Iowa, celebrated for its rich agricultural roots and innovative strides in renewable energy and technology, stands proudly in the Midwest. It is a state where traditional cornfields meet modern industry. For businesses operating within this diverse economic landscape, paying Iowa sales tax is a crucial aspect.
This guide breaks down everything you need to know about Iowa’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Iowa’s sales tax with confidence and ease.
Sales Tax Nexus in Iowa
When a business creates either a physical or economic nexus, it is required to collect sales tax in Iowa.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Iowa include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Affiliate Nexus or Click-through Nexus: Retailers are considered to have a business presence or affiliate nexus if they have a significant connection with the state through activities like selling similar products under a similar name, having facilities to support deliveries, or using similar trademarks. This includes various actions that help them maintain a market in Iowa, such as delivering, installing, or offering customer services related to their products.
- Presence at Trade Show: If you’re organizing an event like a show, flea market, roadside stand, or any gathering where people sell taxable goods or services, you’re known as an Event Sponsor. You must register your event with the authorities within ten days before it takes place.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus.
Beginning July 1, 2019, the threshold for economic nexus in Iowa is 100,000 in gross revenue in the previous or current calendar year’s sales.
While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing economic sales tax nexus. To access a comprehensive list of these rules, please refer to the governing laws for economic sales tax nexus requirements in Ohio.
Iowa Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Iowa.
Tangible Products
Almost all goods are taxable in Iowa, including:
- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Home Goods
The goods that are exempt from sales tax are:
- Groceries – Sales of food products intended for consumption away from the seller’s premises are tax-exempt. This includes items like bread, bottled water, cereal, dairy products, fruits, vegetables, and several cooking ingredients, while retailer-prepared foods, candy, and specific beverages remain taxable.
- Diapers (cloth and reusable diapers for both children and adults)
- Feminine Hygiene Products (tampons, panty liners, menstrual cups, sanitary napkins, and other similar items designed for feminine hygiene in connection with the human menstrual cycle)
- Prescription Medications
- Textbooks
- Medical Devices
- Energy-efficient Appliances – Iowa provides tax exemptions for products that promote energy efficiency.
- Agricultural Supplies: Seeds, fertilizers, and machinery used directly in farming are exempt.
Services
In Iowa, the majority of service-based transactions, such as advertising, employee service, and construction, are
not subject to sales tax.
However, there are specific situations where certain services are taxable. For instance, some of taxable services are:
- Building maintenance like janitorial and cleaning services (non-residential only)
- Alteration and garment repair
- Barber and beauty services
- Photography
- Jewelry and watch repair
- Landscaping, lawn care, and tree trimming and removal
- Sewing and stitching
- Tanning beds or tanning salons
- Demolition
Refer to the state’s website for the full list of taxable services in Iowa.
Software-As-A-Service (SaaS)/Digital Products
SaaS is taxable in the state of Iowa.
Digital Products (i.e., digital audio and audio-visual works, e-books, greeting cards, images, video or electronic games or entertainment, news or information products, and computer software applications ) are also taxable.
Shipping/Handling
Shipping and handling charges in the state of Iowa are not taxable.
Sales tax is exempt if:
- shipping charges are separately contracted for and
- separately stated.
Sales Tax Permits and Licenses in Iowa
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Iowa, the next important step is getting your Iowa Seller’s Permit, also known as a
sales tax permit.
Seller’s Permit
You can register for an Iowa sales tax permit online at the
Iowa Department of Revenue.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
Registration fee
There is no fee to register for a sales tax permit.
Renewal
In Iowa, you don’t have to renew your sales tax permit.
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In Iowa, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
You can fill out the Iowa Sales/Use/Excise Tax Exemption Certificate provided by Iowa after you receive your sales tax permit. You can also fill out the Streamlined Sales and Use Tax Certificate of Exemption if you would like to get sales tax exemption for multiple states simultaneously. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. Iowa is a party to this program, meaning it follows the uniform rules and definitions established by SST.
Check with the Iowa Department of Revenue for the most current information on Iowa’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in Iowa
Sales Tax Computation
In Iowa, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s Iowa Sales Tax Calculator to compute for sales tax.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Iowa and sells to a customer in Des Moines, IA, with a ZIP code of 50309. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
Iowa |
6.00% |
| County: |
Polk |
0.00% |
| District: |
3rd District |
0.00% |
| City: |
Des Moines |
1.00% |
| Combined Sales Tax Rate = |
7.00% |
|
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax.
Iowa is a destination-based state, meaning sales tax is determined based on the seller’s location. That means for an Iowa-based seller, sales tax is generally based on the location of the seller when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Florida to a customer in Des Moines, Iowa, where you have nexus, you’d apply Des Moines’ sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in Iowa
The next step after collection is filing and remitting your Iowa sales tax returns. Filing and remittance can vary in frequency, either semi-monthly, monthly, quarterly, or annually.
- Monthly Filing: Required if liability is less than $1,200 tax per year
- Annual Filing: Mandatory if more than $1,200 tax per year
- Quarterly Filing: Required if tax liability is more than $120 but less than $6,000 per year.
- Semimonthly Filing (Electronic Payment Required): Mandatory for more than $60,000 tax per year. 1st deposit for the 1st-15th of the month due by the 25th, while 2nd deposit for the 16th to the end of the month is due by the 10th of the following month.
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Iowa’s sales tax regulations.
Due Dates
In Iowa, the due date falls on the last day of the following month. For instance, sales tax collected in January is due by February 28th (or 29th if it’s a leap year) for monthly filers.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 31st deadline falls on a holiday or weekend, you’ll have until June 1, the following business day, to submit.
Filing Sales Tax Returns
To file your sales tax return for Iowa, a few options are available:
- File online through GovConnectIowa.
- File by mail – For those without a sales tax permit in Iowa, filing the Non-Permit Use Tax Return (Form 32-007) is required. Unlike other tax filings that require electronic submission, this form can be filed by mail to the designated Iowa state department.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales taxes on time as an incentive to process them promptly. However, Iowa does not offer a discount.
Sales Tax Holiday
For 2024, the planned sales tax holidays in Iowa are:
- Annual Back to School Holiday (August 2-3, 2024) – No sales tax is collected on clothing or footwear priced under $100. Businesses must include these exempt sales in the ‘exemptions’ section of their sales tax return, and the exemption applies to each item priced under $100, not the total invoice.
Iowa Sales Tax Penalties
Like in most states, sales tax is a big part of how Iowa generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in Iowa:
- 5% Penalty for Late Filing: If you file your return late and pay less than 90% of the correct tax, you’ll owe an additional 5% on the unpaid tax.
- 5% Penalty for Late Payment: If you pay less than 90% of the tax due by the deadline, you’ll owe an extra 5% on the unpaid tax.
- Penalty for Audit Deficiencies: A 5% penalty is added if an underpayment is found during an audit.
- 75% Penalty for Fraud: For fraudulent or frivolous tax returns or willful failure to file, a 75% penalty is added. This penalty can’t be waived.
- Penalty Waivers: In some cases, penalties can be waived. File a Penalty Waiver Request form or use GovConnectIowa for eligible taxes.
- $500 Civil Penalty for Frivolous Returns: If your return lacks enough information or shows a substantially incorrect tax due to frivolous positions, you’ll face a $500 penalty.
- $1,000 Penalty for Not Filing after Demand: If you don’t file a return within 90 days after a demand letter from the Department, you’ll be fined $1,000 for each unfiled return. This is in addition to the other penalties.
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