Iowa Tax
eNews

graphic for Iowa Department of Revenue Tax eNews electronic newsletter
June 2003
Electronic Newsletter of the
Iowa Department of Revenue & Finance
   
 

Message from the Director

picture of Director Mike Ralston
Director
Mike Ralston

With the creation of the Department of Administrative Services (DAS) coming July 1, the employees of the State Accounting Bureau -- formerly part of the Iowa Department of Revenue and Finance -- will be under the direction of the new department. There are no current plans to physically move Accounting Bureau staff.

As a result, beginning July 1, Revenue and Finance will lose the “Finance” piece of its name. We will have a new name - the Iowa Department of Revenue. A new department logo and letterhead are currently in the works.

Another change taking place is the Iowa Lottery will become a separate authority and will no longer fall under the umbrella of the Iowa Department of Revenue.

Sales Tax Holiday on clothing set for August 1-2

Iowa's annual "Sales Tax Holiday" will be held August 1-2, 2003. For more information, please visit our Holiday Home Page.

Department clarifies plumbing-related tax policy

A policy letter dated April 14, 2003, and written by the Iowa Department of Revenue and Finance clarifies that drain cleaning and unplugging toilets, sinks and sewers are subject to Iowa sales tax and local option tax, if applicable, under the enumerated service of "pipe fitting and plumbing."

The department is publishing this clarification because it is aware that contrary advice may have been provided in the past. Businesses that have not collected sales tax in the past should start collecting tax on these services immediately.

The taxation of pipe fitting and plumbing is addressed in department rule 701 IAC 26.36, which states:

701-26.36(422) Pipe fitting and plumbing. Persons engaged in the business of pipe fitting and plumbing are rendering, furnishing or performing a service, the gross receipts from which are subject to tax. "Pipe fitting and plumbing" shall mean the trade of fitting, threading, installing and repairing of pipes, fixtures or apparatus used for heating, refrigerating, air conditioning or concerned with the introduction, distribution and disposal of a natural or artificial substance.

What's the sales tax rate in...

...your town? Any town in Iowa? Go to our business index for the complete list (this is a sortable MS Excel document). Some users may prefer the city-by-city alphabetical list. (pdf)

Legislative highlights for 2003

New legislation passed in 2003 will be summarized in detail and posted on the department's web site as soon as it is reviewed by our Tax Policy section. The list below highlights the changes for 2003.

HF 344 Motor Fuel Tax Paid by Benefited Fire District

Benefited fire districts may receive a refund of motor fuel tax paid on fuel used for public purposes.

HF624 Farm Deer

Expands the definition of Elk qualifying for exemption from sales tax.

HF 636 Legislative Branch

Sales by the new Legislative Services Agency are exempt from sales tax.

HF 654 Equipment and Materials used in mold making

The sale or rental of core and mold making equipment and sand handling equipment directly and primarily used in the mold making process by a foundry are exempt from sales tax. The provision is retroactive to July 1, 1997, and $600,000 is allocated to pay refund claims submitted prior to October 1, 2003.

HF 674 Income Tax deduction and exemption for military personnel

Exempts from income tax amount of military pay while serving in Operation Iraqi Freedom, Operation Noble Eagle and Operation Enduring Freedom. Also includes other income tax benefits.

HF 677 Capital Investment for Business and Tax Incentives

Created a "New Capital Investment Program" administered by the Department of Economic Development. Businesses approved by IDED are eligible for tax credits.

HF 681 Tax Credits and Refunds for Value-Added Co-ops

The prior tax credit for production of ethanol was expanded. Primary production of ethanol is no longer a requirement.

HF683 Endow Iowa tax credit - Streamlined Sales Tax

Created a new tax credit administered by the Department of Economic Development for endowments made to foundations. Authorized Iowa's participation in the national Streamlined Sales Tax program.

HF 689 Providing Retroactive Ethanol Credits for fiscal filers

The prior tax credit was expanded so fiscal year income tax filers can now take the credit for sales made on or after January 1, 2002, of their tax year.

HF692 University-Based Research Utilization Program Tax Credit - Property Tax Pilot

Created a new tax credit administered by the Department of Economic Development. Created a pilot program in 3 counties to test a new way of computing property tax.

SF 441 Transfer of Credits for Eligible Housing Business

Allows for the transfer of certain tax credits administered by the Department of Cultural Affairs. The legislation is retroactive to January 1, 2003.

SF 442 Update IRC References with decoupling

This is the annual update to IRC references. Iowa did not couple with certain federal bonus depreciation provisions.

SF 445 Local Option Taxes for School Infrastructure

The provisions for the School Infrastructure Local Option taxes were repealed effective December 31, 2022. New procedures were implemented to share revenue with districts across the state rather than each county retaining the taxes collected within their county.

SF 453 Lottery Sales Tax Exemption

The sale of lottery tickets will be exempt from sales tax effective July 1, 2003.

Lawn care, landscaping services are subject to tax

People engaged in the businesses of "lawn care" and "landscaping" in this state are performing services which are subject to Iowa sales tax.

"Lawn care" includes but is not limited to the following services: mowing, trimming, watering, fertilizing, reseeding, resodding, and killing of insects, moles, other vermin, weeds, or fungi which may be threatening a lawn. Persons who mow lawns are providing a taxable service regardless of their ages. You will find this information in Iowa Rule 701-26.61.

