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Iowa Sales and Use Tax Guide

This publication is intended as a general guide, and is not an all-inclusive discussion of Iowa sales and use tax law. For additional assistance, contact Taxpayer Services by email or call 515-281-3114 or 1-800-367-3388 on specific issues that apply to your business situation.

Sales Tax Permit
Other Types of Permits
Streamlined Sales Tax
Personal Liability for Paying Taxes
Taxes and Tax Rates
Purchase Price / Sale Price
Return Filing
Filing Frequency
Common Problems with Completing the Return
Penalty and Interest
Bond Requirements
Keeping Records
Audits and Appeals
Refunds
Exemption Certificates
Common Questions - Taxable or Exempt?

Sales Tax Permit Information

Obtaining a Permit

A retail sales tax permit is not a license to purchase items tax free. It is a permit to collect and remit sales tax.

Anyone selling taxable goods or services from an Iowa location must obtain a sales tax permit.

A sales tax permit must be obtained for each Iowa business location.

You have two options to apply for a permit:

There is no charge for a permit. You will be mailed a letter containing your Business eFile Number (BEN), your permit number, and a printed permit. You are not required to display the printed permit; however, it should be readily available to prove you have one.

Once issued, a sales tax permit is effective until it is canceled by the retailer or revoked by the Department.

You may begin making sales and collecting sales tax as soon as you submit an application; you do not have to wait to receive your permit number.

Not sure you need a permit? Contact Taxpayer Services by email or call 1-800-367-3388 or 515-281-3114.

Loss or Destruction of Permit

Contact the Department if your active permit is lost or destroyed and we will provide another copy of the letter containing your Business eFile Number (BEN), your permit number, and a printed permit. Send an email to (idr@iowa.gov) and provide the following information in your email request: 

  1. Business name on your Iowa sales tax permit
  2. Iowa sales tax permit number (9 digits)
  3. Your name
  4. Your 10-digit phone number
  5. Your email address

Consolidated Permit for Multiple Locations

If a business has two or more sales tax permits, it may request to file one consolidated return on the Business Tax Registration form.

Changing Business Information

Notify the Department when any of the following changes:

  • Business name
    • A new permit is not required when a business name changes, unless due to an ownership change.
  • Mailing address
    • A new permit is not required when a mailing address changes.
  • Location of the business
    • When the new location is in the same county a new permit is not needed.
    • If the new location is in a different county, the owner must cancel the current permit and apply for a new one.
  • Ownership of the business
    • If the owner or type of ownership changes, the sales tax permit must be canceled and a new permit applied for. For example, if ownership of a business changes from a sole proprietor to a partnership.
    • The permit is not transferable from one owner or ownership type to another.

You have two options to notify the Department:

Temporary Businesses

As of July 1, 2016, the Department no longer issues temporary tax permits. Vendors who used temporary permits in the past should apply for a permanent Iowa tax permit. A permanent tax permit allows you to conduct taxable sales or perform taxable services in Iowa at any time during the year. When you attend a temporary event, such as a craft show, you only need to provide the event sponsor with your name and address, along with your permanent tax permit number.

Not sure you need a permit? Contact Taxpayer Services by email or call 1-800-367-3388 or 515-281-3114.

Temporary Event Sponsors

Sponsors of flea markets, craft shows, antique shows, and other temporary events may be liable for the sales tax, penalty, and interest of the retailers selling at the event.

Read SPECIAL EVENTS – SALES/USE TAX PERMITS

Denying a Permit

The Department may deny permits to applicants who:

  • Are currently substantially delinquent in paying any tax, interest, or penalty, or
  • Had a previous delinquent liability with the Department.

The application of a partnership may be denied if a partner:

  • Is delinquent, or
  • Had a previous delinquent liability with the Department.

The application of a corporation may be denied if an officer having substantial legal or equitable interest in the ownership of the corporation:

  • Owes any delinquent tax, penalty, or interest, or
  • Had a previous delinquent liability with the Department.

A permit may be denied to any individual applicant if:

  • The Department has received a Certificate of Noncompliance from the Child Support Recovery Unit

Revoking a Permit

The Department may revoke the permit of a permit holder who is substantially delinquent in paying any tax, interest, or penalty.

Once revoked, it may take 90 days before the permit can be restored or a new permit issued. Anyone knowingly making sales after a permit has been revoked and before it is restored may be found guilty of an aggravated misdemeanor.

A revoked permit will not be reinstated to an individual if the Department receives a Certificate of Noncompliance from the Child Support Recovery Unit.

Other Types of Permits

Use Tax Permits

When a taxable service or sale of tangible personal property is subject to sales tax but occurs outside of Iowa for use in Iowa, it is usually subject to use tax.

The use tax rate is the same as the state sales tax rate.

Retailer’s Use Tax Permit

Every out-of-state retailer who has “nexus” in Iowa and sells tangible personal property or taxable services in Iowa must obtain a retailer’s use tax permit.

