Iowa Sales and Use Tax Guide

This publication is intended as a general guide, and is not an all-inclusive discussion of Iowa sales and use tax law. For additional assistance, contact Taxpayer Services by email or call 515-281-3114 or 1-800-367-3388 on specific issues that apply to your business situation.


Sales Tax Permit Information

Obtaining a Permit

A retail sales tax permit is not a license to purchase items tax free. It is a permit to collect and remit sales tax.

Anyone selling taxable goods or services from an Iowa location must obtain a sales tax permit.

A sales tax permit must be obtained for each Iowa business location.

You have two options to apply for a permit:

There is no charge for a permit.You will be mailed a letter containing your Business eFile Number (BEN), your permit number, and a printed permit. You are not required to display the printed permit; however, it should be readily available to prove you have one.

Once issued, a sales tax permit is effective until it is canceled by the retailer or revoked by the Department.

You may begin making sales and collecting sales tax as soon as you submit an application; you do not have to wait to receive your permit number.

Not sure you need a permit? Contact Taxpayer Services by email or call 1-800-367-3388 or 515-281-3114.

Loss or Destruction of Permit

Contact the Department if your active permit is lost or destroyed and we will provide another copy of the letter containing your Business eFile Number (BEN), your permit number, and a printed permit. Request a Copy of Sales Tax Permit and BEN Number This link takes you directly to an e-mail which is sent to our registration team. Please provide the following information in your e-mail request: 

  1. Business name on your Iowa sales tax permit
  2. Iowa sales tax permit number (9 digits)
  3. Your name
  4. Your 10-digit phone number
  5. Your e-mail address

Consolidated Permit for Multiple Locations

If a business has two or more sales tax permits, it may request to file one consolidated return on the Business Tax Registration form.

Changing Business Information

Notify the Department when any of the following changes:

You have two options to notify the Department:

Temporary Businesses

Temporary businesses may obtain a temporary permit. Call 515-725-0259.

Businesses with permanent permits that sell at temporary events may remit the tax with their regular permit number and usual return.

Not sure you need a permit? Contact Taxpayer Services by email or call 1-800-367-3388 or 515-281-3114.

Temporary Event Sponsors

Sponsors of flea markets, craft shows, antique shows, and other temporary events may be liable for the sales tax, penalty, and interest of the retailers selling at the event.

Read Sales Tax and Special Events - Temporary Permits.

Denying a Permit

The Department may deny permits to applicants who:

The application of a partnership may be denied if a partner:

The application of a corporation may be denied if an officer having substantial legal or equitable interest in the ownership of the corporation:

A permit may be denied to any individual applicant if:

Revoking a Permit

The Department may revoke the permit of a permit holder who is substantially delinquent in paying any tax, interest, or penalty.

Once revoked, it may take 90 days before the permit can be restored or a new permit issued. Anyone knowingly making sales after a permit has been revoked and before it is restored may be found guilty of an aggravated misdemeanor.

A revoked permit will not be reinstated to an individual if the Department receives a Certificate of Noncompliance from the Child Support Recovery Unit.

Other Types of Permits

Use Tax Permits

When a taxable service or sale of tangible personal property is subject to sales tax but occurs outside of Iowa for use in Iowa, it is usually subject to use tax.

The use tax rate is the same as the state sales tax rate.

Retailer’s Use Tax Permit

Every out-of-state retailer who has “nexus” in Iowa and sells tangible personal property or taxable services in Iowa must obtain a retailer’s use tax permit.

Nexus

Businesses located outside of Iowa that have representatives and/or employees in Iowa to maintain, establish, or further their market share within the state have nexus. Delivery into Iowa by company trucks also establishes nexus.

Consumer’s Use Tax Permit

Persons regularly purchasing taxable goods or services for their own use in Iowa from an out-of-state source not collecting Iowa tax must obtain a consumer’s use tax permit.

See Iowa Consumer's Use Tax. (78-535)

Direct Pay Permit

A few qualified purchasers, users, and consumers of tangible personal property or taxable services may remit the tax directly to the Department rather than to their suppliers. To qualify for a direct pay permit, both of the following must be met:

  1. The applicant must be a purchaser, user, or consumer of tangible personal property or taxable services, and
  2. The applicant must have a sales and use tax liability on consumed goods of $4,000 in a semi-monthly period.

Application for Direct Pay Permit (pdf)

Streamlined Sales Tax

Iowa participates in the Streamlined Sales Tax Project (SSTP), an initiative to encourage businesses in all states to collect and remit sales tax in every state in which they make taxable sales.

Personal Liability for Paying Taxes

If a corporation, association, or partnership fails to pay sales and use taxes, the officers or partners are personally liable for the tax, interest, and penalty.

A person selling a business must file final tax returns and pay all taxes due. However, the new owner should withhold a sufficient amount of the purchase price to pay any unpaid tax, interest, and penalty in case the seller fails to pay the final tax due. If the new owner intentionally fails to do this, he or she is personally liable for the tax.

