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Declaratory Order - Security National Bank

Docket No. 04-30-6-0140

On December 9, 2004, the Director for the Iowa Department of Revenue issued a Declaratory Order regarding whether the Petitioner is entitled to a refund for sales tax alleged to have been erroneously paid for some of the investment services provided by Security National Bank (Petitioner). The Petitioner offers various investment services, but only two of the services were the subject of the Declaratory Order. The first service at issue concerned the sole discretion investment services and the other service was the courtesy consult investment service. 

To initiate the investment services offered by the Petitioner, the Petitioner requests that the customer complete a worksheet to determine the client’s investment objectives and risk tolerance. The worksheet also assists the Petitioner in determining the target asset allocation for the client. On this worksheet the client also selects the extent of control the Petitioner has over the client’s investments. One type of investment service at issue is sole discretion in which the Petitioner takes full control over the investments of the customer, within the tolerance threshold of the customer, but without any addition consultation with the customer. The second type of investment service of concern is termed “courtesy consultation”. In this service, the customer is consulted before each investment is performed. The customer has full control over whether each investment is performed or not.

Based on these facts, the Director held that the Petitioner is engaged in the taxable service of investment counseling pursuant to Iowa Code section 423.43(6)(2004), formerly Iowa Code section 422.43(11)(2003) for the courtesy consult investment services, but not for the sole discretion investment contracts. Consequently, the entire gross receipts paid by the clients to the Petitioner for the courtesy consult were properly subject to Iowa tax. However, the customers of the Petitioner are entitled to a refund of Iowa sales tax on the sole discretion investment contracts.