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Declaratory Order - Kum and Go, LC

Docket No. 07-30-6-0011

On March 22, 2007, the Director for the Iowa Department of Revenue issued a Declaratory Order in the above-referenced matter. The Petitioner owns and operates convenience stores throughout Iowa and in 12 other states in the United States. The petitioner sells self-service gasoline and offers “pay at the pump” service for the convenience of the Petitioner’s customers.  The Petitioner’s issues pertained to the classification of materials and equipment as tangible personal property or real property when constructing the underground fuel storage system, fuel distribution system and the canopy and pumping island at the Petitioner’s retail stores. The first issue is whether a contract to provide materials and construct an underground fuel storage system and dispensing system for the Petitioner is the sale of real property. In response, the Director held that the building materials become integrated into the structure and the realty on which the storage, canopy and distribution systems are being constructed. As a result, the building materials are subject to tax when sold to the contractor and the contractor should adjust the contract price to factor the tax in as a cost when preparing the contract for bid pursuant to 701 IAC 219.2(423).

The second issue proposed by the Petitioner is when a contractor provides the building materials and uses these materials to construct a fuel storage and dispensing system, should the contractor pay sales/use tax on the acquisition costs of the materials used to fulfill the construction contract and not charge sales/use tax on the construction contract invoices?  Regarding this issue, the Director stated that these building materials are items of tangible personal property that become realty and are subject to Iowa sales or use tax at the time the contractor purchases the items or the contractor withdraws the items from inventory for installation.