Docket No. 04-30-6-0100
On September 15, 2005, the Director for the Iowa Department of Revenue issued a Declaratory Order regarding whether subsequent to July 1, 2004, (the implementation of Streamlined Sales Tax), are sales of products shipped from facilities outside of Iowa, regardless of FOB terms or other shipping instruction, subject to local option taxes. The Petitioner in this case is a manufacturer and has manufacturing facilities in and outside of Iowa. The Petitioner has sales tax nexus with Iowa and most of the orders for the Petitioner's products are placed and accepted in Iowa. When products are sold by the Petitioner, the products can be shipped from an Iowa location or one outside of the state. When shipping products the Petitioner utilizes FOB origin and FOB destination terms in its sales agreements.
Under Iowa Code section 423.25(2005), because the order is placed and accepted in Iowa with an Iowa manufacturer, the transaction is sourced to Iowa as having the jurisdiction to tax the sale. Next, it must be determined if Iowa sales or use tax is due on the transaction. Due to the fact that the transaction involves an Iowa manufacturer, and Iowa retailer, an Iowa purchaser with an order being placed and accepted in Iowa, Iowa sales tax and local option taxes are due on the transaction. The fact that the products is being shipped from out-of-state does not change the character of it being a sales tax transaction, regardless of whether the delivery of the product is made by common carrier or by the Petitioner's own vehicle.
Use of delivery terms such as FOB or FAS designation in transportation agreements by the parties will not change the sourcing of the transaction as set forth in Iowa Code section 423.15(2005). However, the use of such delivery instructions can determine whether a particular transaction is subject to Iowa use or sales tax. If the orders is placed and accepted outside of Iowa and delivery is from outside of Iowa, whether the transaction constitutes a sales or use tax will depend upon the factual circumstances surrounding the transaction, including the means of delivery and the use of delivery instructions. For instance, if the order, accepted and delivery of the product is from outside of Iowa and delivery is accomplished via a common carrier with FOB origination, the transaction will be considered a use tax and will not be subject to any local option taxes. If delivery is by common carrier or the Petitioner's own vehicle with an FOB destination, then Iowa sales tax is due along with applicable local option taxes.