from the Director:
We are continuing to update our Web site with information of importance to Iowans. It is available at www.iowa.gov/tax.
Recent additions include information on the Iowa Court Debt Amnesty Program. Court Debt Amnesty is an opportunity for people to reduce their outstanding Iowa court debt. The amnesty is only available until November 30, 2010, for certain types of court debt more than four years old. Under Court Debt Amnesty if you pay 50 percent of the total amount of your eligible court debt, the remainder will be waived and your eligible debt will be considered paid in full. For more details, including a link to
additional information, please see the article below.
We have also posted information regarding 2010 Severe Storm and Flooding Disaster Relief. Links are provided for Iowa Homeland Security & Emergency Management Division, FEMA, County Disaster Recovery Centers and the IRS. Please see the article further below for
answers to sales tax questions about services performed as part of the recovery
Summaries of 2010 Iowa Legislation with tax implications are also available.
Federal extenders have not been passed by the U.S. Congress at this time. The federal income
tax extender provisions include: Educator Expenses, Tuition and Fees, and
Itemized Deduction for State Sales / Use Tax Paid. We will update you on their status as information is made available. We will not know whether Iowa will adopt the federal extenders until the 2011 Legislative session occurs.
Mark R. Schuling
Iowa Court Debt Amnesty Program
The Iowa Court Debt Amnesty program applies to certain
types of court debt imposed on cases before December 1,
2006. With the
amnesty, debtors who pay 50 percent of their overdue fines and fees in one lump
sum will have the remaining debt forgiven. The amnesty program
is part of a larger effort to capture significant amounts of debt owed to state
entities approved by the legislature and signed by the governor last
Applications for the amnesty program must be received by the Department of
Revenue between September 1 and November 30, 2010. Eligible debt includes most
fines, fees, penalties and court costs.
The amnesty program does not include delinquent restitution, child support,
alimony, sheriff fees, room and board fees, fines payable to cities or counties,
and civil penalties or reinstatement fees assessed by the Department of
Transportation. A person who is in jail or prison, or under supervised probation
or parole is not eligible. Debtors who are already making payments through the
state centralized collection unit (CCU) of the Department of Revenue or their
county attorney are not eligible.
The Iowa Department of Revenue began mailing notices to persons with delinquent
court debt in September. The mailing includes a notice of the cases
eligible for the amnesty program and an application form. Additional information
is available at www.PayTheFineIowa.gov or by
contacting the Department of Revenue at 888-9-Pay-Fine (888-972-9346) or
email@example.com. To participate in the amnesty program, all payments must be
paid to the Department of Revenue by November 30, 2010.
Flood & Storm Damage – No New Sales Tax Exemptions
The natural disasters that impacted
Iowa earlier this year have generated sales tax questions about services
performed as part of the recovery effort.
Please see our publication titled Services: Which ones are taxable? (78-524)
for a list of services that are normally subject to Iowa sales/use tax.
One of the services listed which
could be performed as part of flood or storm clean-up is that of “janitorial and
building maintenance or cleaning; non-residential only.” This service is taxable
only for non-residential customers.
At this time there are no new sales, use, or local option
tax exemptions specifically addressing clean-up and reconstruction due to flood
or storm damage. However, there is an existing exemption for services performed
on or connected with new construction, reconstruction, alteration,
expansion or remodeling of real property.
Rebuilding a structure damaged by
flood, fire, other uncontrollable disaster or casualty is considered
reconstruction. In this situation, the contractor is responsible for paying tax
to the supplier on materials; however, the contractor does not charge tax to the
building owner on services or materials.
Repairs remain taxable.
Our construction contractors
(78-527) publication explains the
difference between taxable repairs and exempt reconstruction.
If you have questions, please contact the Department.
Sales Tax Exemption – Contracts made directly with the federal government vs. with federal employees
Contracts made directly with the federal government are exempt from Iowa sales/use tax. The federal government is also exempt from both the state 5% excise tax and local hotel/motel tax on lodging. However, sales to federal government employees who are paying with cash, personal check, or personal credit card are subject to tax. This is true even if the employees will be reimbursed by the federal government.
The determination of whether the contract is directly with the federal government can sometimes be difficult when a credit card is used. Please use the following as guidance in those situations:
Cards that are the sole responsibility of the government and that are billed directly to the government (centrally billed) – No taxes should be collected when this type of credit card is used.
