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What if a construction contract is entered into prior to the imposition of local option tax?

It makes no difference when the contract is signed or where it is signed. "Delivery" is the taxing event. If tangible personal property subject to state sales tax is delivered into a jurisdiction after the date local option sales tax has been imposed, local option sales tax is due. If a taxable service is rendered, furnished, or performed after the date local option sales tax has been imposed, local option sales tax is due.

What happens with local option tax when a business uses its own inventory?

If a retailer located in a taxing jurisdiction purchases items for resale or processing and later withdraws them from inventory for other purposes, the local option tax for the jurisdiction where the items are withdrawn from inventory is imposed. It does not matter where or when the items were first purchased.

Owners, contractors, subcontractors, or builders purchasing building materials, supplies, and equipment for use in a construction project must pay local option sales tax on these items if they take delivery in a taxing jurisdiction.

What happens when an item is purchased outside Iowa? Would local option sales tax be due?

If the item is brought into Iowa by the purchaser:

No. Local option sales tax can only be imposed when state sales tax is applicable. Iowa does not impose a local option use tax.

If the item is brought into Iowa by the seller in the seller’s own vehicle or common carrier:

Yes, local option sales tax is due if delivery occurs in a local option jurisdiction. See the page on remote sales to determine when retailers must register and collect local option taxes on sales delivered into Iowa.

If residents in a local option tax jurisdiction shop in a city that does not have a local option sales tax, does that mean that they avoid paying the local option tax?

Maybe. If a resident of a taxing jurisdiction takes physical possession of the item in a non-taxing jurisdiction, no local option tax can be imposed. However, if the Iowa seller delivers it by the seller’s vehicle or through a common carrier to the purchaser who lives in a local option tax jurisdiction, then the seller must collect the local option tax applicable in the buyer’s location.