Nexus

Businesses located outside of Iowa that have representatives and/or employees in Iowa to maintain, establish, or further their market share within the state have nexus. Delivery into Iowa by company trucks also establishes nexus.

Consumer’s Use Tax Permit

Persons regularly purchasing taxable goods or services for their own use in Iowa from an out-of-state source not collecting Iowa tax must obtain a consumer’s use tax permit.

See Iowa Consumer's Use Tax. (78-535)

Direct Pay Permit

A few qualified purchasers, users, and consumers of tangible personal property or taxable services may remit the tax directly to the Department rather than to their suppliers. To qualify for a direct pay permit, both of the following must be met:

  1. The applicant must be a purchaser, user, or consumer of tangible personal property or taxable services, and
  2. The applicant must have a sales and use tax liability on consumed goods of $4,000 in a semi-monthly period.

Application for Direct Pay Permit (pdf)

Streamlined Sales Tax

Iowa participates in the Streamlined Sales Tax Project (SSTP), an initiative to encourage businesses in all states to collect and remit sales tax in every state in which they make taxable sales.

Personal Liability for Paying Taxes

If a corporation, association, or partnership fails to pay sales and use taxes, the officers or partners are personally liable for the tax, interest, and penalty.

A person selling a business must file final tax returns and pay all taxes due. However, the new owner should withhold a sufficient amount of the purchase price to pay any unpaid tax, interest, and penalty in case the seller fails to pay the final tax due. If the new owner intentionally fails to do this, he or she is personally liable for the tax.

Taxes and Tax Rates

State Sales and Use Tax

The state sales tax rate and use tax rate are the same. The rate is 6%.

Local Option Sales Tax

In addition to the state tax, most local jurisdictions impose the local option sales tax. The rate is 1%.

Within a county, some cities may have the local option tax, some may not. Also, the unincorporated rural area of a county may or may not have the tax. A jurisdiction may enact the tax on January 1 or July 1.

For more information, including lists of jurisdictions with the local option tax, see Iowa Local Option Tax Information.

Hotel / Motel Tax

Certain cities and counties in Iowa have adopted a local option hotel / motel tax on the renting of sleeping rooms in any hotel, motel, inn, public lodging house, rooming house, tourist court, mobile home, bed and breakfast, or in any place where sleeping accommodations are furnished to transient guests for rent. This is in addition to the 5% state excise tax on lodging.

The rate of local hotel / motel tax can range from 1 to 7%. Jurisdictions and rates are updated January 1 and July 1 of each year.

The 5% state excise tax and local hotel / motel tax are reported and remitted on the quarterly sales tax return. No permit other than an Iowa sales tax permit is required to collect and report these taxes.

See Iowa Hotel and Motel Tax Questions and Answers.

Motor Vehicle One-time Registration Fee

Purchases

Sales of vehicles subject to registration are exempt from sales tax, but are subject to a 5% one-time registration fee.

See Iowa Vehicle Purchase and Lease Information and Forms.

Leases

A leased vehicle is subject to the one-time registration fee if:

  • It has a gross vehicle weight rating of less than 16,000 pounds and
  • It is to be leased for a period of 12 months or more

The 5% fee is computed on each lease transaction based on the lease price. The lease price includes the number of months of the lease multiplied by the monthly lease payments, plus certain adjustments.

See Iowa Vehicle Purchase and Lease Information and Forms.

Automobile Rental Tax

The rental of automobiles for a period of 60 days or less is subject to an automobile rental tax of 5%. This is in addition to the state sales tax and any applicable local option tax.

The tax applies to vehicles designed to carry nine or fewer passengers. It does not apply to delivery trucks designed to carry cargo or to motorcycles or motorized bicycles.

The automobile rental tax is reported and remitted on the quarterly sales tax return. No permit other than an Iowa sales tax permit is required to collect and report this tax.

See Vehicle Rental - Sales, Use, and Automobile Rental Tax (78-497)

Purchase Price / Sale Price

The basis for Iowa tax is the purchase or sale price of personal property or taxable services.

  • “Purchase price” or “sale price” means the total amount of consideration for which personal property or services are sold, leased, or rented.
  • "Consideration" includes cash, credit, property, and services.

Sales of tangible personal property in Iowa are subject to sales tax unless exempted by state law.

Sales of services are exempt from Iowa sales tax unless taxed by state law.

The retailer must add the tax to the price and collect the tax from the purchaser. The retailer cannot indicate that the sales tax is being “absorbed.”

A retailer may include the tax in the price, but must post a notice or make a statement on the invoice that the purchase price includes the sales tax. This is typically done when selling alcoholic beverages or admissions to movie theaters or sporting events.

Sales tax is applied and due when the first use of taxable services occurs, or potentially could occur or when taxable goods are delivered, not when payment is received from the customer.

Return Filing

It is important to file the return and pay the tax by the due date to avoid penalty and interest. A return must be filed with zeros if a business does not have sales to report.

eFile & Pay

Iowa sales and use tax returns are filed electronically through eFile & Pay.

