Iowa’s sales and use tax is 6 percent for retail sales and services. The state also has a discretionary sales tax and several other tax rates. Businesses pay either the sales or the use tax, but not both on any one item. The total tax rate depends on the type of business and the local tax rate. Most tangible personal property and services are subject to sales and use tax.
This guide does not fully describe all of Iowa’s laws and regulations regarding taxes for the taxpayer. Businesses should contact a business attorney or visit the Iowa Department of Revenue to learn more about the rules, regulations, tax laws, and other tax information associated with their industries and the types of taxes due.
Types of taxes
Iowa has several taxes for various industries and locales in addition to its 6 percent sales and uses tax.
Sales and use tax
Iowa charges sales tax on most tangible personal property. If a business purchases items and does not pay sales tax, it must pay use tax on the items unless it resells those items. A business pays only sale or use tax – not both – on the same item.
Additionally, if a business purchases tangible personal property tax-free and it is not for resale, the business must pay the use tax rate of 6 percent. For example, the business purchases two cases of Widget A. It sells a case but keeps a case to use in the business. The business collects sales tax from customers on the first case but must pay use tax on the second case.
Businesses file the tax liability and reports for both types on the same sales and use tax returns.
Hotel and motel tax
Some counties and cities have a local option hotel and motel tax. This tax applies to:
- Hotels.
- Motels.
- Inns.
- Rooming houses.
- Public lodging houses.
- Mobile homes.
- Tourist courts.
- Beds and breakfasts.
- Any other place that offers sleeping accommodations to transient guests for rent.
Businesses can find the tax for their local jurisdictions in the Excel spreadsheet. Rates range from 1 percent to 7 percent. The tax is added to the state excise tax of 5 percent on lodging.
Motor vehicle fee for new registration
While vehicle sales are exempt from sales tax as long as they are registrable, they do have a 5 percent fee for new registration.
Additionally, a business that leases vehicles must pay a 5 percent fee if the vehicle’s gross weight is less than 16,000 pounds and the lease period is at least 12 months.
The fee is based on the lease price and is per transaction. To find the lease price, multiply the number of months in the lease by the monthly payment, then add in certain adjustments.
The 5% fee is computed on each lease transaction based on the lease price. The lease price includes the number of months of the lease multiplied by the monthly lease payments, plus certain adjustments. For example, if the business leases a 2020 Chevy for two years at a monthly payment of $450, the business would multiply 450 by 24 to get $10,800 for the lease price. The business then charges 5 percent: 10,800 times .05 equals $540. The business can add the tax to the total price of the lease. Thus, the customer would pay $11,340 in total.
Automobile rental tax
When a person rents a vehicle for 60 days or less, the business leasing the vehicle must collect a 5 percent tax in addition to the sales and local option taxes. The tax applies to all vehicles designed to carry up to nine passengers. However, it does not apply to delivery trucks for carrying cargo or motorcycles. Remit the automobile rental tax on the sales tax return.
Discretionary taxes (Local sales tax)
In 2022, most local jurisdictions have a 1 percent discretionary tax on sales of goods and services. A few cities do not have the local option sales tax. The state provides an Excel spreadsheet with the list of municipalities and other business locations that charge the local option discretionary tax.
Additional taxes
The following items are taxed at the 6 percent tax rate plus the discretionary tax unless otherwise noted.
- 911 Surcharge: Up to $1 per line per month.
- Aircraft. These sales do not qualify for the casual sale exemption. They also do not have local option sales tax – only state sales tax at 6 percent.
- All-terrain vehicles, including off-road motorcycles.
- Purchases by people who are not American Indians on a reservation.
- Purchases by American Indians of a reservation.
- Amusement, tickets, and admissions, including fairs, amusement parks, raffles, card game tournaments, and musical devices.
- Private club fees.
- Boats, if delivery is in Iowa or the purchaser purchased the boat out of state for use in Iowa.
- Prepaid telephone calling cards.
- Computers and software.
- Installment sales.
- Fuel, including dyed diesel, unless the dyed diesel is used for agricultural use.
- Gratuities and tips are automatically added to the bill.
- Janitorial and cleaning services.
- Laundry services.
- Optional warranty contracts.
- Printers and publishers.
- Prizes won in a game of skill, including bingo, raffles, and games of skill or chance.
- Transportation services, including taxis, limousines, buses, shuttles, driver services, ride-sharing services, and more.
- Utilities.
- Vending machine sales of certain beverages, candy, and candy products.
Registering for and filing Iowa's taxes
A business can register for a sales tax permit by filing online or manually by paper tax form. To complete the filing, a business needs the Federal Employer Identification Number (FEIN), the business owner’s full name, and the business owner’s Social Security Number.
If a business is filing manually, it must forward the completed form to:
ATTN Registration Services
Iowa Department of Revenue
PO Box 10470
Des Moines IA 50306-0470
Determining payment frequency
A business that collects:
- More than $60,000 in taxes per year or more than $5,000 per month, or more than $2,500 semimonthly must file sales tax returns and remit payments twice every month.
- Less than $60,000 per year, but more than $6,000 per month, you must file quarterly. In short, if you collect anywhere between $500 to $5,000 per month but do not hit the $60,000 yearly threshold, you must file monthly.
- If a business collects more than $120 but less than $6,000 per year, which is $30 to $1,500 per quarter, the business files quarterly.
Due dates for semi-monthly filing vary depending on where the due date falls. When a business pays monthly, all months are due on the 20th of the next month, except March, June, October, and December, which are due on or before the last day of the following month.
Quarterly filings are due on or before the last day of the month following the end of the quarter. For example, tax collected from January through March is due April 30.
Finally, if the business collects less than $120 per year, it can file yearly. In this case, the tax return and tax due are due on January 31 of the next year.
Iowa tax exemptions
Iowa allows for some exemptions to the sales and uses tax. The most common exemptions include:
- Construction services, including reconstruction, expansion, alteration, and remodeling of a building or structure. However, repair services are taxable.
- Services for an employer by an employee are exempt.
- Private nonprofit educational institutions.
- Iowa government subdivisions and government agencies.
- Federal government.
- Some nonprofit care facilities.
- Legal aid organizations if they are nonprofit.
- Nonprofit museums.
Additionally, casual sales are exempt. However, to be considered a casual sale, the seller must be a person who is not a retailer. If the person is a retailer, the item cannot be related to the seller’s regular business. Liquidation sales are also not exempt.
Finally, a person or business can make two sales that are not taxable. The third sale during a year crosses the threshold into “regular” sales instead of casual sales. Additionally, if a seller sells an item once per year every year, the sale is not a casual sale.
Calculating Iowa's sales and use tax rates
To calculate Iowa’s sales and use tax, add the discretionary tax to the state tax rate of 6 percent. Multiply the total sales or services by the total tax rate. For example, if the total rate is 7 percent and the sale is $10, the sales tax is $0.70 and the total sale is $10.70.
FAQs
The sales tax rate for Iowa is 6 percent. The use tax is the same rate. A business pays either sales tax or use tax on an item, but not both on the same item.
A business can download and complete the paper certificate. Do not send the application to the Iowa Department of Revenue. Both the seller and buyer should keep a copy of the certificate.
No. However, you should collect sales tax based on the purchaser’s state and local tax rates. Depending on the purchaser’s address, you might have to sign up for an account with the purchaser’s state.
