest rate set

The department has announced that the annual interest rate in 2002 will be 10 percent. The monthly charge will be 0.8 percent. This is a decrease from the 11 percent annual rate and 0.9% monthly rate for tax year 2001.

The department charges interest on taxes that are overdue; income, sales and withholding taxes are included. In addition, the department pays interest to taxpayers who file their income tax returns on time but do not receive their refunds by June 1. Refunds of other taxes are paid with interest as well.

E-mail us with your Iowa tax questions

If you have questions about Iowa state taxes, you may e-mail the department or you can call Taxpayer Services to speak with a tax specialist on the phone (local and out of state at 515-281-3114 or within Iowa at 1-800-367-3388). During tax filing season (January 1 - April 30), phone lines are always very busy, so e-mail may be a more efficient and time-saving option. The Iowa Department of Revenue and Finance will answer your e-mail within a single business day.

Do not e-mail to receive tax forms or publications. You can download forms or publications from our Web site or call our Tax-Fax system at 1-800-572-3943.

Get state tax publications using Tax-Fax

Services are offered 24 hours a day, 7 days a week on our Web site, but did you know that you can get any form or publication from the Iowa Department of Revenue and Finance without a computer? A telephone system called Tax-Fax allows you to order the information you need and then sends it to your home or work fax machine. It’s simple:

  1. Call 1-800-572-3943.
  2. To request a specific form, press option 1, then key in the 7-digit document number, followed by the pound (#) key.
  3. To request the table of contents (available forms and document numbers), press option 2.
  4. After you make your requests, the automated system will ask you to key in your fax number.

You will receive your faxes within a half-hour of your request.

Use only current coupon for corporation estimated payments

If you receive preprinted coupons from the Iowa Department of Revenue and Finance or another forms provider, you should know that each coupon is different and should be used only for its appropriate filing period.

A string of numbers called a scanline is preprinted in the upper-left quadrant of each form. These numbers are read by a scanner. A computer displays the taxpayer’s file, and the estimate amount is keyed into the filing period embedded in the scanline.

When an old form is used, the amount is attributed to the wrong filing period. The computer recognizes this, and the form is "kicked out" for further review. From there, the problem must be fixed manually. In the meantime, an automatic billing notice may be sent, further confusing the situation.

Here’s how to check the scanline numbers to determine if you have an old form:

Sample Number: 240242123456750630015993 2

The six numbers -- shown in bold for this example -- are the last day of the filing period for which the form should be used: June 30, 2001. If you use an old form, the estimate payment will be credited to the wrong fiscal year.

Estimated income tax payments can be made electronically

Why file on paper? You can use our online resource to register to pay your income payments through Electronics Funds Transfer (EFT) and to review your past individual income payments. [Editor's Note: This system has been replaced by eFile & Pay.]

To register, you will need the following information:

  • Social Security Number (SSN)
  • Bank account information

In order to retrieve your payment history, you will also need the amount of an exact tax payment made in any of the previous tax years.

Withholding news for employers

News in Brief

  • The withholding tax table booklet will not change for 2002.
  • Do not send copies of W-2s with your Verified Summary Report. Our agency receives this information directly from the Internal Revenue Service.
  • The Iowa W-4 for 2002 will be available on our Web site by the end of the November.

Do your employees need Iowa income tax withheld?

Employees who make less than $9,000 each year are not required to have Iowa tax withheld from their paychecks. If you employ minors or others who are claimed by someone else, such as parents, on their tax returns, the limit is $5,000.

Your employees benefit because their paychecks are larger, and they do not have to file tax returns to receive refunds. We appreciate your assistance in informing qualified employees of this option.

Tax exemptions, credits, deductions and exclusions save Iowans billions of dollars each year

How much do Iowans benefit?

Almost $4 billion annually, according to a first-ever report produced by the Iowa Department of Revenue and Finance. "Iowa Tax Expenditures 2000" is a summary of 280 exemptions, credits, exclusions, and deductions selectively available to groups of businesses and individuals.

The year 2000 study addresses Iowa’s major taxes: individual and corporate income taxes, and sales and use taxes. Future reports will include local government, State property tax relief, and other State tax expenditures.

Who benefits?

  • Agricultural businesses: $340 million
  • Non-agricultural businesses: $660 million
  • Individuals and families: $2.7 billion
  • Governments and nonprofit corporations: $150 million

Among the expenditures listed are:

Individual income tax

  • Employer-paid medical insurance: $167.5 million
  • Itemized deduction of charitable contributions: $78.7 million
  • Itemized deduction of mortgage and investment interest: $152.3 million
  • Deduction of federal individual income tax: $596.3 million
  • Iowa partial pension income exclusion: $59 million
  • New Jobs Withholding Credit: $33.7 million
  • Apportionment by S-corporation shareholders: $8.6 million

Corporate income tax

  • Fifty percent deduction of federal tax: $76.7 million

Sales and use exemptions

  • Grocery-type food for human consumption: $247.5 million
  • Prescription drugs and medical devices: $55.5 million
  • Industrial machinery, equipment and computers: $123.7 million
  • Nonprofit hospitals: $53.7 million

More than 20 other states, including all of Iowa’s border states except South Dakota, provide tax expenditure information to their citizens.

Iowa tax permit changed

Approximately 20,000 Iowa sales tax permits are issued every year by the Iowa Department of Revenue and Finance. The appearance of the permits has been redesigned to save time and money. The department estimates that approximately $9,000 in printing and postage will be saved each year.

New permit holders will receive a postcard instead of an envelope with a permit stuffed inside. The postcard itself is the sales tax permit and should be kept with other business records. It is not required to be displayed, but may be if the business chooses.

Confidential information is not printed on the postcard. The tax number assigned by the department and the business’ name and address are public record. Social Security Numbers and similar confidential information is never released to the public.

Changing to this type of permit will also reduce the time it takes to mail a permit by two days.