House File 2641 enacted several changes and clarifications to Iowa tax laws on topics of administration, income, sales, and property tax. This is intended to be a basic overview of the sales and use tax provisions of HF 2641. The Department will implement these changes through the administrative rulemaking process or by providing additional guidance as needed.
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In 2019, the legislature created a task force to review the definition of “computer,” as used in Iowa sales tax law and rules, and an exemption for purchases of computers. That task force met throughout the fall of 2019 and submitted its report to the legislature in January 2020, which is available here. This session, the legislature largely enacted the recommendations of the task force: it created a definition of “computer peripheral” in bill section 95, added that term to the exemption in section 96, and rescinded Department rules with definitions of “computer” that predate the one used in Iowa Code section 423.1 in section 97.
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Bill sections 36 and 37 reflect cleanup needed following the significant tax reform legislation of 2018, Senate File 2417. At that time, the legislature broadened the sales tax base to impose sales tax on more modern products and services including specified digital products, such as software. One version of software was omitted from SF 2417: the service of customizing software delivered in physical form. HF 2641 amends Iowa Code section 423.2 to treat such service in the same manner as digitally delivered software and other services provided relating to software. Such purchases will be taxable but will also be subject to the exemption in Iowa Code section 423.3(104) for commercial enterprises. HF 2641 also adds specified digital products to a provision relating to bundled transactions such that those products are now treated similarly to tangible personal property if sold with a service and the service is the true object of the sale.
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Sections 38, 48, 50, and 51 of HF 2641 amend an exemption from sales tax for sales of preserve whitetail deer between 2005 and 2015 to apply the exemption to sales of the activity of commercial recreation that includes the hunt of such a deer. Refunds are not allowed related to this change.
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By way of federal laws and treaties, purchases by tribal governments and their instrumentalities have historically been exempt from sales tax. This was often overlooked or forgotten by those looking to the Iowa Code for guidance because many government entities are specifically enumerated in the relevant provisions and tribal governments were not. Section 39 of HF 2641 adds references to tribal governments to existing exemptions in Code chapter 423 to reflect existing law and clarify any confusion or ambiguity about whether tribal governments or their instrumentalities owe sales tax.
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Prior law provided an up-front exemption and an after-purchase refund for sales tax paid on materials used in construction projects by “designated exempt entities.” While the exemption and refund were largely similar, there were differences in qualifications and what was eligible for one or the other. Sections 40 through 44 of HF 2641 harmonize the two to reduce confusion and provide consistency. Starting July 1, 2020, to be eligible for either an exemption or a refund, a contract for a construction project must be written. Services will now be allowed for an exemption claim as well as a refund claim. The exemption or refund will be allowed if the building materials, supplies, equipment, or services are “completely consumed in the performance of the construction project” and the property “becomes public property or property of the designated exempt entity.”
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In 2008, the legislature raised the statewide sales and use tax rates from 5% to 6%. Another law change from 2008 specified the use tax rate for manufactured housing would remain at 5%. However, a provision imposing a 6% rate remained in the Code as well. Section 45 of HF 2641 cleans up Iowa Code section 423.5(1) by removing the reference to a use tax rate of 6% for manufactured housing.
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HF 2641 clarified the obligations for retailers to collect sales or use tax in light of SF 2417 and the U.S. Supreme Court’s 2018 decision in Wayfair v. South Dakota. Specifically, section 46 added language regarding which taxpayers should maintain sales tax permits and removed now-outdated language about who should collect and remit use tax. Section 47 also clarifies that a retailer and purchaser are jointly liable for unpaid tax on a purchase on which the retailer is required to collect tax until either the retailer remits sales tax or the purchaser remits use tax. If the purchaser remits use tax following the transaction, the retailer is still liable for the unpaid local option sales tax.
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Sections 34 and 35 of the bill make changes to Iowa Code sections 321G.4 and 321I.4. County recorders now have authority to collect sales tax on the sale of snowmobiles and all-terrain vehicles when the tax has not already been paid prior to registration of the items. Prior law required the tax to be paid before those items could be registered, but did not allow the recorder to collect the tax and remit it to the Department, though some may have nevertheless done so. These provisions of the bill were modeled on similar language for boats in Iowa Code section 462A.55.