- This includes credit card processing or transaction fees on taxable sales.
- A credit card processing fee does not fall under any of the exceptions to the definition of sales price. A credit card processing fee is included in the total amount of consideration paid for goods or services. Additionally, Iowa Administrative Code rule 701-203.2 states: "[w]hen interest and other types of additional charges are added as a condition of a sale in order to obtain title rather than as a charge to obtain credit where title to goods has previously passed, such charges will be subject to tax even though they may be separately stated." The credit card fee is an additional charge to customers in order to receive the goods or services.
- A credit card processing or transaction fee on a nontaxable sale is not itself subject to tax.
- Discounts
- Interest, finance, or carrying charges
- Other taxes
- Charges for items that are separately contracted for, itemized on a receipt, and are not representative of a taxable sale, such as delivery or installation service charges
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, and not when payment is received from the customer.
Return Filing
It is important to file the sales and use tax 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 or taxable purchases to report.
File and Pay Online
Iowa sales and use tax returns are filed electronically through GovConnectIowa. Learn more.
Due Dates
If the due date falls on a Saturday, Sunday, or holiday as defined in Iowa code 421.9A, then the due date is the following day that is not a Saturday, Sunday, or holiday. If filing on paper, the postmark date is accepted as the filing date.
Non-Permit Use Tax Returns:
Persons without a sales and use tax permit who owe less than $1,200 in tax per year on purchases subject to use tax should pay their tax in one of the following ways:
- Electronically
- Complete the Iowa Non-Permit Use Tax Return (32-007) and send to:
Iowa Department of Revenue
PO Box 10412
Des Moines, IA 50306-0412
Make check payable to: “Iowa Department of Revenue”
Filing Frequency
A sales and use tax permit holder is required to file a return on either a monthly or annual basis. When applying for a permit, a retailer estimates the amount of sales or use tax to be collected. Local option tax collections are not included in the amount. The filing frequency is based on the estimated tax to be collected.
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 a filing frequency change by logging into their GovConnectIowa account and submitting a Filing Frequency Change request or by submitting an Iowa Business Tax Change (92-033). In addition to this, 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 tax period.
Common Problems with Completing the Return
Goods Consumed
“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. Sales tax is due on these purchases.
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 as such.
Exemptions
"Exemptions" are sales made by you on which tax was not required to be charged. Exemptions are not the same as deductions on income tax returns. Business expenses are not included as exemptions on the sales and use tax return.
The following should be reported as gross sales and then included in exemptions on 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 and Equipment:
Sales of exempt industrial machinery and equipment. This includes qualifying items used directly and primarily in processing by a manufacturer. - 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 a taxable amount other than zero must complete the Local Option Sales Tax Schedule, even if no local option tax is due.
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.
If only the state sales or use 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 entered as gross sales on the return.
Penalty and Interest
Failure to file a return on time or pay the tax due may result in penalty and interest owed. Interest accrues from the due date until paid. The interest accrues every calendar month or a fraction of the month. Interest rates change yearly. Read more about penalties.
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:
- 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
- The applicant or an active officer of the corporation has held a previous permit and has experienced prior collection problems, or
- 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
- Semimonthly 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.
- Semimonthly 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
Required records 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. Appeals 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 appeal is not filed, the Department may either require a proper appeal or dismiss the appeal for failure to comply. If an appeal is not filed timely, the Department assumes that the permit holder does not oppose the assessment.
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 sales tax paid in error on IA 843 Claim for Refund (22-009). Claims for refund should be filed with the Department within three years of the date the tax payment was due.
A taxpayer cannot use the IA 843 Refund Return to claim a refund of use tax. A taxpayer must file an amended return to claim a refund of use tax.
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.
Taxable or Exempt
Unless otherwise noted, the tax rate for all taxable items shown below is:
- 6% state sales tax, plus
- 1% local option sales 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
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.”
- 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 an aircraft
- Rendering, furnishing, or performing of services in connection with repair, remodeling, or maintenance of aircraft
- For purposes of these exemptions, “aircraft” means the same as defined in Iowa Code section 328.1, which defines it as “any contrivance now known or later invented which is designed and used for navigation and flight in the air, and made to transport people or property.”
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
See the Government Entities section below for additional information regarding sales to tribal governments.
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:
- It is a sale of a nonrecurring nature, and
- 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)
- Software delivered in physical or digital form
- Services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products
- Software as a service
Exempt:
- Computers and computer peripherals used by a manufacturer in certain exempt manners described in Iowa Code section 423.3(47)
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 and motel tax.
