Sales and Use Taxes in Iowa

April 13, 2006

	Visited: 127
	Not rated
	Rate:

In Iowa a tax is imposed on gross receipts from all sales of:

tangible personal property sold at retail in Iowa to consumers or users
utility and communication service
tickets or admission fees
amusement devices and games of skill or chance
rentals of hotels, motels, inns, etc.
optional service or warranty contracts
engraving, photography, and printing services
solid waste collection and disposal service

The tax also applies to many services performed in Iowa.

Sales and use tax rate. The Iowa sales and use tax rate is 5 percent. (In addition, make sure you contact your local governments in Iowa because they are allowed to assess a local sales and use tax of up to 1 percent.)

Tax-exempt items. Iowa has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Iowa sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In Iowa although the sales tax is generally imposed on a seller's gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated, and the tax becomes a debt from the purchaser to the seller.

Use tax. An excise tax (use tax) is levied on the use of tangible personal property purchased for use in Iowa and on the use in Iowa of taxable services. The Iowa use tax complements the sales tax. As a general rule, a transaction that would be subject to Iowa sales tax if it were consummated in Iowa is subject to use tax if it takes place outside the state for use in Iowa.

Responsibility for collecting use tax. A person who brings tangible personal property or who uses taxable services in Iowa and has paid tax on the services in another state owes Iowa use tax on the difference between the Iowa rate and the other state's rate. If the other state's rate is higher than Iowa's, no Iowa use tax is owed.

Obtaining tax permits in Iowa. In Iowa every retailer must obtain a permit for each place of business from the Iowa Department of Revenue and Finance. Persons engaging in business temporarily and itinerant merchants report and pay the tax on a non-permit basis. Iowa requires no fee for a sales tax permit.

Leases. In Iowa the rental of tangible personal property is subject to retail sales tax. Gross taxable services from rentals include rents, royalties, and copyright and license fees. Tax on gross receipts from the sale or rental of tangible personal property under a consumer rental purchase agreement is payable in the tax period of receipt.

The following discussions address additional sales and use tax issues that many small business owners face: