<%@LANGUAGE="JAVASCRIPT" CODEPAGE="1252"%> Iowa Department of Revenue electronic newsletter: Iowa Tax eNews
DECEMBER 2009
graphic for Iowa Department of Revenue Tax eNews electronic newsletter


Message from the Director
:

We enter the tax season with reduced staffing levels and no temporary employees due to budget constraints. We apologize for the inconvenience and understand the impact on paper return filers. Electronic filing and payment will speed up processing. Anything you can do to increase the number of electronic filings will be greatly appreciated.graphic promoting electronic filing

In our last newsletter we listed common income tax errors. This time we are providing common e-filing errors. If we can correct these errors prior to filing, you have less work and we have less work. We will both operate more efficiently.

Most common “e” income tax filing errors:

  • Complete the county and school district information in Step 1. Enter the applicable school district surtax/EMS surtax on line 55 of the IA 1040.
  • Make sure the estimated payments claimed on the return match what was paid.
  • Do not mail a paper copy of the return after submitting your return electronically.

Most common eFile & Pay sales tax filing errors:

  • Enter the taxable sales subject to Local Option and Sales by County for the filing period.
  • Below line 6a, click the button: Local Option/Sales Entry Schedule Click Here to complete taxable sales information by county.
  • Verify the county name(s) used to report Local Option and Sales by County information.
  • Room rentals are reported on Schedule A only. Do not report these sales again on line 1 of the Sales Tax Return.
  • Enter the total gross sales for the entire quarter on line 1 of the return. Enter any sales that are exempt from tax on line 4. Take credit for any payments made during the quarter on line 8.

Most common eFile & Pay withholding tax filing error:

Enter the total tax withheld for the entire quarter on line 1 of the return.  Take credit for any payments made during the quarter on line 2.

Most common eFile & Pay user issues:

  • The Business eFile Number (BEN) is needed to access eFile & Pay. The 8–digit BEN was sent in the mail.
  • The User ID is assigned by the system. It is “0001” for the first person in your company to access eFile & Pay.
  • An 8-character password is chosen by the first person in the company to access eFile & Pay. If you do not know your password, please contact the eFile Service Unit for assistance.
  • On eFile & Pay, a return must be submitted before a payment can be made for that period.

Thanks for your help in filing correctly.

Mark R. Schuling
Director

End-of-Year Reminders to Withholding Filers Snow Removal Purchases by Farming Operations
Individual Income Tax Update Labor: Is it taxable? Classes about Iowa taxes
Local Option Sales Tax (LOST) News Contact Us Sales Tax on Items Purchased by those Performing Services

End-of-Year Reminders to Withholding Filers

With the end of the year approaching, you will want to file your Iowa Verified Summary of Payments Report (VSP) through eFile & Pay. The VSP must be filed by March 1, 2010.

Iowa does not require you to send in copies of the W-2s or 1099s. Employers are, however, required to keep copies for four years.

The federal government requires employers to provide W-2s and 1099s to employees no later than January 31, 2010, for tax year 2009. W-2s and 1099s are federal forms and can be obtained through the IRS Web site, or by calling the IRS at 1-800-829-3676, or by purchasing them through an office supply company.

The Iowa withholding tax tables will NOT change for 2010. Please continue to use the current tables, which became effective April 1, 2006.

The Iowa W-4 for 2010 (pdf) is now online.

Individual Income Tax Update

Our 2009 Expanded Instructions are now online; please see our individual income tax forms page. Be sure to read What's New.

Electronic filing begins January 15. We will have a link to eFile choices on our home page. Some taxpayers will qualify to file both the federal and Iowa returns free.

Local Option Sales Tax (LOST)

New Jurisdictions

On January 1, 2010, businesses in new local option jurisdictions and businesses delivering into these jurisdictions will begin collecting local option sales tax on their taxable sales.

Impact of Nexus and Delivery on LOST

Nexus is a term that simply means a seller has sufficient activity in Iowa to be required to collect Iowa tax on sales of tangible personal property and taxable services for use in Iowa. Nexus itself does not determine how local option tax applies.

Delivery is the key to determine if a transaction is subject to local option tax. If delivery does not occur in a local option jurisdiction, local option tax is not due. If delivery occurs within a local option jurisdiction, the local option sales tax may be 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 takes place at the location of transfer.

Finally, if the seller transfers the property to the buyer by common carrier or the U.S. Postal Service, delivery 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 it will determine if a sales tax or a use tax applies, and if local option tax applies.

Sales or Use Tax and LOST

Whether or not the tax is a sales tax or a use tax is another important distinction in determining if local option tax is imposed.

