Beginning January 1, 2019, Iowa sales tax, local option sales tax, and use tax applies to “specified digital products.” Specified digital products are non-tangible products that are transferred electronically (such as through a website or an app) and are usually purchased over and downloaded from or accessed through the internet. Examples of specified digital products include the following when transferred electronically:

• Digital audio-visual works, such as movies
• Digital audio works, such as music and audio books
• Digital visual works, such as images and clip art
• Digital books, or “e-books,” and other digital written works, such as academic articles, magazines, and catalogues
• Other forms of digital products, such as greeting cards, images, video or electronic games or entertainment, news or information products, and computer software applications. “Computer software applications” includes software sold in electronic formats.

Webinars

Webinars are generally taxable as specified digital products. Specifically, webinars fall into the “other digital products” category as a “news or information product.” Some webinars may not be subject to sales tax. Purchases of access to a live webinar (i.e. access to viewing a presentation occurring in real-time) are not always subject to sales tax.

Attending a presentation in-person, if it is not an admission to an amusement, is generally not taxable under Iowa law. Purchasing access to a live webinar is not taxable, if the live webinar allows for a level of participation which is substantially similar to an in-person presentation.

Purchasing access to a live or pre-recorded webinar, even if the webinar’s purpose is educational or otherwise, is not treated as purchase of a service. Keep in mind that while purchasing access to webinars is a taxable transaction, any sales tax exemptions which apply to specified digital products may also apply to webinars.

Webinar example 1:
A person purchases access to a live webinar to view on their computer or mobile device. The in-person presentation, which can be viewed by people with access to the live webinar, allows for in-person attendees to ask questions throughout the presentation. Persons viewing the presentation through the live webinar on their computer or mobile device cannot submit questions to the presenter throughout the duration of the webinar. The level of participation between the in-person presentation and the live webinar are not substantially similar. The purchase of access to view this live webinar is subject to sales tax.

Webinar example 2:
A person purchases access to a live webinar to view on their computer or mobile device. The in-person presentation, which is viewable by people with access to the live webinar, does not allow in-person attendees to ask questions throughout the presentation. The person viewing the presentation through the live webinar on their computer or mobile device cannot submit questions to the presenter throughout the duration of the webinar. The level of participation between the in-person presentation and the live webinar is substantially similar. The purchase of access to view this live webinar is not subject to sales tax.

Storage of tangible or electronic files, documents, and other records

The sale of storage services for tangible or electronic files, documents, and other records are subject to Iowa sales tax and applicable local option sales tax. View the Storage of Tangible or Electronic Files, Documents, or Other Records page for more information about these types of storage services.

Information Services

An information service is a service where access to a database or any form of subscription to information is provided through any tangible or electronic medium. Some examples of information services include the following:

• Database files
• Research databases
• Genealogical information
• Mailing lists
• Subscription files
• Credit reports
• Surveys
• Real estate listings
• Bond rating reports
• Abstracts of title
• Bad check lists
• Broadcasting rating services
• Wire services
• Price lists or guides
• Scouting reports

Software as a Service

Software as a service means the sale, storage, use, or other consumption of vendor-hosted computer software, such as software accessible on the cloud. “Vendor-hosted computer software” means computer software that is accessed through the internet or a vendor-hosted server whether the access is permanent or temporary, whether any downloading occurs, or whether the software is hosted by the retailer of the software or by a third party. The content or material accessed by way of software as a service does not impact the taxability of the software itself.

Services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products are also subject to tax.

Video game services and tournaments

Video game services means providing access to video games, support and account services, in-game currency exchanges, payment processing services, and any other service related to the hosting or provision of video games. A “video game” is any virtual, digital, or electronic game in which a user interacts with a user interface to generate visual feedback on a video device such as a computer monitor, television screen, or mobile device. Video games may be transferred through any physical or electronic medium, including by cartridge, disc, or electronic file, or through access to any server or network of servers.

Video game tournaments are events where participants compete in the playing of video games. Participants may be physically present in the same location or may be playing video games remotely. Participation in such tournaments are taxable regardless of whether or not a prize is provided to any participants. Taxable services relating to “video game tournaments” include fees paid for participating in such tournaments and related services.

Web Hosting

“Web hosting” is not defined by the Iowa Code or existing rule, but it is generally understood as an online service that allows users to publish their website files onto the internet to make the website available for public access. The Director has previously determined that web-based storage is taxable as “storage of tangible or electronic files, documents, or other records”, a taxable service in Iowa Code section 423.2(6)(bq) (see Amazon Web Services, Inc. (2018). However, web hosting in its traditional sense is focused on the publication of the data and not its mere storage.

Web hosting is also not an otherwise enumerated service when provided in a traditional, stand-alone manner. Some additional cloud-based services may include web hosting, but those services are generally considered “infrastructure as a service (IaaS).” Iowa law only imposes tax on “software as a service” (SaaS). Thus, web hosting is not a taxable service in Iowa.

Internet access remains tax exempt

Internet access and internet access service remains exempt from sales and use tax in Iowa. Iowa is prohibited by Federal law from imposing a sales or use tax on internet access service.

New Exemptions

While many new products are now subject to tax, there are two new sales tax exemptions for businesses that apply specifically to specified digital products and related services.

Commercial enterprise exemption - Iowa Code section 423.3(104)

Beginning January 1, 2019, there is a new sales tax exemption for certain sales to “commercial enterprises.” For this exemption, a “commercial enterprise” means any of the following:

• Businesses and manufacturers (for profit only)
• Insurance companies (nonprofit and for-profit)
• Financial institutions (nonprofit and for-profit)
• Professions and occupations as defined in Iowa Administrative Code rule 701-215.18(3)(c) (such as medical offices, law firms, farming operations, etc.)

With the exception of insurance companies and financial institutions, other non-profit entities are not eligible to claim this exemption, although these purchases may still be exempt under other exemptions.

The following are exempt from sales tax when purchased by a commercial enterprise and used exclusively by or furnished to that commercial enterprise:

• Specified digital products
• Prewritten computer software
• The following services:
  • Storage of tangible or electronic files, documents, or other records
  • Information services
  • Services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products; and
  • Software as a service

Importantly, a commercial enterprise may only claim the exemption if the products listed above are used “exclusively” by that commercial enterprise. For purposes of this exemption, “exclusively” means that any non-commercial uses are de minimis.

The Department is currently in the process of finalizing administrative rules implementing this exemption.

Non-end user exemption-Iowa Code section 423.3(105)

Sales of specified digital products are exempt from sales tax when sold to a “non-end user.” For purposes of this exemption, a “non-end user” means any person who contracts to receive specified digital products for further commercial broadcast, rebroadcast, transmission, retransmission, licensing, relicensing, distribution, redistribution, or exhibition of the product, in whole or in part, to another person. In other words, only sales of specified digital products to end users are subject to sales tax.

Entity-based Exemptions

There are also several existing exemptions to which specified digital products have been added--many of which also include services and would apply to the new services described below. Example: Prior to January 1, 2019, legal aid organizations were exempt from paying sales and use tax on their purchases of tangible personal property and taxable services. Beginning January 1, 2019, those purchases remain exempt, and in addition, legal aid organizations are exempt from paying sales and use tax on their purchases of specified digital products and new taxable services.