Taxes and Tax Rates

State Sales and Use Tax

The state sales tax rate and use tax rate are the same. The rate is 6%.

Local Option Sales Tax

In addition to the state tax, most local jurisdictions impose the local option sales tax. The rate is 1%.

Within a county, some cities may have the local option tax, some may not. Also, the unincorporated rural area of a county may or may not have the tax. A jurisdiction may enact the tax on January 1 or July 1.

For more information, including lists of jurisdictions with the local option tax, see Iowa Local Option Tax Information.

Hotel / Motel Tax

Certain cities and counties in Iowa have adopted a local option hotel / motel tax on the renting of sleeping rooms in any hotel, motel, inn, public lodging house, rooming house, tourist court, mobile home, bed and breakfast, or in any place where sleeping accommodations are furnished to transient guests for rent. This is in addition to the 5% state excise tax on lodging.

The rate of local hotel / motel tax can range from 1 to 7%. Jurisdictions and rates are updated January 1 and July 1 of each year.

The 5% state excise tax and local hotel / motel tax are reported and remitted on the quarterly sales tax return. No permit other than an Iowa sales tax permit is required to collect and report these taxes.

See Iowa Hotel and Motel Tax Questions and Answers.

Motor Vehicle One-time Registration Fee

Purchases

Sales of vehicles subject to registration are exempt from sales tax, but are subject to a 5% one-time registration fee.

See Iowa Vehicle Purchase and Lease Information and Forms.

Leases

A leased vehicle is subject to the one-time registration fee if:

The 5% fee is computed on each lease transaction based on the lease price. The lease price includes the number of months of the lease multiplied by the monthly lease payments, plus certain adjustments.

See Iowa Vehicle Purchase and Lease Information and Forms.

Automobile Rental Tax

The rental of automobiles for a period of 60 days or less is subject to an automobile rental tax of 5%. This is in addition to the state sales tax and any applicable local option tax.

The tax applies to vehicles designed to carry nine or fewer passengers. It does not apply to delivery trucks designed to carry cargo or to motorcycles or motorized bicycles.

The automobile rental tax is reported and remitted on the quarterly sales tax return. No permit other than an Iowa sales tax permit is required to collect and report this tax.

See Vehicle Rental - Sales, Use, and Automobile Rental Tax (78-497)

Purchase Price / Sale Price

The basis for Iowa tax is the purchase or sale price of personal property or taxable services.

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, not when payment is received from the customer.

Return Filing

It is important to file the 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 to report.

eFile & Pay

Iowa sales and use tax returns are filed electronically through eFile & Pay.

Due Dates

If a due date falls on a weekend, federal holiday, or legal holiday as defined in Iowa Code section 4.1(34), the taxpayer has until the following business day to file the return and remit payment to the Department. If filing on paper, the postmark date is accepted as the filing date.

Due Date Calendars

Filing Frequency

When applying for a permit, a retailer estimates the amount of sales tax to be collected. Local option tax collections are not included in the amount. The filing frequency is based on the estimate.

See Filing Frequencies and Return Due Dates.

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 the change online or by using form 92-033, Request for Change, Correction or Cancellation of Tax Permit (pdf). In addition, 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 year or quarter.

Common Problems with Completing the Return

Goods Consumed (line 2)

“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. You are also allowed to include on this line occasional taxable purchases that you make where sales tax is not collected by your supplier. Normally these purchases would be reported on a consumer’s use tax return.

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 on line 2.

Exemptions (line 4)

"Exemptions" are sales made by you on which tax was not required to be charged. Exemptions not the same as deductions on income tax returns. Business expenses are not included as exemptions on the sales/use tax return.

The following should be included on line 1, gross sales, and then exempted on line 4 of 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, Equipment, and Computers:

Sales of exempt industrial machinery, equipment, and computers. This includes qualifying items used directly and primarily in a manufacturing process and computers used by a commercial enterprise.

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 sales reported on line 5 of the quarterly sales tax return must complete the Local Option / Sales Entry Schedule, even if no local option tax is due.

See Q&A on completing the local option section of the return.

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 on line 1.

If only the state sales 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 written on line 1 of the return.

Penalty and Interest

If you fail to file a return on time or if you fail to pay the tax due, penalty and / or interest may apply .

Interest accrues from the due date until paid. The interest accrues every calendar month or a fraction of the month. Interest rates change yearly.

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:

  1. 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
  2. The applicant or an active officer of the corporation has held a previous permit and has experienced prior collection problems, or
  3. 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:

Bond Amount

When the Department requires a bond, the minimum amount is determined as follows:

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

Records must 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. Protests 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 protest is not filed, the Department may either require a proper protest or dismiss the protest for failure to comply. If a protest is not filed timely, the Department assumes that the permit holder does not oppose the assessment.

All protests must be filed by certified mail (return receipt requested) or personal delivery to the Department during business hours.

See Appeals and Protests.

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 tax paid in error on IA 843 Claim for Refund. Claims for refund should be filed with the Department within three years of the date the tax payment was due.