Construction Contractors
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
Credit Card Fees
A credit card processing or transaction fee is subject to tax when charged on taxable sales. For further discussion, see the “sales price” section above.
Coupons, Discounts, Rebates, 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
Discount means "to buy at a reduction." Iowa sales tax applies to the reduced price paid by the customer. Certain retailers bill their customers on a gross and net basis, with the difference considered to be a discount for payment purposes. When a customer does not resolve the bill within the net payment period, tax applies on the gross charge shown on the billing.
A rebate is a return of part of an amount paid for a product. Manufacturers’ rebates are not discounts and cannot be used to reduce the gross receipts received from a sale or reduce the purchase price of a product. This rule applies even though the rebate is used by the seller to reduce the selling price or is used by the purchaser as a down payment. The rebate is considered a transaction between the manufacturer and the purchaser.
Iowa sales tax applies to the amount paid by the purchaser to the seller. That amount cannot be reduced by the amount of the rebate before sales tax is applied. In most situations, sales tax will be charged on the full price of the item purchased.
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
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:
- The fuel is consumed for highway use, in watercraft, or in aircraft,
- The Iowa fuel tax has been imposed and paid, and
- No refund or credit of fuel tax has been made or will be allowed
Gambling
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 a tribal government, defined by Iowa Code section 216A.161 as “the governing body of a federally recognized Indian tribe.”
- 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, tribal, county or municipal government which have no earnings going to the benefit of an equity investor or stockholder
Gratuities and 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
- Items delivered to the purchaser electronically or digitally
Exempt:
- 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.
Janitorial / Building Maintenance / Cleaning Services
Taxable:
Janitorial / Building Maintenance / Cleaning Services are taxable.
Exempt:
Services performed in a private residence, including an apartment or multiple housing unit, and the person paying for the services is an occupant of the residence.
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
- 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
Manufacturing and Processing
The Department maintains an in-depth guide to sales and use tax on manufacturing and processing. Please see that guide for more information.
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
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, which includes the full list of nonprofit entities that qualify for exemption.
Optional Warranty Contracts
Taxable:
- Optional service or warranty contracts that furnish taxable labor 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
Portable Toilet Rentals and Servicing
Taxable:
The rental of a portable toilet is the sale of tangible personal property, the sales price of which is subject to sales tax.
Waste removal exempt if separately itemized:
When a portable toilet rental company also sells waste removal services and itemizes that service separately on an invoice, the waste removal service is not subject to tax: sewage sludge is excluded from the definition of “solid waste,” the removal of which is otherwise taxable under Iowa Code section 423.2(7). However, if the rental company does not separately itemize the waste removal service and the portable toilet rental in a contract to provide such products and services, the entire sales price is taxable as a bundled transaction under Iowa Code section 423.2(8).
Printers and Publishers
Exempt:
Sales and rentals to printers and publishers of numerous supplies used to complete a finished printed product for retail sale.
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
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 (31-014).
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:
- The provider and the user of the service intend that a sale of property will occur, and
- 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
- 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:
- 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.
- 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.
- 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:
- Iowa taxes about 75 services
- See Iowa Sales and Use Tax: Taxable Services
Exempt
- Sales of services are not subject to 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:
-
Iowa law allows an exemption from sales tax for the sale of “solar energy equipment.” Iowa Code section 423.3(90) defines solar energy equipment as “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.” This includes but is not limited to panels, inverters, solar roof tiles or shingles, and energy transmission devices. It does not include a battery or other storage point, equipment used for safety or security of the equipment such as fencing, or equipment not used to collect, convert, or transmit solar energy. It also does not include materials used to manufacture, install, or construct solar energy equipment, such as racking to install or mount solar energy equipment or pads or foundations to support a solar energy equipment installation.
While not defined in this exemption, the Department typically interprets “primary use” as requiring equipment be used in the prescribed manner for more than half of its use. This will likely not be an issue for this exemption since once the equipment is installed, it is likely not used for any other purpose.
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
- Personal transportation services, including:
- Taxis
- Driver services
- Ride sharing services
- Rides for hire
- Limousine services
- Bus services
- Shuttle services
- 6% state tax, plus
- Local option tax, if any, plus
- Automobile rental tax, when applicable
Exempt:
For more information about personal transportation service, see additional guidance.
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.
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 Materials
Exempt:
Materials used to manufacture, install, or construct property used to convert wind energy to electrical energy
