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This post was researched and written by Kelsy Shay, a 2020 Summer Associate. Courtney Strutt Todd reviewed the post.
The Iowa Legislature passed a bill last week enacting several changes to Iowa tax laws. This post addresses the changes made to Iowa’s Sales and Use Tax laws. These changes will be implemented when Governor Reynolds signs the bill. She has 30 days following the end of session to sign or veto the bill.
Snowmobile and ATV
The Iowa Legislature added new sections regarding snowmobile owners and all-terrain vehicle owners to guide county recorders when the owners are unable to present satisfactory evidence of payment of sales or use tax. When an owner cannot prove that they paid sales or use tax, the county recorder is required to collect the tax owed and remit taxes collected to the Department of Revenue, as well as an itemized statement by the tenth day of each month. The statement must include the name of the taxpayer, make and purchase price of the snowmobile or all-terrain vehicle, amount of tax paid, and other information as required.
Software Sales Tax
The 6% sales tax is now imposed on services arising from or relating to software sold as tangible personal property in addition to specified digital products. The retail sale of specified digital products and a service is excluded as a bundled transaction when the service is essential and the true object of the transaction.
The sale of a commercial recreation service offering the opportunity to hunt a preserve whitetail deer is now exempted from the collection of sales tax if the sale occurred between July 1, 2005, and December 31, 2015.
Sales to Tribal Governments
The sales price of tangible personal property or specified digital products sold to and of services furnished to a tribal government is now exempted from sales tax.
Materials for Tax-Exempt Construction Projects
Contractors, subcontractors, or builders are now exempt from paying sales tax on the purchase of services along with building materials, supplies, and equipment in certain instances. The contract under which the contractor, subcontractor, or builder is performing must be a written construction contract, and to be exempt from the tax, the property that is the subject of the construction project must become public property or the property of a designated exempt entity.
Certain entities are allowed to request a refund for any sales tax paid on services furnished to a contractor under a written contract if the property met certain rules. The new law changes the term “Goods, wares, or merchandise” to “building materials, supplies, equipment” and expands the definition of the entities that can request a refund to include the state of Iowa, any political subdivision of the state, and a tribal government.
Also, under the new rules, the property must meet some additional requirements including that the materials or equipment are completely consumed in the performance of the construction contract.
The 6% excise tax is no longer imposed on manufactured housing.
Sales Tax on Digital Products
All retailers maintaining a place of business in Iowa, making taxable sales of tangible personal property or specified digital products, are required to collect sales tax.
Liability for Failure to Pay
The retailer and purchaser are now jointly liable for failure to pay the sales or use tax. A retailer who fails to collect the tax must remit the applicable sales tax while the purchaser must remit the applicable use tax.
If your business deals in any of the above-listed areas, you should review your current sales and use tax procedures to ensure compliance going forward. Consult your tax attorney for details on how these changes may impact your obligations.