A Direct Pay Permit allows qualified purchasers, users, and consumers of tangible personal property, specified digital products, or taxable services to remit sales and use tax, including any applicable local option tax (LOST), directly to the Department rather than to their suppliers. To qualify for a direct pay permit, both of the following must be met:
- The applicant must be a purchaser, user, or consumer of tangible personal property, specified digital products, or taxable services; and
- The applicant must have a sales and use tax liability on consumed goods of $4,000 in a semimonthly period.
A Direct Pay Permit holder may have an obligation to remit sales tax (plus applicable LOST) or use tax depending on the nature of the transaction. Permit holders who engage in multiple transactions, some requiring remittance of sales tax (plus applicable LOST) and some requiring remittance of use tax, must record the appropriate tax types due on a single return.
Whether you owe sales or use tax depends on whether or not your supplier has physical or economic nexus in Iowa. Ask your supplier about their sales tax obligations in Iowa, and review the Department’s guidance on collection obligations for remote sellers. You can also search the State’s Retail Sales and Retail Use Business Registrations database to see whether your supplier has an active sales or use tax permit. This list is updated monthly. The Department recommends checking your supplier’s status periodically as their permit type may change over time.
Suppliers with a physical presence in Iowa
If you and your supplier have a physical presence in Iowa, you must remit sales tax (plus applicable LOST).
Suppliers with no physical presence in Iowa (Remote Sellers/Suppliers)
If your supplier lacks a physical presence in Iowa, then whether you owe sales or use tax depends on if your supplier has economic nexus in Iowa—that is, if your supplier’s remote sales meet the sales or transactions thresholds that trigger a collection obligation in Iowa.
Example: Company A is a Direct Pay Permit holder located in Iowa. In the fiscal year at issue, Company A makes $150,000 worth of purchases on taxable products in the following transactions:
- Company A purchases $50,000 worth of products from Supplier X, who has physical presence in Iowa;
- Company A purchases $50,000 worth of products from Supplier Y, who only has economic nexus in Iowa (meets the $100,000 threshold, but lacks a physical presence in Iowa); and
- Company A purchases $50,000 worth of products from Supplier Z, who does not have nexus with Iowa (does not meet the $100,000 threshold and does not have a physical presence in Iowa).
The taxes that Company A must remit on its purchases are as follows:
- Company A must remit sales tax (+ LOST) on the $50,000 in products from Supplier X;
- Company A must remit sales tax (+ LOST) on the $50,000 in products from Supplier Y; and
- Company A must remit use tax (NO LOST) on the $50,000 in products from Supplier Z.
Negotiated Rate Agreements
Direct Pay Permit holders may enter into a negotiated rate agreement with the Department. In a negotiated rate agreement, the permit holder and the Department may agree to calculate the sales tax, use tax, or LOST due on qualified purchases on an alternative basis. For more information about negotiated rate agreements, see Iowa Administrative code rule 701–202.6.