Exemption Certificates

A seller must obtain a properly completed Iowa Sales Tax Exemption Certificate from any purchaser claiming exemption from sales and use tax.

Exemption Certificate (pdf)

See Information About Exemption Certificates. (pdf)

Common Questions - Taxable or Exempt?

Unless otherwise noted, the tax rate for all taxable items shown below is:

911 Surcharge

Exempt:

The surcharge can be no more than $1 per month per telephone access line.

Advertising

Exempt:

Agriculture

See Farmers Guide to Iowa Taxes. (78-507)

Aircraft

Taxable:

The purchase of an aircraft does not qualify for exemption as a “casual sale.”

Tax Rate

Exempt:

All-Terrain Vehicles

Taxable:

If sold by an individual, the county will collect the tax upon registration.

 

Exempt:

American Indians

Taxable:

Exempt:

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 Fees / Facilities

Taxable:

Boat Sales

Taxable if:

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:

The Casual Sale Exemption Applies If:

  1. It is a sale of a nonrecurring nature, and
  2. 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:

Communication Service

Taxable:

Exempt:

Computers and Software

Taxable:

Exempt:

See Iowa Sales Tax on Computers. (78-575)

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:

Exempt:

Conference and Banquet Rooms

Exempt:

Construction Contractors

See Iowa Contractors Guide. (78-527)

Construction Contracts with Designated Exempt Entities

See 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:

Coupon Books and Gift Certificates/Cards

Taxable:

Exempt:

Discounts, Rebates and Coupons

See Iowa Sales Tax on Discounts, Rebates, and Coupons. (78-628)

Finance Charges

Taxable:

Exempt:

Florists

Taxable:

The “sending florist” is responsible for collecting the tax.

Exempt:

Food

See Iowa Sales Tax on Food. (78-516)

Freight, Shipping, and Handling Charges

Exempt:

Fuel

Taxable

Exempt:

Gambling

See Gambling: Games of Skill or Chance and Raffles. (78-506)

A state gambling license may be required. Call the Iowa Department of Inspections and Appeals at 515-281-6848.

Gifts by Retailer

Taxable:

The retailer includes the purchase price of the item under “goods consumed” on the sales tax quarterly return.

Government Entities

Taxable:

Exempt:

See Iowa Tax Responsibilities of Cities and Counties. (78-526)

See Construction Contracts with Designated Exempt Entities.

Gratuities / Tips

Taxable:

Exempt:

Greenhouses

Taxable:

Exempt:

If used to produce flowering, ornamental or vegetable plants in commercial greenhouses or other places for sale:

Hydroelectric Conversion Property

Exempt:

Internet

Taxable:

Exempt:

Interstate Commerce

Taxable:

Exempt under certain circumstances:

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.

Layaway Sales

Taxable:

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:

Tax Rate

Exempt:

Lodging

Taxable:

Tax Rate

Exempt:

See Iowa Hotel / Motel Tax.

Manufacturing / Industrial

Exempt:

See Iowa Sales and Use Tax on Manufacturing and Processing. (78-530)

Medical

Exempt for human use and consumption:

See Medical Clinics and Related Businesses - Iowa Sales and Use Tax Information. (78-609)

Newspapers

Exempt:

Nonprofit Organizations

Taxable:

Exempt:

See Iowa Tax Issues for Nonprofit Entities (78-595), which includes the full list of nonprofit entities that qualify for exemption.

See Construction Contracts with Designated Exempt Entities.

Optional Warranty Contracts

Taxable:

Partially Taxable:

Exempt:

Printers and Publishers

Exempt:

Sales and rentals to printers and publishers of numerous supplies used to complete a finished printed product for retail sale.

See Iowa Sales Tax and Printers and Publishers. (78-570)

Prizes

Exempt if purchased by the sponsor:

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:

See Iowa Sales and Use Tax on Manufacturing and Processing. (78-530)

Railroads

Taxable:

Exempt:

Rent-to-Own

Taxable:

Resale

Exempt:

The purchaser should provide the seller a properly completed Sales Tax Exemption Certificate.

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:

  1. the provider and the user of the service intend that a sale of property will occur, and

  2. 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, and

  3. the charge for the property is listed separately on the bill.

Examples:

  1. 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.

  2. 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.

  3. 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:

Exempt 

Snowmobiles and Watercraft

Taxable:

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:

Tangible Personal Property

Taxable:

Trade-Ins

Trade-ins may reduce the taxable price of a transaction when:

Transportation Services

Taxable:

Tax Rate

Exempt:

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

Sewage / Solid Waste and Disposal Services

Taxable when billed to nonresidential commercial operations.

See Sales Tax on Solid Waste Collection and Disposal Services. (78-543)

Vending Machines and Other Coin-Operated Devices

Taxable:

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

Wind Energy Conversion

Exempt:

  • materials used to manufacture, install, or construct property used to convert wind energy to electrical energy
Updated 12/31/13