<%@LANGUAGE="JAVASCRIPT" CODEPAGE="1252"%> Iowa Department of Revenue electronic newsletter: Iowa Tax eNews
DECEMBER 2007
graphic for Iowa Department of Revenue Tax eNews electronic newsletter

Message from the Director:

In January we will begin a new initiative called Plain Talk. Through Plain Talk, the Department's letters and documents will be revised to help taxpayers better understand and use written information.

Plain Talk is clear, straightforward writing, using only as many words as necessary. It is direct and to the point. It is language that avoids obscurity, inflated vocabulary and convoluted sentence construction. Plain Talk lets the readers concentrate on the message. Plain Talk writers keep the recipient of the letter in mind at all times.

Studies show that Plain Talk reduces errors and saves time, effort, and money for both the public and for the government. We rewrote our entire set of tax collection letters last year in conjunction with another project, and and it has been beneficial to taxpayers and the Department.

All letters will be subject to Plain Talk revision, but greater effort will be expended on high-volume letters and documents and on those that generate a high volume of calls.

In addition, identity theft remains a threat to Iowans. The Department will use the Plain Talk opportunity to remove taxpayers' Social Security Numbers from letters and documents where appropriate and replace them with a new identifier.

Plain Talk and the new identifier will be a win for taxpayers and a win for the Department. Please contact us if you have suggestions; we appreciate your help in making this project a success.

Mark R. Schuling
Director

 

No Change to Iowa Withholding Tables

The Iowa withholding tax tables will NOT change for 2008. Please continue to use the current tables, which became effective April 1, 2006.

Iowa Withholding Issues

Nonresident wages and salaries

Employers doing business in Iowa are required to withhold Iowa individual income tax from the wages and salaries of nonresident employees working in Iowa at the same rate as for residents.

Exception: See Iowa-Illinois reciprocal agreement below.

Other nonresident income

The payer or withholding agent may withhold on a one-time basis. The payer should complete a paper Iowa Business Tax Registration form (78-005) stating this to be a one-time report. The withholding payment may be sent in with the completed application to the address on the application form.

The following additional types of income to nonresidents are subject to Iowa withholding:

  • Compensation paid to entertainers performing in Iowa, but not payments to entertainment corporations. However, wages of nonresidents engaged in film production or television production are not subject to Iowa withholding tax if the withholding agent provides certain information to the Department, which includes each nonresident employee's name, permanent address, Social Security Number, and estimated amounts the employee is to be paid.
  • Rental payments received from Iowa property.
  • Taxable Iowa-source income paid to a beneficiary of an Iowa estate or trust.
  • Iowa-source income received by a nonresident partner or shareholder of a partnership or S corporation doing business in Iowa .
  • Income derived from any business of a temporary nature such as contracts for construction or fees paid for services in Iowa .

Under provisions of federal law, Iowa tax should not be withheld from nonresidents working in Iowa as employees of railroads and trucking firms in interstate commerce if they are working in at least one other state. Withholding may be required for the employee's state of residence or the nonresident employee may be required to make estimated payments to their state of residence.

Iowa residents working in other states

In the same way nonresidents of Iowa may be subject to Iowa income tax withholding when that income is earned in Iowa, others states may require their tax to be withheld from Iowa residents working there. The requirements may differ from one state to another, so an inquiry may need to be made of that state(s) if an Iowa resident is working in a state other than Iowa .

Iowa-Illinois reciprocal agreement

Iowa and Illinois have a reciprocal agreement for individual income tax purposes. At this time, Iowa does not have an income tax reciprocal agreement with any other state.

Any wages or salary made by an Iowa resident working in Illinois is taxable only to Iowa and not to Illinois . Any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa .

An Iowa resident working for wages or salary in Illinois should complete and file Illinois form IL-W-5-NR “Employee's Statement of Nonresidence in Illinois ” with the employer so that the employer will be aware it is appropriate to withhold Iowa income tax. The Iowa resident should also complete an Iowa W-4.

An Illinois resident working for wages or salary in Iowa should complete and file the IA 44-016 (pdf) “Employee's Statement of Nonresidence in Iowa ” with the employer so that the employer will be aware it is appropriate to withhold Illinois income tax.

Iowa will tax any Iowa-source income received by an Illinois resident that is not from wages or salaries. Illinois will tax any Illinois-source income received by an Iowa resident that is not from wages or salaries. Examples of income that are not wages and salaries and, therefore, not covered under the Iowa-Illinois Reciprocal Agreement are Iowa gambling winnings and unemployment compensation for employment in Iowa.

Local Option Sales Taxes - New Jurisdictions

On January 1, 2008, businesses in new local option jurisdictions and businesses delivering into these jurisdictions will begin collecting "regular" local option sales tax on their taxable sales.

Sales Tax on Delivery Charges & Fuel Surcharges

Transportation and delivery charges are exempt from sales tax, as long as they are:

  • separately stated and
  • reasonable in amount and
  • directly related to the cost of transportation.

“Delivery charges” means the amount(s) charged by a seller for preparation and delivery of personal property to a location designated by the purchaser. This includes, but is not limited to, charges for transportation, shipping, postage, handling, crating, and packing.