Due Dates

If a due date falls on a weekend, federal holiday, or legal holiday as defined in Iowa Code section 4.1(34), the taxpayer has until the following business day to file the return and remit payment to the Department. If filing on paper, the postmark date is accepted as the filing date.

Due Date Calendars

Filing Frequency

When applying for a permit, a retailer estimates the amount of sales tax to be collected. Local option tax collections are not included in the amount. The filing frequency is based on the estimate.

See Filing Frequencies and Return Due Dates.

Changing the filing frequency

The filing frequency may need to be changed if tax collections increase or decrease substantially over multiple filing periods. Retailers can request the change online or by using form 92-033, Request for Change, Correction or Cancellation of Tax Permit (pdf). In addition, the Department may change the filing frequency.

Returns must be filed as usual until the filing frequency is changed. The change is usually effective at the beginning of the next year or quarter.

Common Problems with Completing the Return

Goods Consumed (line 2)

“Goods consumed” are items originally purchased tax free for resale or to be incorporated into a product for resale, but they were used in the course of business or for personal use instead. You are also allowed to include on this line occasional taxable purchases that you make where sales tax is not collected by your supplier. Normally these purchases would be reported on a consumer’s use tax return.

Example

A hair salon purchases bottles of shampoo to be sold out of a display case. The salon did not pay sales tax to its supplier since it intended to resell the shampoo. However, several bottles were used by the salon in the performance of their service. The shampoo that was used is goods consumed. The salon must report the price it paid to its supplier on the goods consumed line of the return and pay tax on it.

Example

A clothing store purchases suits tax free for resale. The owner of the store needs a new suit. The suit removed from inventory is goods consumed. The price the owner paid to the supplier must be reported, and the tax must be paid.

Example (not goods consumed)

A person who makes craft items to be sold at craft shows does not pay sales tax to suppliers for materials. These materials are incorporated into the craft items to be sold. They are not goods consumed and should not be reported on line 2.

Exemptions (line 4)

"Exemptions" are sales made by you on which tax was not required to be charged. Exemptions not the same as deductions on income tax returns. Business expenses are not included as exemptions on the sales/use tax return.

The following should be included on line 1, gross sales, and then exempted on line 4 of the return.

Interstate Commerce:

Sales made where delivery occurred outside Iowa.

New Construction:

Sales of taxable services performed on or in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure. (This does not include sales to contractors who have a special “exempt entity” exemption certificate. These sales are shown in the “Other” category.)

Industrial Machinery, Equipment, and Computers:

Sales of exempt industrial machinery, equipment, and computers. This includes qualifying items used directly and primarily in a manufacturing process and computers used by a commercial enterprise.

Resale:

Sales of items that will be resold in their present form by the purchaser.

Processing:

Sales of items that will be incorporated into another item for resale by the purchaser.

Residential Utility:

Sales of metered gas, electricity, and fuel used as energy in residential dwellings. (You do not need exemption certificates to support this exemption.) Note: These sales are subject to local option tax.

Sales Tax Holiday:

Sales of qualifying clothing and footwear during the annual sales tax holiday. (You do not need exemption certificates to support this exemption.) The annual tax holiday is the first Friday and Saturday in August.

Other:

Any exempt sales made during the period that do not fall into any of the previous categories. Keep a record of this category, including a brief description of the item.

Local Option Sales Tax (LOST)

Filers complete a separate section of the return to report local option sales tax. Everyone with sales reported on line 5 of the quarterly sales tax return must complete the Local Option / Sales Entry Schedule, even if no local option tax is due.

See Q&A on completing the local option section of the return.

Tax Included in the Price

If sales tax is included in the selling price of the item or service, the tax needs to be backed out to arrive at the true gross receipts on line 1.

If only the state sales tax of 6% applies, divide the gross receipts by 1.06 as shown in the example below. If a 1% local option tax applies, divide by 1.07.

For example: A retailer includes the 6% sales tax in the price of all goods and services. In this example, assume local option sales tax does not apply. The taxable gross receipts are $17,250. Divide $17,250 by 1.06. The result - $16,273.58 - is the amount to be written on line 1 of the return.

Penalty and Interest

If you fail to file a return on time or if you fail to pay the tax due, penalty and / or interest may apply .

Interest accrues from the due date until paid. The interest accrues every calendar month or a fraction of the month. Interest rates change yearly.

Bond Requirements

Failure to post a bond when required may result in the revocation of an existing permit or denial of a permit application.

Applicants

The Department may require a bond of an applicant if:

  1. The applicant or an active officer of the corporation has held a previous permit and has an unfavorable filing and remittance record for prior tax obligations, or
  2. The applicant or an active officer of the corporation has held a previous permit and has experienced prior collection problems, or
  3. The Department has knowledge that the applicant may be financially unable to remit the tax by the date due.