Local option tax is a sales tax; therefore, in order for local option tax to apply, the transaction must be subject to sales tax.

There is no local option use tax; therefore, local option tax is not imposed on use tax transactions.

The following helps to determine if a transaction is subject to sales or use tax and, therefore, local option tax.

Type of Transaction

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

B. Interstate (in-state buyer – out-of-state seller) – See below

Consider how it is delivered:

1. Vendor's Vehicle – Sales Tax

2. Common Carrier – See below

Consider:

1. With no FOB or FAS – Use Tax; no LOST

2. With FOB or FAS – See below

Consider:

1. Origination – Use Tax; no LOST

2. Destination – Sales Tax

The Department knows these concepts can be difficult to interpret. We encourage you to contact us if you have questions.

Snow Removal

Snow removal is not subject to Iowa sales tax.

The service of applying sand, salt, or ice-melt is likewise not taxable.

However, the materials applied – sand, salt, ice-melt – are taxable products. Sales tax is due on these materials.

  • When the snow removal business applies these materials for their customer and does not make a separately itemized charge for them, that business is the consumer of the materials and owes sales tax to their supplier when they are purchased. No tax is charged to the snow removal business’ customer for services or materials.
  • In some cases, the snow removal business may separately itemize charges to their customer for the materials. If so, the business may be able to purchase the materials for resale and not pay sales tax to their supplier when three conditions are met.

    1. They and their customer must agree that the product is being sold separately from the service, and

    2. The product must be sold to the customer in a definite form or amount and with a specific price attached, and

    3. The cost of the product must be itemized on the bill.

When purchasing products for resale, a valid Sales Tax Exemption Certificate (pdf) will be provided by the snow removal business to the supplier who sells them the materials. In this situation, the snow removal business must charge sales tax to their customer on the materials, but not on the services.

Labor: Is it taxable?

Certain "enumerated" (taxable) services are commonly performedwith the repair or maintenance of real estate.

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, water softeners

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 is 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 pays 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 is considered an “improvement.” The company providing the labor and materials to install the new furnace pays 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 is considered “repair.” The company doing the installation pays no tax on the materials; however, it will collect tax on both labor and materials from the customer.

Purchases by Farming Operations

Generally, sales and use taxes are not due on the purchase of farm machinery and equipment used directly and primarily in agricultural or livestock production.

However, the purchase of machinery and equipment which will become real property after installation is usually taxable. In general, machinery or equipment is real property if its removal after installation is difficult or if removal substantially lessens the value of the machinery or the location where it was placed. Building materials, including materials used to construct permanent fencing, are normally subject to tax.

There are exceptions to this general rule for certain items. For example, drainage tile is exempt from tax. Also exempt for livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants, are auger systems, curtains and curtain systems, drip systems, fans and fan systems, shutters, inlets, and shutter or inlet systems, and refrigerators.

Replacement parts used in the operation of eligible farm machinery or equipment are exempt from sales tax. Oil filters, spark plugs, gas filters, and tires are examples of exempt replacement parts.

Do not confuse replacement parts with supplies, most of which are taxable. Oil, grease, and paint used in routine maintenance, for example, are not considered parts; they are considered supplies. They are taxable.

See the Farmers Guide to Iowa Taxes for more details.

Sales Tax on Items Purchased by Those Performing Services

Tangible personal property purchased by a person who is engaged in the performance of a service may be purchased for resale and is not subject to tax if (1) both the provider and the user of the service intend that the property will be sold, (2) the property is transferred to the customer in a form or quantity capable of a fixed or definite price value, and (3) the sale of the identifiable piece or quantity of property is evidenced or shown by a separate charge.

Tangible personal property not sold as specified above is considered to be consumed by the purchaser who is engaged in performing a service and is subject to sales/use tax at the time of purchase.

Example 1

A beauty or barber shop purchases shampoo and other items to be used in the performance of its service. Tax is due at the time the shop buys the items from its supplier. Tax is due because the items are not transferred to the customer in a form or quantity capable of a fixed or definite price value and because the items are not specifically invoiced.

Example 2

A car wash purchases water, electricity, or gas used in the washing of a car. The car wash would be the consumer of the water, electricity, or gas, and tax is due at the time of purchase. The items purchased by the car wash are not transferred to the customer in a form or quantity capable of a fixed or definite price value, and the customer is not billed for the items.

Example 3

A jeweler purchases materials such as main springs and crystals to be used in the performance of a service. These items can be purchased by the jeweler tax free for resale when they are transferred to the customer in a form or quantity capable of a fixed or definite price value, and each item is actually sold to the customer as indicated by a separate charge.

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.

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