Proposed: Sales and Use Tax Permit, Return Filing, and Payment Changes

The Iowa Department of Revenue has completed the first phase of upgrades to its tax administration systems, known as GovConnectIowa. This first wave of changes touched sales and use tax, motor fuel and other excise taxes, and income tax withholding. To continue improving the sales and use tax compliance experience for businesses with filing obligations in Iowa, the Department has proposed statutory changes to the process of obtaining permits and filing returns for sales and use tax to take effect July 1, 2022. The Department has begun preparing for these changes and would like taxpayers to begin preparing for them as well, but please keep in mind, these changes are still tentative.

Assuming the legislature passes and the Governor signs the bill, taxpayers will see the following changes:

  • Taxpayers, except for annual filers, will file returns on a monthly basis instead of on a quarterly basis.
  • Taxpayers will file one combined return for sales and use taxes and will have one permit for both tax types, rather than separate permits and returns for each.
  • Semimonthly deposits of sales tax collected will not be required.
  • The annual filer threshold will increase from $120 to $1,200 of tax collected annually.
  • Monthly filers will file their return through GovConnectIowa, unless they request permission from the Director to file otherwise because they cannot use computers or have other factors prohibiting electronic filing.

These changes will begin with the July, 2022 tax period, meaning tax collected in July will be due and a return must be filed by the end of August, 2022. Additional explanation of the current requirements and problems these changes will solve is below. The Department is working on revising administrative rules and forms to implement these changes and will update this guidance once the bill is passed and signed by the Governor, ensuring the changes will take effect.

  • Today, a business may need to obtain separate permits and file separate returns for sales tax, retailer’s use tax, and consumer’s use tax. Retailer’s use tax is a voluntary collection and remittance by sellers without physical presence or economic nexus in Iowa who make sales on goods and services they know will be used in this state. Because of changes to the law that took effect January 1, 2019, most taxpayers that previously collected retailer’s use tax are now required to collect sales tax. The key difference between retailer’s use tax and sales tax is that an additional 1-cent local option tax is imposed in most jurisdictions on sales subject to sales tax but not use tax.

    Consumer’s use tax is typically owed by taxpayers for tangible personal property or services they acquire without paying the sales tax. The Department has historically advised taxpayers that if they “regularly'' make purchases subject to use tax, they should obtain a consumer’s use tax permit and file a consumer’s use tax return. The Department has also instructed taxpayers who only occasionally incur use tax to report such purchases on the Goods Consumed line of today’s sales tax return. This prior advice will no longer apply to the updated reporting requirements described here.

    Starting July 1, 2022, businesses will only need to register for one permit to cover all of these tax types, and they will be able to report all tax due for each of these tax types on the same return.

  • Today, most sales tax permit holders file returns once per calendar quarter. In addition, taxpayers must remit taxes based on how much tax they collect, as prescribed by administrative rule, on a quarterly, monthly, or semimonthly basis. Taxpayers that collect less than $120 of sales tax per calendar year are only required to file a return and remit tax annually.

    The pending changes will eliminate the semimonthly remittance, meaning all taxpayers will file a return and make a payment at the same time -- either monthly or annually. This way, taxpayers will remit actual taxes collected, which is required for income tax withholding and is common in other states. Additionally, to mitigate the burden on truly small businesses of more frequent filing and remittance frequency, the threshold for determining whether a taxpayer will be a monthly or annual filer will increase to $1,200 of tax collected per year, and annual filers will not be required to file returns electronically.