Existing Permit Holders

Existing permit holders may be required to post a bond under the following conditions:

  • Quarterly Filers - two or more delinquencies in a 24-month period
  • Monthly Filers - four or more delinquencies in a 24-month period
  • Semi-monthly Filers - eight or more delinquencies during a 24-month period
  • If the retailer has made recurring tax payments with returned checks

Bond Amount

When the Department requires a bond, the minimum amount is determined as follows:

  • Quarterly Filers: The bond equals the sales tax liability typically filed in three filing quarters.
  • Monthly Filers: The bond equals five months of sales tax liability.
  • Semi-monthly Filers: The bond equals three months of sales tax liability.
  • Annual Filers: The bond equals one year of tax liability but no less than $100.

The Department may require a larger amount if necessary. No bond is less than $100. The Department accepts cash, cashier’s checks, certificates of deposit, and surety bonds; personal checks are not accepted.

Keeping Records

Records must include the normal books of account ordinarily maintained by a person engaged in business activity. This includes all bills, receipts, invoices, cash register tapes, or other documentation. These may be maintained in an electronic format.

Records are required to be maintained for at least three years. In the event of an audit, the Department may request records for a longer period of time if returns have never been filed.

Audits and Appeals

The Department may audit a return anytime within three years. However, the period for audit is unlimited if a return was filed falsely or fraudulently with the intent to evade tax, or if no return was filed.

Permit holders have the right to contest an assessment, denial of a refund claim, or any other Department action, except licensing. Protests must be filed with the Department’s hearing officer within 60 days of the assessment notice date or denial of the refund claim. If a proper protest is not filed, the Department may either require a proper protest or dismiss the protest for failure to comply. If a protest is not filed timely, the Department assumes that the permit holder does not oppose the assessment.

All protests must be filed by certified mail (return receipt requested) or personal delivery to the Department during business hours.

See Appeals and Protests.

Refunds

A refund can be made only to the person who actually paid the tax, which in most cases is the customer.

The customer may request a refund of tax paid in error on IA 843 Claim for Refund. Claims for refund should be filed with the Department within three years of the date the tax payment was due.

Racks, Shelving and Conveyor Equipment

Racks, shelving, and conveyor equipment purchased by certain warehouses and distribution centers may be eligible for a refund of the sales tax paid on their purchase price.  Businesses approved under the New Jobs and Income Program (NJIP), the Enterprise Zone Program (EZ) and New Capital Investment Program (NCIP) may qualify for a sales tax refund.  Contact the Iowa Economic Development Authority to determine if your warehouse or distribution center qualifies for a sales tax refund through one of these programs.  

Exemption Certificates

A seller must obtain a properly completed Iowa Sales Tax Exemption Certificate from any purchaser claiming exemption from sales and use tax.

Exemption Certificate (pdf)

See Information About Exemption Certificates (pdf)

Common Questions - Taxable or Exempt?

Unless otherwise noted, the tax rate for all taxable items shown below is:

  • 6% state tax, plus
  • Local option tax, if applicable

911 Surcharge

Exempt:

  • The surcharge for “enhanced” 911 emergency telephone service

The surcharge can be no more than $1 per month per telephone access line.

Advertising

Exempt:

  • Envelopes used primarily for advertising
  • Advertising and promotional materials, such as:
    • Seed catalogs
    • Brochures
    • Leaflets
    • Return envelopes, and
    • Other similar materials which are stored in Iowa before being sent for use out-of-state

Agriculture

See Farmers Guide to Iowa Taxes. (78-507)

Aircraft

Taxable:

  • Tax collected by the Iowa Department of Transportation at the time of registration in Iowa

The purchase of an aircraft does not qualify for exemption as a “casual sale.”

Tax Rate

  • 6% state use tax
  • NO local option sales tax

Exempt:

  • If registered out-of-state
  • Exempt only to aircraft used in Interstate Federal Aviation Administration certified air carrier operations:

    • Sale or rental of aircraft (scheduled operation only)
    • Sale or rental of any tangible personal property permanently affixed to any aircraft that is a component part of aircraft (scheduled or nonscheduled operations)
    • Rendering, furnishing, or performing of services in connection with repair, remodeling, or maintenance of aircraft (scheduled or nonscheduled operations)

All-Terrain Vehicles (ATVs)

Taxable:

  • ATVs, including off-road vehicles and off-road motorcycles, if delivery is taken in Iowa or if purchased out-of-state for use in Iowa. ATVs do not qualify for exemption as a “casual sale.”

If sold by an individual, the county will collect the tax upon registration.

 

Exempt:

  • ATVs used primarily in agricultural production. Prior to 7-1-15, ATVs were required to be directly and primarily used in agricultural production to qualify for exemption.