The services performed by one who arranges and modifies the natural condition of a given parcel or tract of land so as to render the land suitable for public or private use or enjoyment is engaged in the business of "landscaping." The gross receipts from landscaping performed on or in connection with new construction, reconstruction, alteration, expansion or remodeling of a building or structure are not subject to sales tax. You will find this information in Iowa Rule 701-26.62.

Purchase or sale of certain construction equipment exempt from local option taxes

The following are not subject to either of Iowa's local option sales taxes: Self-propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to them, including auxiliary attachments which improve their performance, safety, operation, or efficiency and including replacement parts. These must be used directly and primarily by contractors, subcontractors and builders for new construction, reconstruction, alterations, expansion or remodeling of real property or structures to be exempt. (Purchases or sales of this equipment are still subject to the state sales tax of 5%.)

Please reference 701 IAC 107.9(8) for more information.

Carpet not considered 'building material'

The sale of carpeting, with or without installation, constitutes a retail sale of tangible personal property and is subject to sales or use tax, unless purchased for resale or otherwise exempt from tax. Carpet installation charges, if separately itemized from the carpet, are exempt from sales tax.

Other floor coverings (i.e. vinyl, tile, wood) which are shaped to fit a particular room or area and are attached to supporting floors are considered building materials. They are taxed in the same manner as building materials that are used in the performance of a construction contract.


Didn't receive your sales tax return?

We are occasionally asked what taxpayers should do if they don't get their sales tax return in the mail. If you do not receive it, you may obtain a form from our Web site. Be sure to write in the permit number and filing period. [Editor's Note: Beginning July 2005, sales and use tax forms are no longer mailed. Returns and payments are made electronically through eFile & Pay.]

Use the preprinted sales tax return mailed to you whenever you can. It will expedite the processing of your return.

All deposits and returns must still be filed by the due date, even if you did not receive your preprinted forms.

A penalty of 10% will be added to the tax due if the return is not filed by the due date and at least 90% of the correct tax is not paid by the due date.

If the return is filed timely, but the total amount due is not remitted, a penalty of 5% will be added to the tax due if at least 90% of the correct tax is not paid by the due date.

The interest rate may change yearly. Interest must be added to delinquent tax at a per month rate, beginning on the due date of the return and accruing each month until you make full payment of any or all tax, penalty and interest due. The interest rate per month during the year 2003 is 0.6 percent.

Exemption Certificates

We are often asked how frequently retailers should update blanket exemption certificates received from regular customers.

Department rule 15.3(2)b provides general guidance, stating "A seller who accepts a blanket certificate is required periodically to inquire of the purchaser to determine if the information on the blanket certificate is accurate and complete." The department now recommends that retailers ask for updated certificates at least every three years.

Garden seeds, food plants exempt

A gentle reminder to Iowa retailers that sales of seeds, vegetable plants and fruit bearing trees used to grow food are exempt from Iowa sales tax.

Q & A: Installing Security and Intercom Systems

Question: Is a "hard-wired" burglar alarm system subject to sales tax?

Answer: The service needed to install this type of burglar alarm system is subject to sales tax, unless the service is performed on or in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure. However, the tangible personal property that becomes reality upon installation is subject to Iowa sales or use tax at the time of purchase by the contractor.

The burglar alarm system consists of a main panel that is the control center of the system and connects all of the sensors and keypads used to control the system. This main panel is hard-wired inside the walls throughout the house. There are sensors wired to the door frames and sensors wired in the walls for glass breaks as well as to keypads used to control system functions such as arming, disarming, and bypassing system security zones. Holes are cut in the walls for the keypads to be mounted with brackets anchored to the studs.

This kind of hard-wired security system appears to have become realty with the wiring of the sensors and control panels. When this system is wired in this manner it would appear to be difficult to remove and not something a buyer or purchaser of the home or business would normally think of as being removed when the property is sold.

Question: What if a burglar alarm system is not hard-wired?

Answer: Another type of security system is not hard-wired and the control box with the power supply is plugged into an outlet, and simply sits on a table or is screwed into the wall with screws or attached to the wall with double-sided tape. The sensors are attached in the same manner and can easily be removed without damage to the walls, the doors or the system. This type of system would not be considered part of realty, but is tangible personal property and subject to sales tax. This system could be moved from house to house or business to business.

Question: What about the taxability of a hard- wired intercom system?

Answer: The intercom consists of a hard-wired system which means it is hard-wired to the structure. The door bell is taken out and replaced by a speaker box with the door bell integrated into the speaker box. A large hole is cut into the house where the doorbell was. The speaker boxes are cut into the walls and hardwired by connecting them to the main power supply.

The power supply is hardwired from speaker box to speaker box. This system would now become part of realty, and not something a buyer or purchaser of the home or business would normally think of as being removed when the property is sold. Installation labor of this type of intercom system is subject to sales tax, unless it is performed on or in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure. However, the tangible personal property that becomes reality upon installation is subject to Iowa sales or use tax at the time of purchase by the contractor.

Again, the non-hard-wired systems that are purchased at electronic stores that simply plug into the outlets are taxed at the time of purchase as tangible personal property and they remain tangible personal property upon installation.

Please reference 701 IAC 19.1 for more information.

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