When opening a new business, an important step is determining whether the product or service you are selling requires obtaining an Iowa sales tax permit. If you are selling any tangible item, specified digital products, or service that is taxable, you must obtain a sales tax permit.
Tangible Products:
Iowa law states that tangible items are taxable unless specifically exempted by law. Common reasons for exemption are listed below with links to the Iowa Department of Revenue guidebooks relating to that topic. This is not an exclusive list.
» Items primarily and directly used in agriculturally production
https://tax.iowa.gov/farmers-guide-iowa-taxes
» Certain food items
https://tax.iowa.gov/iowa-sales-tax-food
» Medical products for human use and consumption
https://tax.iowa.gov/medical-clinics-and-related-businesses-iowa-sales-and-use-tax-information
» Certain nonprofits
https://tax.iowa.gov/iowa-tax-issues-nonprofit-entities
Specified Digital Products:
Prior to January 1, 2019, whether a digital good or service was subject to sales tax depended on various factors. To be subject to sales tax, a digital product had to constitute either tangible personal property or an enumerated service. Beginning January 1, 2019, taxation of specified digital products, software, and related services changed. Additional information can be found at: https://tax.iowa.gov/taxation-digital-products
Services:
Services, unlike tangible property, are exempt unless specifically listed in the code as taxable.
Approximately 80 services are considered taxable in Iowa and they are as follows:
» Aircraft lease or rental, 60 days or less
» Aircraft repair, remodeling, or maintenance, except when used in a scheduled or nonscheduled interstate FAA certified air carrier operation
» Alteration and garment repair
» Armored car services
» Bank and financial institution service charges
» Barber and beauty services
» Battery, tire and allied services
» Boat repair
» Cable/pay television fees
» Camera repair
» Campgrounds
» Carpentry
» Carpet and upholstery cleaning and repair
» Communication services; excluding internet access fees
» Dance school and dance studio
» Dating services
» Demolition
» Drain cleaning; unplugging toilets, sinks, and sewers
» Dry cleaning, pressing, dyeing, and laundering. Beginning 7-1-2015, the use of self-pay washers and dryers is exempt from tax.
» Electrical and electronic repair and installation
» Employment and executive search agencies
» Excavating and grading
» Exterminators
» Farm implement repair of all kinds
» Flying service and instruction
» Furniture repair and cleaning
» Fur storage and repair
» Garbage collection and disposal, nonresidential commercial only
» Golf and country clubs and all commercial recreation fees, dues, and charges
» Gun repair
» House/building moving
» Household appliance, television, and radio repair
» Investment counseling
» Janitorial and building maintenance or cleaning; non-residential only
» Jewelry and watch repair
» Landscaping, lawn care, and tree trimming and removal
» Limousine, including driver
» Machine operator fees
» Machine repair of all kinds
» Massage; unless performed by a licensed massage therapist
» Mini-storage
» Motor repair
» Motor vehicle, recreational vehicle, and recreational boat rental; when rented without a driver or operator
» Motorcycle, scooter, and bicycle repair
» Oilers and lubricators on vehicles and machines
» Office and business machine repair
» Painting, papering, and interior decorating
» Parking facilities
» Pet grooming
» Photography
» Pipe fitting
» Plumbing, including drain cleaning and unplugging toilets, sinks, and sewers
» Reflexology
» Retouching photographs
» Roof, shingle, and glass repair
» Security and detective services
» Sewage services, nonresidential commercial only
» Sewing and stitching
» Shoe repair and shoeshine
» Sign construction and installation
» Storage warehouse or lockers of raw agricultural products
» Storage of household goods
» Swimming pool cleaning and maintenance
» Tanning beds or tanning salons
» Taxidermy
» Telecommunication services; excluding Internet access fees
» Telephone answering service and telephone services
» Test laboratories, except tests on humans and animals. Beginning 7-1-2015, environmental testing is not taxable
» Tin and sheet metal repair
» Tree trimming and removal
» Turkish baths and reducing salon
» Vehicle repair
» Vehicle wash and wax
» Water conditioning and softening
» Weighing
» Welding
» Well drilling; repair only
» Wood preparation (for example, stripping, cleaning, sealing)
» Wrapping, packing, and packaging of merchandise other than processed meat, fish, fowl, and vegetables
» Wrecker and towing
The following are considered sales of tangible personal property and are taxable:
» Engraving
» Equipment and tangible personal property rental
» Optional warranty contracts
» Printing and Binding
» Recapping and retreading tires
» Vulcanizing
Services that would normally be considered taxable are exempt when performed in connection with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure.
Applying for the permit
If you have determined that the nature of your business requires procuring a sales tax permit, you may apply for the permit at the Iowa Department of Revenue’s website: https://tax.iowa.gov/businesses/business-permit-registration
Your permit number and instructions on how to file returns via the Department’s eFile & Pay system will be mailed to you. You do not need to wait to receive the sales tax permit number to begin operating your business. Once you have applied for the permit, you are allowed to begin conducting taxable sales.
Personal Liability for Paying Taxes
An important thing to keep in mind is that if a business fails to pay sales and use taxes, the officers or partners are personally liable for the tax, interest, and penalty. The dissolution of a corporation or partnership does not discharge a responsible person’s liability for failure to pay tax.
Final note
Taxability of specific items is fact and circumstance dependent. Additional information may found at www.tax.iowa.gov. If you would like assistance in determining taxability, you may reach out to the Iowa Department of Revenue at idr@iowa.gov or 515-281-3114.
About America’s SBDC Iowa and the Author
Lisa Casper, Business Tax Counselor for America’s SBDC Iowa, assists small businesses with questions relating to the Iowa tax code. She provides advice on sales and use tax filings, Iowa tax law that affects small businesses, and general services provided by the Iowa Department of Revenue. She also provides business consulting to help small businesses grow and succeed.
America’s SBDC Iowa is an outreach program of Iowa State University’s Ivy College of Business and the Office of Economic Development and Industry Relations. Funded in part through a cooperative agreement with the U.S. Small Business Administration, America’s SBDC Iowa has 15 regional assistance centers located strategically across the state. Since program inception in 1981, the SBDC has helped Iowa businesses and entrepreneurs through no fee, confidential, customized, professional business counseling and practical, affordable training workshops.
For more information on America’s SBDC Iowa programs or services, visit www.iowasbdc.org, https://www.facebook.com/AmericasSBDCIowa, or @IowaSBDC on Instagram and Twitter.