American Indians

Taxable:

  • Purchases by persons who are not American Indians where delivery takes place on the settlement or reservation and
  • Purchases by American Indians where delivery occurs off the settlement or reservation

Exempt:

  • Sales to American Indians where delivery occurs on the American Indian settlement or reservation

Amusement / Tickets or Admissions

Taxable:

  • Places of amusement
  • Fairs
  • Athletic events
  • Amusement devices
  • Games of skill*
  • Games of chance*
  • Raffles*
  • Bingo games*
  • Card game tournaments*
  • Commercial amusement enterprises
  • Fees for participation in any game or other form of amusement
  • Musical devices
  • Weighing machines
  • Shooting galleries
  • Billiard and pool tables
  • Bowling alleys
  • Pinball machines
  • Slot-operated devices
  • Vending machines of all types
  • Devices or systems where prizes are awarded

 

* A state gambling license may be required. Call the Iowa Department of Inspections and Appeals at 515-281-6848.

Exempt:

  • Athletic events of elementary and secondary schools
  • State and county fairs
  • Entry fees if the admission charge is subject to tax

Athletic Fees / Facilities

Taxable:

  • Private club fees paid for participating in athletic sports, fitness centers, or commercial recreation - this generally includes any special assessments
  • Fees paid to cities and counties for participating in any athletic sport.

Boat Sales

Taxable if:

  • Delivery is taken in Iowa
  • Purchased out-of-state for use in Iowa

A boat does not qualify for exemption as a “casual sale.”

If sold by an individual, the county will collect the tax upon registration.

Casual Sales

Exempt:

  • This exemption does not apply to vehicles subject to registration, ATVs, off-road motorcycles, off-road utility vehicles, aircraft, or watercraft.

The Casual Sale Exemption Applies If:

  1. It is a sale of a nonrecurring nature, and
  2. The seller at the time of the sale is not engaged in selling goods or taxable services for profit; or if the seller is so engaged, the casual sale must be outside the regular course of business

Nonrecurring

Two separate selling events outside the regular course of business within a 12-month period

Recurring

Three separate selling events within a 12-month period are considered recurring. Tax applies beginning with the third separate selling event.

When a sale event is planned and occurs consistently over a span of years, the sale is recurring and not casual, even though only one sale event occurs each year.

Outside the Regular Course of Business

Sales of capital assets such as equipment, machinery, and furnishings are usually considered to be outside the regular course of business, and the casual sale exemption applies as long as the sales are nonrecurring.

Selling Property Used in the Course of Business

In addition to the casual sales exemption provisions mentioned above, when a retailer sells all or substantially all of the tangible personal property held or used in the course of business, the casual sale exemption also applies when the following circumstances exist:

  • The trade or business is transferred to another person(s), and
  • The transferee(s) engages in a similar trade or business.

Services Performed by Students

The casual sale exemption also applies when the following circumstances exist:

  • The owner of the business is the only person performing the services; and
  • The owner of the business is a full-time student; and
  • Total gross receipts from the services do not exceed $5,000 for a calendar year. 

Communication Service

Taxable:

  • Sale of intrastate communication
  • Prepaid telephone calling cards and prepaid authorization numbers
  • Intrastate fax services
  • Services of transmitting messages, night letters, day letters, and all other messages of similar nature
  • Sales from coin-operated telephones
  • Telegrams and similar charges
  • Charges for directory assistance if the service is intrastate

Exempt:

  • Sale of interstate communication

Computers and Software

Taxable:

  • Computer hardware (see also exempt section below)
  • Canned software

Exempt:

  • Computer hardware used by a manufacturer, or in the processing or storage of data or information by an insurance company, financial institution, or commercial enterprise
  • Custom software
  • Any software delivered electronically or digitally

See Iowa Sales Tax on Computers. (78-575)

Conditional Sales / Installment Sales

A conditional sales contract allows the purchaser to use the item purchased, but title to the property does not pass to the buyer until a condition has been met – usually full payment of the purchase price. Therefore, an installment sale is a conditional sales contract.

Taxable:

  • The full contract price at the time the purchaser takes delivery of the property

Exempt:

  • Interest and finance charges when separately stated and reasonable in amount
  • The periodic payments made under the contract

Conference and Banquet Rooms

Exempt:

  • The rental of conference rooms and banquet rooms are exempt from state tax, local option tax, and local hotel/motel tax.

Construction Contractors

See Iowa Contractors Guide. (78-527)

Construction Contracts with Designated Exempt Entities

See Construction Contracts with Designated Exempt Entities.

Containers

Exempt when:

(1) sold to retailers or manufacturers for the purpose of packaging or facilitating the transportation of tangible personal property sold at retail or to further transfer the property to the customer in association with the maintenance or repair of fabric or clothing, or

(2) sold to be used directly and primarily in agricultural, livestock, or dairy production:

  • Containers
  • Labels
  • Cartons
  • Pallets
  • Packing cases
  • Wrapping paper
  • Twine
  • Bags
  • Bottles
  • Shipping cases, and
  • Other similar articles

Coupon Books and Gift Certificates/Cards

Taxable:

  • Tax is due at the time the coupon or certificate is redeemed by the customer

Exempt:

  • Coupon books and gift certificates are exempt from tax at the time they are purchased

Discounts, Rebates and Coupons

See Iowa Sales Tax on Discounts, Rebates, and Coupons. (78-628)

Finance Charges

Taxable:

  • Finance charges included in the selling price as a condition of sale

Exempt:

  • Interest or other types of charges that result from selling on credit or under installment contracts if separately stated and reasonable in amount

Florists

Taxable:

  • Orders taken by an Iowa florist and communicated to a second florist in Iowa

The “sending florist” is responsible for collecting the tax.

