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Sales Tax Obligations of Sellers in Iowa

April 13, 2006

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Iowa imposes various requirements on sellers doing business in the state. We recommend that you go through the items below to help you with the most frequently asked questions concerning sellers and sales and use tax issues.

Procedure for accepting resale certificates. In Iowa, exemption certificates may be issued by the Iowa Department of Revenue and Finance or provided by you, the seller. If you provide exemption certificates to your customers, the following information must be included:

• the seller's name
• the purchaser's name and address
• the purchaser's nature of business
• the reason for the exempt purchase (processing or resale)
• a general description of the purchase
• state sales tax or I.D. registration

In addition, the buyer must sign and date the certificate.

Procedure for accepting blanket certificates. As a seller you may accept a blanket certificate if your customer repeatedly purchases the same type of property or service for processing or resale. However, blanket certificates may not be used to purchase property or service not covered by a blanket certificate. As a seller you must periodically inquire whether the information on a blanket certificate is accurate and complete. This is important, because if you have not accepted a blanket certificate in good faith, liability for the tax does not shift from you to the purchaser.

Sales and use tax liability for out-of-state mail order and catalogue retailers. You will be responsible for paying sales tax only if you have physical presence within Iowa. To determine if you have physical presence, ask yourself the following:

• Do I have retail facilities, a warehouse, or any office space in Iowa? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
• Do my employees or I enter Iowa for purposes of taking and transmitting orders from Iowa? If your employee or independent contractor goes into Iowa to take or transmit orders, your business may have physical presence in Iowa. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
• Do my delivery vehicles frequently enter Iowa for purposes of delivering property? Frequent deliveries in Iowa by your trucks will give you physical presence in Iowa.

Sales tax "bracket system." The bracket system may be followed by sellers in computing the sales tax. The tax is computed on each dollar and/or fraction of a dollar according to the following table:

Absorbing the tax — using a "no sales tax" advertising strategy to drum up business. In Iowa it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.

Claiming refund for excess tax payments. Any tax, penalty, or interest that is paid by mistake may be refunded to the taxpayer if a claim is submitted by the later of five years after the erroneous tax payment was due or one year after the payment was made. Property returned by a customer is not included in gross receipts if the entire sale price is refunded either in cash or by credit. The seller may deduct the amount of a full credit or refund if tax was previously paid on the gross receipts.

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