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
Change to Iowa Withholding Tables
withholding tax tables will NOT change for 2008. Please continue
to use the current tables, which became effective April 1, 2006.
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.
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 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
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.
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.
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 is not subject
to Iowa sales tax.
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
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
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.
Option Taxes –
Impact of Nexus, Delivery, and Sales Tax vs. Use Tax
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
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
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
The following helps to determine
if a transaction is subject to Sales or Use Tax:
(in State buyer and seller) – Sales Tax
B. Interstate (in State buyer – out
of State seller) – see below
If “Interstate” then consider
Vehicle – Sales Tax
Carrier – see below
If “Common Carrier” then
1. With no
FOB or FAS – Use Tax
FOB or FAS – see below
If with FOB or FAS,
1. Origination – Use
2. Destination – Sales
The Department recognizes
these concepts can be difficult to interpret. We encourage those with
questions to contact us for further guidance.
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.
about Iowa taxes
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