Exempt:

  • Orders taken by an Iowa florist and communicated to a second florist located outside Iowa for delivery to a point outside Iowa

Food

See Iowa Sales Tax on Food. (78-516)

Freight, Shipping, and Handling Charges

Taxable:

  • Inbound freight or freight-in charges do not fall within the definition of delivery charges, and are taxable when added to the price of a  taxable retail sale. An example of when “freight-in” charges might appear is a situation where a purchaser wishes to buy a product from a retailer, but that retailer doesn't have the item in stock and must order the product. If the retailer prices the product at a certain amount, plus the shipping costs associated with obtaining the product by ordering from their supplier, those associated costs (freight-in) are not exempt delivery charges even if separately stated. These charges reflect the costs a seller may incur to secure possession of the product from their supplier. Exempt delivery charges constitute the costs necessary to transfer the product from the seller to the purchaser.

Exempt:

  • If separately invoiced or separately stated on the bill

Fuel

Taxable:

  • Dyed diesel, unless used for agricultural production or other exempt purpose
  • LPG (propane), unless used for manufacturing or other exempt purpose or to power a registered vehicle

Exempt:

  • Clear diesel and other motor fuel and special fuel if:
    1. The fuel is consumed for highway use, in watercraft, or in aircraft,
    2. The Iowa fuel tax has been imposed and paid, and
    3. No refund or credit of fuel tax has been made or will be allowed

Gambling

See Gambling: Games of Skill or Chance and Raffles. (78-506)

A state gambling license may be required. Call the Iowa Department of Inspections and Appeals at 515-281-6848.

Gifts by Retailer

Taxable:

  • Tangible personal property purchased exempt from tax for the purpose of resale and later given away or donated

The retailer includes the purchase price of the item under “goods consumed” on the sales tax quarterly return.

Government Entities

Taxable:

  • Sales to any municipally-owned public utility engaged in selling gas, electricity, or heat to the general public
  • Sales made by the State of Iowa
  • Sales of utilities and fees for participating in athletic sports made by a county or city

Exempt:

  • Sales to the federal government
  • Sales to any tax-certifying or tax-levying body of the State of Iowa, or governmental subdivision, including:Sales by a county or city – except for utilities and fees charged for participating in athletic sports
    • State Board of Regents
    • State Department of Human Services
    • State Department of Public Health
    • State Department of Transportation
    • Any municipally-owned solid waste facility which sells all or part of its processed waste as fuel to a municipally-owned public utility
    • Regional transit systems, and
    • All divisions, boards, commissions, agencies, or instrumentalities of state, federal, county or municipal government which have no earnings going to the benefit of an equity investor or stockholder

See Iowa Tax Responsibilities of Cities and Counties. (78-526)

See Construction Contracts with Designated Exempt Entities.

Gratuities / Tips

Taxable:

gratuities that are mandatory charges and automatically added to the bill

Exempt:

gratuities given voluntarily by the customer

Greenhouses

Taxable:

  • Heating or cooling office space
  • Repair labor

Exempt:

If used to produce flowering, ornamental or vegetable plants in commercial greenhouses or other places for sale:

  • Fuel used for heating or cooling of production areas
  • Electricity used in production
  • Machinery and equipment used directly and primarily in production
  • Auxiliary attachments
  • Replacement or repair parts
  • Water used for production

Internet

Taxable:

Internet sales of taxable goods delivered in Iowa

Exempt:

  • Internet sales shipped to another state
  • items delivered to the purchaser electronically or digitally
  • Internet access fees

Interstate Commerce

Taxable:

delivery to a buyer in Iowa or the buyer’s agent (other than a common carrier) in Iowa

Exempt under certain circumstances:

  • Services performed on property delivered into interstate commerce, and
  • Tangible personal property delivered into interstate commerce

Delivery into interstate commerce is made when the seller uses his or her own vehicles to deliver the goods out of Iowa or directly assigns goods to a common carrier for shipment out of Iowa.

Laundry

Taxable:

laundering, dry cleaning, pressing, and dyeing

Exempt:

the use of self-pay washers and dryers

Layaway Sales

Taxable:

taxable products purchased on layaway

Tax is reported during the period in which delivery of the layaway occurs, usually when the final payment has been made.

