In 2018, the Iowa legislature passed a new law, SF 512, effective July 1, 2018, which creates a Water Service Excise Tax (WET). Prior to the enactment of this law, the sale of water was subject to the 6% state sales tax. The WET exempts the sale of water service from state sales tax, but imposes a 6% excise tax on the sale of water service.
Some entities that make sales of water service and other goods or services will now have to separately collect and remit the 6% excise tax on water service sales in addition to state sales tax on other goods or services. For example, if an entity that sells both sewage and water services is currently collecting and remitting state sales tax on sewer charges to nonresidential commercial customers, they will continue to collect this portion as sales tax plus any applicable local option sales tax. However, the entity will no longer collect state sales tax on the sale of water service, but will collect the WET on the sales of water service.
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