Cards that are the responsibility of the employee, are billed to the employee, and are the sole responsibility of the employee (the government is not responsible if the cardholder fails to pay) – Taxes must be collected on purchases made with this card.
Out-of-state Contractors – Building Materials Used In Iowa
Contractors from outside Iowa who perform construction contracts in the state may owe Iowa sales / use tax on building materials used in those contracts. The state sales tax rate is 6% and the state use tax rate is 6%; however, local option sales tax (LOST) of an additional 1% may apply depending upon how and where delivery of the materials occurs. The list of local option tax jurisdictions can change effective January 1 and July 1 of each year.
If delivery does not occur in a local option jurisdiction, local option tax is not due. If delivery occurs within a local option jurisdiction, the local option sales tax may be due.
Delivery usually occurs where the seller transfers physical possession of the property to the buyer. In most instances, this transfer takes place at the seller's place of business.
If the seller transfers the property to the buyer from the seller's own vehicle, then delivery takes place at the location of transfer.
Finally, if the seller transfers the property to the buyer by common carrier or the U.S. Postal Service, delivery occurs at the customer's location.
The use of FOB (free on board), FAS (free along side), or a similar term when goods are shipped by common carrier does not affect where “delivery” occurs, but it will determine if a sales tax or a use tax applies, and if local option tax applies.
Sales or Use Tax and LOST
Whether or not the tax is a sales tax or a use tax is another important distinction in determining if local option tax is imposed.
Local option tax is a sales tax; therefore, in order for local option tax to apply, the transaction must be subject to sales tax.
There is no local option use tax; therefore, local option tax is not imposed on use tax transactions.
The following helps to determine if a transaction is subject to sales or use tax and, therefore, local option tax.
Type of Transaction
A. Intrastate (in-state delivery and in-state seller) – Sales Tax
B. Interstate (in-state delivery – out-of-state seller) – See below
Consider how it is delivered:
1. Vendor's Vehicle – Sales Tax
2. Common Carrier – See below
1. With no FOB or FAS – Use Tax; no LOST
2. With FOB or FAS – See below
1. Origination – Use Tax; no LOST
2. Destination – Sales Tax
The Department knows these concepts can be difficult to interpret. We encourage you to contact us if you have questions.
Credit for Tax Paid to Another State
Contractors who purchase building materials for use in Iowa where delivery of those materials occurs in another state, will be given credit for tax required to be paid to the other state.
Example: An Illinois-based construction contractor frequently builds in Iowa. The contractor purchases and takes delivery of materials in Illinois for use in an Iowa building project. If the contractor paid Illinois sales tax on the materials, Iowa allows a credit for those taxes. If the other state’s sales tax rate is higher than or equal to Iowa’s 6% rate, no Iowa tax is due. If the sales tax rate in the other state is less than 6%, the contractor owes the difference to Iowa. If the contractor did not pay Illinois sales tax on the materials used in Iowa, the contractor must pay Iowa 6% use tax on the materials. This can be done by applying for an Iowa Retailer’s Use Tax Permit and reporting the tax due for out-of-state purchases on line 2 of that return.
Snow Removal - Applying Sand, Salt, Ice-melt
Snow removal is not subject to Iowa
The service of applying sand, salt,
or ice-melt is likewise not taxable.
However, the materials applied –
sand, salt, ice-melt – are taxable products. Sales tax is due on these
- When the snow removal business
applies these materials for their customer and does not make a separately
itemized charge for them, that business is the consumer of the materials and
owes sales tax to its supplier when they are purchased. No tax is charged to
the snow removal business’ customer for services or materials.
- In some cases, the snow removal
business may separately itemize charges to their customer for the materials. If
so, the business may be able to purchase the materials for resale and not pay
sales tax to its supplier when three conditions are met.
- The business and its customer must
agree that the product is being sold separately from the service, and
- The product must be sold to the
customer in a definite form or amount and with a specific price attached,
- The cost of the product must be
itemized on the bill.
When purchasing products for
resale, a valid Sales Tax Exemption Certificate (pdf) will be provided by the snow removal business to the supplier who sells
them the materials. In this situation, the snow removal business must charge
sales tax to their customer on the materials, but not on the
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