from the Director:
It is the end of the year
and a time when the Department reviews how it has performed during
the year. The results are interesting. The percentage of individual
income tax returns filed electronically rose to 66 percent. Two out
of every three individual income returns were received electronically
in 2006. Tax refunds for those electronic returns were issued in 14
days 96 percent of the time. In 2006, the Department received 69 percent
of all General Fund revenues electronically. Additionally, more than
95 percent of all sales tax and withholding tax returns were received
Electronic filing and payment
is demanded and used by taxpayers and taxpayer representatives. The
Department's system is available 24 hours a day, seven days a week.
Electronic filings allow the Department to respond quicker and with
Things have changed. We are
all changing with them and for the better. We will continue to monitor
how we perform, and continue to change to ensure we address your needs.
Mark R. Schuling
Tax - Claim for Refund
Iowa Form IA 843, Claim for
Refund, will no longer be accepted for refunds of Iowa withholding
tax. Iowa Administrative Rule 701-46.3(3)(h) states that if an employer
remits more than the correct amount of withholding tax, the employer
MUST file an amended withholding tax return to report the correct amount
of withholding tax (emphasis added). Therefore, in all cases where
there has been an overpayment of Iowa withholding tax, an amended withholding
quarterly tax return must be filed.
For example, there have been
situations where Form IA 843 has been filed for withholding tax when
an employer failed to claim the new jobs credit from withholding allowed
under Iowa Code section 260E.5. In the alternative, some employers
who had failed to claim the new jobs credit were claiming larger amounts
of jobs tax credit on current period returns to "catch up" with
the credit that should have been claimed on prior returns. An employer
in this situation must file amended returns for each of the tax periods
when the job training agreement was in place, and these amended returns
should all be filed at the same time for each of the affected tax periods.
Amended withholding quarterly
returns should be filed electronically through eFile & Pay .
While no longer acceptable
for withholding tax, the revised IA 843 can still be used to claim
refunds of other taxes and is available on the Iowa Department of Revenue
Web site at http://www.state.ia.us/tax/forms/22009.pdf
Power of Attorney Form
The Iowa Department of Revenue
has recently revised its Power of Attorney Form
Iowa 's updated form is at http://www.state.ia.us/tax/forms/14101.pdf
The Federal Power of Attorney
form is also accepted by the Iowa Department of Revenue. To be valid,
the Federal form must contain a written statement that indicates it
is being submitted for use with State of Iowa forms. The statement
needs to be initialed by the taxpayer.
Who Own Property in Iowa
Iowa income tax and sales
tax filing requirements may apply to nonresidents who own property
located in Iowa.
Income earned from Iowa property
is generally subject to Iowa income tax even if the owner is not an
Iowa resident. This income might take the form of rent received from
a tenant, a gain from the sale of the property, or other income received
for use of the land. If the annual income received from Iowa sources
is $1,000 or more, a nonresident is required to file an Iowa Individual
Income Tax Return (IA1040). The 2006 IA1040 Booklet can be found on
our Web site at: http://www.state.ia.us/tax/forms/1040LongBooklet06.pdf .
Sales tax may also apply if
a charge is being made for use of the land that falls within the definition
of a taxable service. For example, the service of providing “commercial
recreation” is subject to Iowa sales tax. Included within the category
of commercial recreation would be fees paid by hunters for access to
a particular piece of property. To apply for an Iowa sales tax permit,
go to our online registration at: https://www.idr.iowa.gov/CBA/start.asp .
Delivery charges are exempt
from sales tax, as long as they are separately stated, reasonable in
amount and directly 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 to July 1, 2005, 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.
Please remember that “inbound
freight” or “freight in” charges do not fall within the definition
of delivery charges, and are taxable when added to the price of a retail
sale. An example of when “freight in” charges might appear is a situation
where a purchaser wishes to buy a product from a retailer, but that
retailer doesn't have the item in stock and must order the product.
If the retailer prices the product at a certain amount, plus the shipping
costs associated with obtaining the product by ordering from their
supplier, those associated costs (freight in) are not exempt delivery
charges even if separately stated. These charges reflect the costs
a seller may incur to secure possession of the product from
their supplier. Exempt delivery charges constitute the costs
necessary to transfer the product from the seller to the purchaser.
Tax – Exempt Service or Taxable Product?
Note: The information in this article should not be interpreted to exempt the taxable service of interior decorating.
