As a retailer making sales to customers in Iowa, you need to be aware of the state’s sales tax regulations in order to understand how they may apply to you. Any retailer based in Iowa has an obligation to collect and remit sales tax to the state, and some other out-of-state retailers do as well depending on whether or not a nexus condition exists. Of course, you only have to collect sales tax if what you’re selling is taxable, and if you do have a nexus, you need to know what rates to charge your customers.
The state sales tax rate in Iowa is 6%, and there is a local option tax of 1% in effect in parts of the state as well. These local option taxes are voted on at the county level, but they apply only in cities and unincorporated areas within the county in which a majority voted in favor. That means that even within a county, the sales tax rate may be 6% or 7% depending on the specific town or other municipality you’re dealing with.
Iowa is a destination-based state, meaning that the sales tax rate in force on any given sale is the one that applies at the point where the customer takes possession of the product. If you operate a brick-and-mortar store, you will charge all of your customers the rate for the location of that store for sales made there, whether or not they live locally. If you’re shipping goods to your Iowa customers, though, whether from in-state or out-of-state, you will charge the rate in effect at the delivery location.
If your business involves the sale of tangible personal property that’s taxable under Iowa law, you will be considered to have a nexus in the state for sales tax purposes if you:
If you’re a service provider not based in the state, you will still be considered to have a nexus if you have employees or independent contractors coming into the state to perform those services.
If you’re unsure about whether or not your business is considered to have a sales tax nexus in Iowa, the state provides a questionnaire you can fill out to have a final determination made.
In Iowa, most sales of tangible personal property and many services are taxable. That includes things like admission fees to amusement parks, bowling alleys and athletic events, but not those for state and county fairs. Computer hardware and canned software are taxable, but custom software and any software delivered digitally are exempt.
Groceries are exempt from sales tax in Iowa, while sales of prepared foods are not. Certain medical devices, oxygen equipment and oxygen for medical purposes, insulin and other diabetic equipment and materials, and prescription drugs are also exempt from sales tax as long as they are intended for human use and consumption.
Shipping and handling charges are not taxable when they are stated separately on the invoice or receipt. A complete list of taxable services is available on the state website, as is a list of exempt food items.
Iowa has one sales tax holiday every year. This occurs on the first Friday and Saturday in August, and it applies to items of clothing or footwear, as long as each individual item costs less than $100. This exemption applies to both state and local option sales tax, and it does not include accessory items like jewelry, watches or sporting equipment.
Before you can begin making taxable sales to your customers in Iowa, you will have to register with the state to collect and remit sales tax. This can be done online or by mail, and there is no charge, although a bond may be required if you or a partner in your company has a history of delinquent payment. You will need to obtain a separate permit for each business location you operate in the state.
Iowa is a member of the Streamlined Sales and Use Tax Agreement (SSUTA), so you can register to collect and remit Iowa sales tax through that organization’s website as well. However, when you register with the SSUTA, you will be required to register in all member states simultaneously. This may or may not make sense for you depending on the number of states where you currently do business or where you’re planning to in the near future.
You can file your sales tax return online or by mail, and Iowa does require zero returns, which means that, as long as you hold a valid sales tax permit in the state, you will have to file a return whether or not you made any taxable sales during the period in question.
At the time of your registration, the state will assign you a filing frequency based on your anticipated sales volume. This can be adjusted up or down annually as well if your sales volume changes over time. In general, you will file:
For annual filers, your return and your payment will be due on January 31st of the following year. Quarterly filers must file and pay by the last day of the month following the close of the period in question.
|January – March (Q1)||April 30|
|April – June (Q2)||July 31|
|July – September (Q3)||October 31|
|October – December (Q4)||January 31|
If you fall into the monthly filing category, you will have to submit a deposit for the first two months of the quarter by the 20th of the following month. There is no deposit required for the third month, and your return for the entire quarter as well as the payment of the remainder of your sales tax liability is due on the last day of the month following the end of the quarter.
The process is similar for semi-monthly filers, but in this case, deposits are due on the 25th of the month for sales made from the 1st through 15th, and another deposit is due by the 10th of the following month for sales made from the 16th through the end of the month. No deposit is required for the 6th semi-monthly period in each quarter, and returns are due along with the remaining payment by the last day of the month following the close of the quarter.
This is a slightly different process than most states follow, as it’s customary for monthly and semi-monthly filers to submit returns along with each set of payments. Iowa still requires the payments, but it limits the number of actual returns that need to be filed to a maximum of four per calendar year.
If you are late filing your return and at least 90% of the tax due has not been paid by the due date, you will incur a penalty of 10% of the total tax due. If your return is filed on time but you do not have at least 90% of the tax due in by the due date, a penalty of 5% of the total tax due will be charged to your account. Interest is added to outstanding balances as well at varying rates, and it accrues monthly.
Iowa Sales and Use Tax Guide Questions – https://tax.iowa.gov/iowa-sales-and-use-tax-guide#questions
Iowa Online Sales Tax Registration – https://tax.iowa.gov/businesses/business-permit-registration
Iowa Sales Tax Filing Frequencies – https://tax.iowa.gov/filing-frequencies-and-return-due-dates
It can be especially challenging to keep track of your sales tax returns and payments when you’re doing business in Iowa thanks to their somewhat unique schedule for payment and filing. This is even more of an issue if you do business in multiple states, and so have to stay on top of the myriad regulations, due dates, and other requirements in order to keep your business in good standing across the board. Fortunately, you can take advantage of the collection of features that TaxTools provides to help you do just that.
TaxTools is a suite of software designed to streamline your sales tax collection and reporting, so that you have more time to focus on other areas of your business. It tracks all of your sales in each state, and can produce up-to-date reports complete with location data whenever you need. It also integrates smoothly will all ecommerce platforms, so you won’t have to tailor your sales process to accommodate it.
So, if you’re ready to see how TaxTools can help take the stress out of managing sales tax for your business, sign up for a free trial today.