Lease and Rental

Taxable:

  • Equipment and tangible personal property
  • Receipts from the rental of certain motor vehicles subject to registration with a gross weight of 13 tons or less when the lease or rental contract is for a period of 60 days or less
  • Recreational vehicles
  • Lease or rental of film, tapes, discs, records, and other media to the ultimate user, unless the ultimate user will be broadcasting it to the public

Tax Rate

  • 6% state tax, plus
  • Local option tax, if any, plus
  • Automobile rental tax, when applicable

Exempt:

  • Tangible personal property purchased for leasing
  • Film, tapes, discs, records, and other media which can be seen, heard, or read if the sale is to a person regularly engaged in the leasing or renting of these items

Lodging

Taxable:

Sleeping rooms, apartments, or sleeping quarters in any hotel, motel, inn, public lodging house, rooming house, mobile home, tourist court, bed and breakfast, or in any place where sleeping accommodations are rented to transient guests.

Tax Rate

  • 5% state excise tax, plus
  • Local hotel / motel tax, if any
  • Local option sales tax DOES NOT apply to lodging

Exempt:

  • Room rental contracts for periods of more than 31 consecutive days. To qualify for this exemption, the renter must contract to rent for a single period of more than 31 days and cannot accumulate these days.
  • Contracts made directly with the federal government.
  • Renting of sleeping rooms in dormitories and in memorial unions at all universities and colleges located in Iowa.
  • Renting of a room to the guest of a religious institution located on real property exempt from tax as the property of a religious institution, if the reason for renting the room is to provide a place for a religious retreat or function and not a place for transient guests generally

See Iowa Hotel / Motel Tax.

Manufacturing / Industrial

Exempt:

  • Machinery and equipment, including mold-making machinery
  • Replacement parts
  • Energy used in manufacturing/processing
  • Design and installation of new machinery and equipment

See Iowa Sales and Use Tax on Manufacturing and Processing. (78-530)

Medical

Exempt for human use and consumption:

  • Certain medical devices when sold or rented to the ultimate user
  • Oxygen equipment and oxygen; prescriptions not required
  • Insulin, hypodermic syringes, and diabetic testing materials
  • Prescription drugs dispensed by a registered pharmacist or licensed physician, surgeon, dentist, or podiatrist

See Medical Clinics and Related Businesses - Iowa Sales and Use Tax Information. (78-609)

Newspapers

Exempt:

  • Newspapers
  • Free newspapers
  • Shoppers’ guides

Nonprofit Organizations

Taxable:

Tangible personal property or services purchased and used by churches and most other nonprofit organizations

Exempt:

  • Sales to any Iowa private nonprofit educational institution used for educational purposes
  • Sales to nonprofit hospitals (licensed under Iowa Code chapter 135B) for use in the operation of the hospital
  • Sales to nonprofit hospices
  • Sales to nonprofit private museums
  • Sales of building materials to Habitat for Humanity in Iowa
  • Proceeds from fundraising activities that are used for educational, religious, or charitable purposes if the profits from the sales are used by or donated to one of the following:
    • An entity that is exempt from federal income tax under Internal Revenue Code section 501(c)(3);
    • A government entity (including public schools); or
    • A private nonprofit educational institution

See Iowa Tax Issues for Nonprofit Entities (78-595), which includes the full list of nonprofit entities that qualify for exemption.

See Construction Contracts with Designated Exempt Entities.

 

Optional Warranty Contracts

Taxable:

  • Optional service or warranty contracts that furnish taxable labor and/or materials
  • Computer software maintenance contracts that provide the taxable transfer of tangible personal property
  • Additional charges for parts and taxable labor in addition to that covered by a warranty or maintenance contract – only parts and not labor will be subject to tax where a nontaxable service is performed if the labor charge is separately stated

Partially Taxable:

computer software maintenance contracts that provide technical support services and the taxable transfer of tangible personal property, and no separate fee is stated for either the performance of the service or the transfer of the property, then tax is imposed on 50% of the sales price of the contract 

Exempt:

  • Residential warranty contracts
  • Computer software maintenance contracts that provide technical support services only and do not provide any materials
  • Preventive maintenance contracts which require only the visual inspection of equipment and no repair is included

Printers and Publishers

Exempt:

Sales and rentals to printers and publishers of numerous supplies used to complete a finished printed product for retail sale.

See Iowa Sales Tax and Printers and Publishers. (78-570)

Prizes

Exempt if purchased by the sponsor:

Tangible personal property to be given as a prize to a player in games of skill, chance, bingo, or raffle

Processing

Exempt:

Electricity or steam or any taxable service purchased and used in the actual processing of tangible personal property intended to be ultimately sold at retail

Tangible personal property sold for processing when it:

  • By means of fabrication, compounding, manufacturing, or germination becomes an integral part of other tangible personal property intended to be ultimately sold at retail.

  • Is a chemical, solvent, sorbent, or reagent, which is directly used and consumed, dissipated, or depleted in processing tangible personal property intended to be sold ultimately at retail, even if it does not become a component or integral part of the finished product. Similar items are also exempt when consumed in the maintenance or repair of fabric or clothing.

