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Reform Guidance: Personal Transportation Service

Iowa Governor Kim Reynolds signed Senate File 2417, an extensive state tax reform bill to improve the tax structure in Iowa. The 2018 Iowa Tax Reform Bill includes a new tax on personal transportation services. 

Modification to Sales Taxes Imposed

Effective January 1, 2019, the sales price from rendering, furnishing, or performing a personal transportation service in Iowa is subject to Iowa sales tax and local option sales tax, as applicable. 

Previously, Iowa Code section 423.2(6)(a) taxed “limousine service.” Iowa Administrative Code rule 701—26.80 defined limousine service as providing a large or luxurious automobile with a driver by prearrangement and specifically excluded soliciting or accepting business as a taxi service. Senate File 2417 changes the tax on limousine service to a broader tax on “Personal Transportation Service.” The sales price from rendering, furnishing, or performing a personal transportation service includes such costs as facilitation fees, reservation fees, service fees, and non-refundable deposits. 

Iowa Administrative Code rule 701—26.80 has also been amended to address taxable personal transportation service. Personal transportation service is defined as the arrangement or provision of transportation service, regardless of whether the service supplies or uses a vehicle in conjunction with the service. Personal transportation service only includes the transportation of people, not property. This includes, but is not limited to the following: 

  • Transportation Services provided by a human driver - Services including but not limited to drivers with a Class C, Class D endorsement 3, or Class M license, or by a chauffeur, as defined under Iowa Code section 321.1(8). Examples of such services include but are not limited to taxi services, driver services, limousine services, bus services, shuttle services, and rides for hire. 
  • Transportation Services provided by a nonhuman driver - Services provided by a nonhuman driver including autonomous vehicle or driverless vehicle.
  • Transportation Services provided by a ride sharing service - Services including but not limited to prearranged rides as defined in Iowa Code section 321N.1(4). Examples include but are not limited to Uber and Lyft.

The tax is imposed if the personal transportation service is first used in Iowa and is sourced to the location at which the service is first received, as demonstrated in the example below: 

Joe schedules a personal transportation service while at his residence in Ankeny but requests the service to start the transportation from Bondurant to Carlisle. Rider independently travels to Bondurant, where he enters a vehicle owned by the transportation service and the service brings him from Bondurant to Carlisle, where the service ends and he pays for the service. The sale is sourced to Bondurant — the location at which he first received the transportation service. The transportation service must charge sales tax and the applicable local option tax in Bondurant, even though Joe scheduled the service while in Ankeny and the service concluded and payment was made in Carlisle.

Federal law prohibits Iowa from imposing tax on interstate motor carrier transportation service. Therefore, no Iowa sales tax shall be imposed on a personal transportation service where the vehicle travels across state borders during the rendering, furnishing, or performance of the service. 

New Exemptions for certain transportation services

Senate File 2417 also includes a new exemption from sales tax for transportation services provided by the following: 

  • Medical transportation services: A personal transportation service for an individual to travel to a health care provider for the individual’s medical care. Medical transportation is not limited to transportation services for immediate life threatening or serious injuries. 
  • Paratransit services: A personal transportation service provided to individuals with disabilities.
  • Qualified Public Transit Systems: A public transport system including urban or regional transit systems providing transportation services accessible to the general public and receiving federal, state or local tax support.

What does this mean?

  • Personal transportation service is defined as the arrangement or provision of transportation service, regardless of whether the service supplies or uses a vehicle in conjunction with the service.
  • Effective January 1, 2019, the sales price from rendering, furnishing, or performing a personal transportation service in Iowa is subject to Iowa sales tax if the service is first used in Iowa and is sourced to the location where the service is first received. 
  • No tax will be imposed on interstate motor carrier transportation service. 
  • The sales price of transportation services by qualified public transit systems, medical transportation services, and paratransit services are exempt from tax.