When performing design, drafting,
or other similar work, it can sometimes be difficult to determine whether
a person is selling an exempt service or taxable tangible personal
property. To make such a determination, the department will look at
the “true object test.” In
other words, we will look for the object of the transaction, or what
the customer is actually purchasing.
For example, if a customer
purchases a set of plans from a designer, it would be necessary to
determine if the purchaser is actually buying taxable tangible personal
property (the plans); or if the purchaser is buying an exempt service
(designing the plans).
The department's position
on this question is that sales to the general public of pre-existing
plans or designs of any sort (e.g. for homes, other types of buildings,
clothing, or furniture) are considered to be taxable sales of tangible
personal property. The creation of plans or designs for individual
clients would be treated as a nontaxable service.
In the case of floor plans
for a home, if the floor plans are sold to the general public, there
would obviously be a sale of taxable tangible personal property. On
the other hand, if an architect is designing a home for a specific
individual, the sale would be that of exempt architectural design services.
Pumpkins – Pies
This information is no longer valid. Pumpkins are considered food
and exempt from sales tax.
The Department has recently
refined its position on whether pumpkins are subject to Iowa sales
tax to more closely match what we believe to be the predominant use
of those pumpkins.
In the past, pumpkins have
been exempt from sales tax as a food (edible squash); even if they
were to be later made into jack-o'-lanterns or used as decorations.
Our position now is that pumpkins are taxable if they are advertised
to be used as jack-o'-lanterns/decorations or it is understood that
that is how they will be used.
Pumpkins are still eligible
for exemption from tax under the following circumstances:
- The purchaser evidences
their intent to use them as food by completing a sales tax exemption
certificate stating they are being purchased for human consumption.
- The pumpkins are specifically
of the variety to be used to make pumpkin pies and are advertised
in that way.
- They are purchased with
Those retailers who sell pumpkins
should keep these guidelines in mind during the Fall of 2007 and make
any necessary changes to their tax treatment of pumpkin sales.
Tax – Consolidated Returns
If a business has two or more
Iowa locations and, therefore, two or more sales tax permits, it may
request to file a consolidated return. Which means, when filing returns
for multiple locations from which taxable sales are made, the permit
holder may file ONE consolidated return when reporting total sales
made from all locations for which a permit is held.
Except for permits that include
Automobile Rental or Hotel/Motel Tax, consolidated sales tax returns
may be filed by any retailer who has more than one sales tax permit.
To apply for a Consolidated
Sales Tax Permit, complete the Iowa Business
Tax Registration Form, attach a list of businesses, their locations,
and Iowa Sales Tax Permit Numbers. Remember that each location is still
required to have its own individual permit number even if part of a
If you are adding a new location
to a CURRENT consolidated account, include your current Consolidated
Number on the Business Tax Registration.
The online application cannot
be used to apply for a new consolidated permit. However, if the business
already has a consolidated permit, it may add
a new location online.
Is it taxable?
Certain "enumerated" (taxable)
services are commonly performed with the repair or maintenance of real
Items which under normal circumstances
become a part of real estate:
- boilers, furnaces, and
central air conditioning units
- built-in household
items such as kitchen cabinets, dishwashers, sinks (including faucets),
exhaust and ceiling fans, garbage disposals and incinerators
- residential water heaters,
When taxable services are
performed on or in connection with new construction, reconstruction,
alteration, expansion or remodeling of buildings or structures, they
are exempt from sales tax.
When these services are a
repair, sales tax must be charged.
When an entire unit is replaced,
the distinction between repair and new construction is based upon whether
the item being replaced is broken or defective.
For instance, replacing a broken water
heater, furnace or central air conditioning unit is considered a “repair.”
However, replacing an entire
water heater, furnace or central air conditioning unit would be classified
as “new construction” if the item being replaced is not defective.
Examples of new construction
and repair situations:
1) A building is under
construction and requires the installation of a furnace. This
is considered “new construction.” The company providing the materials
and the labor to install the new furnace will pay tax on all materials. No
tax is collected from the customer for either labor or materials.
2) The owner of a building
wants to have a new furnace installed. The existing furnace is
not defective. This would be considered an “improvement.” The
company providing the labor and materials to install the new furnace
will pay tax on all materials. No tax is collected from the customer
for either labor or materials.
3) A furnace in an existing
structure has become defective. The furnace is to be replaced. The
replacement of the defective furnace will be considered “repair.” The
company doing the installation will pay no tax on the materials; however,
will collect tax on both labor and materials from the customer.