  • Is consumed as fuel in creating heat, power, or steam for processing, including grain drying, in maintenance of the quality of the product being manufactured, for providing heat or cooling for livestock buildings or for generating electric current, or consumed in self-propelled implements of husbandry engaged in agricultural production, such as fuel used in a farm tractor used to plant corn

See Iowa Sales and Use Tax on Manufacturing and Processing. (78-530)

Railroads

Taxable:

  Taxable services performed on railroad rolling stock

Exempt:

  • Personal property used or to be used as railroad rolling stock or as materials or parts thereof
    • Locomotives
    • Railroad cars
    • Maintenance–of–way equipment which is used to transport persons or property
  • Fuel and lubricants used in railroad rolling stock

Rent-to-Own

Taxable:

rent-to-own contracts are taxable as conditional / installment sales

Resale

Exempt:

tangible personal property and services purchased for resale

The purchaser should provide the seller a properly completed Sales Tax Exemption Certificate.

Resale of tangible personal property

Tangible personal property is for resale when sold to retailers, wholesalers, jobbers, or any person who is not the ultimate user or consumer of the property and who holds the property for the purpose of selling it to another.

Resale of a service

An example of a service sold for resale is when an auto repair shop subcontracts a job to another auto repair shop.

Resale of property connected with a service

Property that is resold in connection with a service is exempt when all of the following occur:

  1. The provider and the user of the service intend that a sale of property will occur, and

  2. The property is transferred to the user in a form or quantity which is capable of any fixed or definite price value and is actually sold to the customer in conjunction with the performance of the service, or the property is entirely consumed in connection with the performance of an auto body repair service purchased by the ultimate user, and

  3. The charge for the property is listed separately on the bill, unless the property is entirely consumed in connection with the performance of an auto body repair service purchased by the ultimate user.

Examples:

  1. An investment counselor purchases envelopes.  These envelopes are used to send out monthly reports to the investment counselor’s clients regarding their accounts.  Tax is due at the time the investment counselor purchases the envelopes if the clients are not billed for these items.  Each envelope is transferred to a client in a form or quantity which is capable of a fixed or definite price value.  However, there must also be an actual sale to the client (customer) of an item of personal property in order that there be a “resale” of the item.

  2. A jeweler purchases materials such as main springs and crystals to be used in the performance of a service.  These items are purchased by the jeweler for resale where they are transferred to the customer in a form or quantity capable of a fixed or definite price value and each item is actually sold to the customer as evidenced by a separate charge.

  3. An accounting firm purchases plastic binders used to cover reports issued to its customers. The firm must pay sales tax on the binders when purchasing them since they are not being sold to their customers.

Services

Taxable:

Exempt 

  • Sales of services are exempt from Iowa sales tax unless specifically taxed by state law.
  • Services performed on or in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure
  • Services used in reconditioning or repairing tangible personal property normally sold in the regular course of the retailer’s business and which is held for sale by the retailer

Snowmobiles and Watercraft

Taxable:

  • If delivery is taken in Iowa
  • If purchased out-of-state for use in Iowa

Snowmobiles and watercraft do not qualify for exemption as “casual sales.”

If sold by an individual, the county will collect the tax upon registration.

Solar Energy Equipment

Exempt:

  • Equipment that is primarily used to collect and convert incident solar radiation into thermal, mechanical, or electrical energy or equipment that is primarily used to transform such converted solar energy to a storage point or to a point of use

Tangible Personal Property

Taxable:

unless a specific exemption has been written into the law

Trade-Ins

Trade-ins may reduce the taxable price of a transaction when:

  • Tangible personal property is traded toward the purchase price of other tangible personal property and
  • The trade-in is the type of item that is sold in the retailer’s regular course of business and
  • The item traded-in is to be ultimately sold at retail.

Transportation Services

Taxable:

  • Armored car services
  • Limousine services
  • Certain car and airplane rentals

Tax Rate

  • 6% state tax, plus
  • Local option tax, if any, plus
  • Automobile rental tax, when applicable

Exempt:

Sale or furnishing of transportation services such as:

  • Taxi
  • Airline
  • Bus
  • Railroad

Utilities

Generally, the sales, furnishing, or service of gas, electricity, water, heat, pay television and communication services, including the sale of these items by municipal corporations, are taxable.

Residential Energy

  • Exempt from state sales tax
  • Local option tax, if any, applies

Sewage / Solid Waste and Disposal Services

Taxable when billed to nonresidential commercial operations.

See Sales Tax on Solid Waste Collection and Disposal Services. (78-543)

Vending Machines and Other Coin-Operated Devices

Taxable:

  • Candy, candy-coated items, candy products, and
  • Certain beverages

An operator who places vending or other coin-operated machines in different locations needs only one permit. This could be a sales tax permit for in-state retailers or a retailer’s use tax permit for out-of-state retailers.

Tax Rate applied at location of machine

  • 6% state tax, plus
  • Local option tax, if any

Wind Energy Conversion

Exempt:

materials used to manufacture, install, or construct property used to convert wind energy to electrical energy