Iowa Tax
eNews

graphic for Iowa Department of Revenue Tax eNews electronic newsletter
December 2001
Electronic Newsletter of the
Iowa Department of Revenue & Finance
   
 
Another sales tax holiday?

The proposed National Sales Tax Holiday has not been approved by Congress. Our agency will make every attempt through the media and our Web site to notify businesses and consumers if and when the holiday is approved.

Sales tax on energy

The phase-out of state sales tax on energy begins January 1, 2002. Click here to see who and what qualifies.

Note that…

  • the state rate decreases to 4 percent for calendar year 2002
  • reconnection fees will continue to remain taxable
  • "regular" local option and school local option taxes will continue to be applied
  • tax applies based on the billing date for metered gas and electricity
  • tax applies based on the delivery date for other types of fuel

New local option tax jurisdictions

The list of new local option tax jurisdictions effective January 1, 2002, is now available.

Sales and use tax reporting errors

Monthly filers

Monthly filers receive three forms for each quarter: Two monthly deposit forms and one quarterly return.

Local option reporting: The deposits for the first two months in each quarter should include total amounts only. That is, do not send the county-by-county breakdown of local option tax and school local option tax with deposits. Be sure to remit these taxes with each deposit.

Each deposit is for a single month only, not any combination of months.

The third and final form for the quarter is the sales tax quarterly return. On this return, all amounts, including the local option amounts, are totaled for all three months. Complete the detailed local option return on the back of the quarterly return.

The quarterly return includes the total amounts for all three months of the quarter, not just the third month. The quarterly return will reconcile the tax reporting for all three months of each quarter.

On your quarterly return, on line 8 be sure to take credit for the total of the first two months’ deposits for taxable amount, local option, and school local option.

All filers

Separate the amounts by tax type: state sales tax, "regular" local option tax, school local option tax. Do not multiply your taxable receipts by 6% or 7% or report it on a single line. Even if your sales are in one city or county only, you must report local option separately from the state sales tax. Our computers cannot determine which county to credit a local option tax if it is combined with the state sales tax. Correct filing ensures your local jurisdiction receives its proper tax distribution.

Remember to complete the local option tax return on the back of the quarterly return.

You must fill in lines 1-4 of the quarterly or annual return. Skipping to the "Taxable Amount" (line 5) is not sufficient.

Consolidated permit holders

Be sure to send in your schedule of consolidated locations with your quarterly return.

Filing reminders

Why file on time?

  • It’s important to file returns by the due date to avoid penalty or interest charges.
  • Filing late returns repeatedly -- four late returns in a 24-month period for monthly filers, for example -- may result in our agency requiring a sales tax bond.
  • Not complying with the bond requirement can result in the sales tax permit being revoked, requiring the business to close.
  • Operating without a permit is a serious misdemeanor and can result in a substantial fine and possible jail time.

Please note: Returns must be file, even for those months when you don’t have any sales. For those periods that you don’t have any sales, write zeroes on the deposit form or quarterly return and mail them timely.

Going out of business?

If you are going out of business and don’t need a permit any longer, you may cancel your permit by completing the Information Form attached to your tax return. Even better, go to our Web site to cancel or change permit information online.

Can’t find or didn’t receive your return?

You are still required to file! Download a return from our Web site or send a letter with the same information that is normally on the sales tax return. [Editor's Note: As of July 2005, sales and use returns are now filed through eFile & Pay. Paper returns are not mailed.]

Changed your mailing address?

We need to know! Update your registration information on our Web site.

"Exemption numbers" don’t exist

The Iowa Department of Revenue and Finance does not issue "sales tax exemption numbers" to any person, business or organization. Anyone claiming to be exempt must complete an Exemption Certificate (form 31-014 pdf) and give it to the seller.

A sales tax permit does not give any person or business a blanket exemption from sales tax. Many of our callers are under the false impression that having a sales tax permit number entitles them to make purchases of any kind tax free.

Before accepting an Exemption Certificate and making a tax-free sale, ask these basic questions:

  • Is the sale to a government entity? If so, the sale is usually tax free.
  • Is the sale to a business that will resell the item? If so, the sale is usually tax free.
  • Is the sale to a group that is exempted by law? If so, the sale is usually tax free.
  • Is the sale to a nonprofit organization? Stop! The sale is probably taxable.

Nonprofits: Not necessarily tax exempt

Nonprofit entities, churches and religious organizations are not automatically exempt from paying state sales taxes on taxable goods and services. This is true even if these entities are exempt from the payment of state and federal income taxes. State sales tax must be paid unless some other general sales tax exemption applies. Local option sales tax must also be paid on purchases made in jurisdictions that impose the tax.

Purchases made for resale are exempt from all sales tax. Therefore, a nonprofit entity that purchases items for resale is allowed the same resale exemption as any other person or organization. In other words, a nonprofit corporation, church or other religious organization is treated the same as any other private citizen for sales and use tax purposes when purchasing goods and taxable services at retail.

However, the sale of items used for educational purposes to any Iowa private nonprofit educational institution is exempt. More information is available in our publication for nonprofit entities.

All-terrain vehicles

Whether or not sales of ATVs are taxable depends on how the purchaser will use it. ATVs that are primarily (more than 50 percent of the time) used in agricultural production are exempt from sales tax. Customers who purchase ATVs for recreation or any non-agricultural purpose should be charged sales tax.

If banks require a tax number

Some new business owners have difficulty setting up business accounts at their banks. The bank requires "a tax number" before it is able to issue a business account. This number is either a Federal Employer Identification Number (FEIN) or a Social Security Number.

If the business is a sole proprietor without employees, the bank may allow a separate checking account number by applying as an individual doing business as (dba). For example, John Doe dba Widgets Galore. The number used in this type of case would be the person’s Social Security Number.

Internet sales

We receive calls from businesses and consumers who believe Internet sales are exempt from Iowa sales tax. Often, the confusion is between the sale of Internet access and the sale of tangible personal property.

Tangible personal property: Internet sales are subject to Iowa state and local option sales tax and to the same guidelines followed by other businesses. The Federal moratorium on Internet sales does not apply to these sales in Iowa.

Internet access charges: These sales have not been taxable in Iowa since July 1, 1999.

Shipping and handling

When billed as a lump sum, the entire charge for shipping and handling is subject to state sales tax and local option tax, if applicable.

When itemized, shipping is exempt and handling is taxed.

Withholding tax tables

The current booklet, dated January 1998, is still valid. The withholding tax tables will not change for 2002. [Editor's Note, posted 2006: The most current withholding tax tables are dated April 1, 2006.]

1099s and W-2s

Our department has access to Federal information and no longer needs copies of 1099s and W-2s. Please do not send them; they will not be used. However, you should retain records of 1099s and W-2s for three years after the end of the calendar year for which the forms apply.

VSP

The Verified Summary of Payments is still required to be sent to Iowa.

How fast do you want your Iowa income tax refund?

This year, refunds from paper-file returns will take at least 12 weeks to process. You can receive your Iowa refund in two weeks if you e-file. More information is on our Web site.