Fuel surcharges billed to customers must meet these same requirements to be exempt.

Fuel surcharges related to the cost of transportation are typically based in some way on the distance traveled. This might include a specific "per mile" charge or perhaps differing surcharge amounts based upon certain "ranges" of miles traveled. Fuel surcharges assessed in this manner are exempt from sales tax assuming they also meet the requirements of being separately stated and reasonable in amount.

A fuel surcharge that is imposed as a "flat fee" (the same amount charged to all customers without regard to the distance traveled) or calculated as a percentage of the cost of the good to which it applies is not considered part of exempt transportation or delivery charges, and is taxable.

Snow Removal

Snow removal is not subject to Iowa sales tax.

Sales/Use Tax Issues Related to Erosion Control

“Erosion control” work may include a number of services that are subject to Iowa sales tax, such as landscaping, excavating and grading. Often a developer will call an erosion control company to come in and do erosion control in preparation of building. At times, building will commence immediately – other times construction will be months away.

Services performed on or in connection with new construction are exempt from tax; whereas, taxable services performed in other circumstances are not exempt. The determination as to when erosion control services may be treated as occurring on or in connection with new construction is dependent upon the facts of each situation.

As a general rule, labor performed as part of erosion control, either during or immediately prior to or after construction, is considered performed on or in connection with that new construction. Erosion control work done at a time interval more distant from the actual construction – either prior or subsequent – is typically not treated as performed on or in connection with that construction, and tax should be collected from the developer/landowner on any taxable services provided.

Materials used in erosion control can include drainage pipe/tile/intakes, silt fence/posts, ground covering fabric, seed, mulch and sod. These materials are normally subject to Iowa sales/use tax. Whether they are taxable to the erosion control company or to the developer/landowner is again dependent upon the facts of the case.

The seed, mulch and sod are considered landscaping materials, and as such are purchased tax free for resale by the erosion control company. Tax is then collected from the developer/landowner on these items, whether used in connection with new construction or not. However, it is important to itemize the taxable landscaping materials separately from exempt labor being performed in connection with a construction contract. If labor and landscaping materials are not separately itemized, tax must be collected from the developer/landowner on the entire bill.

The other materials mentioned are taxable to the erosion control company if they become permanently affixed to real property. In that case, they are considered to be building materials taxable to the installer. Other materials that will later be removed are taxable to the developer/landowner as the sale of tangible personal property and tax should be collected from the developer/landowner on those items, whether or not transferred to them in connection with new construction.

The distinctions between these various situations can be difficult to determine and, as previously mentioned, are based upon the facts of each case. If you have questions, please contact the Department.

Local Option Taxes –
Impact of Nexus, Delivery, and Sales Tax vs. Use Tax

Nexus is a term that simply means the seller has sufficient activity in Iowa to be responsible for the collection of Iowa tax on sales of tangible personal property and taxable services for use in Iowa . Nexus itself does not determine the applicability of local option taxes.

Delivery is the key to determine if a transaction is subject to local option taxes. If delivery occurs within a local option jurisdiction, the local option sales tax may be due. If delivery does not occur in a local option jurisdiction, local option tax is not 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 is considered to take place at the place of transfer. Finally, if the seller transfers the property to a common carrier or the U.S. Postal Service for subsequent transport to the buyer, the delivery of the property 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 an FOB or FAS designation will determine whether it is a sales tax or a use tax, and whether local option applies.

Sales Tax vs. Use Tax is another important distinction in determining whether local option taxes are imposed.

Local option taxes are sales taxes; therefore, in order for local option taxes to apply, the transaction must be subject to Sales Tax.

There are no local option use taxes; therefore, local option taxes are not imposed on Use Tax transactions.

The following helps to determine if a transaction is subject to Sales or Use Tax:

Transaction

A. Intrastate (in State buyer and seller) – Sales Tax

B. Interstate (in State buyer – out of State seller) – see below

If “Interstate” then consider delivery mode:

1. Vendor's Vehicle – Sales Tax

2. Common Carrier – see below

If “Common Carrier” then consider:

1. With no FOB or FAS – Use Tax

2. With FOB or FAS – see below

If with FOB or FAS, then consider:

1. Origination – Use Tax

2. Destination – Sales Tax

The Department recognizes these concepts can be difficult to interpret. We encourage those with questions to contact us for further guidance.

Rent Reimbursement Claim Forms

The 2007 Rent Reimbursement Claims will be mailed during the first week of January to those individuals who filed a 2006 form.  The forms sent in this mass mailing will be pre-printed with the claimant's name, address and other important information.  It is to the claimant's benefit to use the pre-printed form whenever possible as the information contained on it speeds processing.

Blank 2007 Rent Reimbursement Claims (not pre-printed) will be available on our Web site January 11.  Beginning on the 11th, they will also be available at the Taxpayer Services office located on the fourth floor of the Hoover State Office Building in Des Moines.  

The Rent Reimbursement program is available to individuals whose total household income is less than $19,503 and one of the following applies:

• 65 years of age or older by December 31, 2007, or

• Totally disabled and 18 years of age or older by December 31, 2007.

In addition, the individual must be renting housing in a building subject to property 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.

Contact us

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