Tax – Interstate Commerce
Non-Iowa Sales – Tangible
personal property purchased from an Iowa retailer, but delivered outside
Iowa is not subject to Iowa sales tax. In other words, a product transported
by the Iowa retailer in their own vehicle to a point in another state,
or mailed by the retailer to a location outside Iowa, are considered
sales in interstate commerce and are exempt from Iowa tax. Under certain
circumstances, retailers may need to register for the collection of
tax in other states and should inquire with that state(s) as to what
their requirements might be.
Iowa Sales – When
tangible personal property is delivered in Iowa, it is generally subject
to Iowa sales tax even if the purchaser may subsequently transport
the property to a point outside Iowa.
Delivery in Iowa can take
several forms: (1) the purchaser may take possession of the item themselves
at a point in Iowa; (2) the purchaser may send their agent to pick
up the item at a point within Iowa; or (3) the purchaser may hire a
common carrier to transport the item from a point in Iowa. The first
two scenarios are quite clear. The third depends upon the terms of
the contract between the buyer and seller to determine whether it would
be considered an Iowa sale or not.
If the contract states in
some fashion that the sale is complete at a point in Iowa, then it
is an Iowa sale even if the purchaser hires a common carrier to transport
the product to a point outside Iowa. If the contract is silent and
the purchaser hires a common carrier that transports the item to a
point outside Iowa, it is a sale in interstate commerce and not subject
to Iowa tax.
Hotels & Motels – Local
Option Sales Tax
It has come to the attention
of the department that not all hotels and motels are aware of a change
in the taxation of rooms that went into effect last year. We present
this article in an attempt to provide that information.
Legislation passed in 2005
(SF 413-I) removed from the sales tax portion of the Iowa Code the
rental of rooms in a hotel, motel, inn, public lodging house, rooming
house, or in any place where sleeping accommodations are furnished
to transient guests for rent. Instead, the rental of these rooms was
placed under a separate state “excise” tax. This change, which became
effective on 7-1-05, was part of Iowa 's continuing effort to comply
with the Streamlined Sales Tax Project. So lodging is no longer subject
to 5% state sales tax. It is subject to the new 5% excise tax and any
additional locally imposed hotel/motel tax.
This revision also impacted
the imposition of Local Option Sales Tax (LOST) and School Infrastructure
Local Option Tax (SILO). Transactions can only be subject to LOST/SILO
if they are first subject to the state sales tax.
Since lodging is no longer subject to state sales tax, it is no longer
subject to either LOST or SILO under any circumstances.
Prior to 7-1-05, the rental
of rooms was exempt from LOST/SILO if they were subject to the hotel/motel
tax. On or after 7-1-05, lodging is no longer subject to LOST/SILO,
whether or not the hotel/motel tax is imposed.
So if a room is rented in
a jurisdiction that has no locally imposed hotel/motel tax, but does
have one or both local option taxes, only the 5% excise tax is charged.
If lodging is rented in a jurisdiction that does have hotel/motel tax,
it is subject to the 5% state excise tax, plus the applicable hotel/motel
tax. In neither case would LOST or SILO be imposed.
in the following two paragraphs is no longer correct. For the most
current information, please see our hotel/motel
In addition to sleeping rooms,
these changes also apply to banquet or conference rooms in a hotel,
motel, or other similar facility. Therefore, the rental of a banquet
or conference room in a hotel would be subject to the new 5% excise
tax, but not state sales tax. And since they are no longer subject
to sales tax, they are no longer subject to LOST or SILO.
Furthermore, where the prior
hotel/motel tax provisions applied to “sleeping rooms” only, the new
locally imposed hotel/motel tax applies to “rooms,” including banquet
and conference rooms in a hotel, motel, or other similar facility.
Therefore, a banquet or conference room in an area with a locally imposed
hotel/motel tax would be subject to 5% excise tax and up to 7% hotel/motel
tax. In an area with no locally imposed hotel/motel tax, a banquet
or conference room will be subject to only the 5% excise tax.
for a tax permit
When applying for sales tax
or withholding tax permit online, don't forget to go to the top of
the second page of the application and click on “GET PIN.” Print your
PIN (personal identification number) information. If you need to quit
in the middle of applying, you can exit and then continue later using
About Iowa Business Taxes
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just need to know more? Our tax
classes are held all year statewide.
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