Iowa Sales Tax

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 must collect and remit sales tax to the state, and some out-of-state retailers do as well, depending on whether or not a nexus condition exists. Of course, you only have to pay 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.

Iowa Sales Tax Rates

The state sales tax rate in Iowa is 6%. There is also a local option tax of 1% in effect in much of the state. 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 can be 6% or 7%, depending on the town or other municipality in which you’re operating.

Iowa is a destination-based state, meaning that the sales tax rate 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 that store’s location for sales made there, whether or not they live locally. If you’re shipping goods to your Iowa customers, whether from in-state or out-of-state, you will charge the rate at the delivery location.

Iowa Sales Tax Nexus Regulations

If your small 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:

• Have a physical business location in the state
• Have employees or independent contractors coming into Iowa to perform business-related activities other than solicitation of orders
• Store goods in a warehouse in the state

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.

Iowa’s economic nexus law is similar to most other states, with a threshold of $100,000 in sales made within Iowa by a remote seller. Economic nexus threshold is computed based on total sales during the preceding calendar year.

If you’re unsure whether 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.

What’s Taxable?

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.

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 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 item costs less than $100. This exemption applies to state and local option sales tax and does not include accessory items like jewelry, watches, or sporting equipment.

Iowa Governor Kim Reynolds signed Senate File 2367 into law on June 17, 2022, which brought with it several changes to sales tax and exemption status in Iowa. While the Department of Revenue is still determining who is eligible for a tax exemption certificate and how to address these changes, it’s important to stay current with state developments. Key changes will include:

• Elimination of sales and use tax exemption on computers and peripherals for data storage by commercial organizations by 2024.
• Clarification of exemptions for producers of food and food ingredients, with a retroactive effect to January 1, 2019, that could result in refunds for some companies.
• Exemptions were added for feminine hygiene products and diapers effective January 1, 2023.

Registration and Filing

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 also register to collect and remit Iowa sales tax through that organization’s website. 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.

Due Dates and Penalties

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:

• Annually if your sales tax liability is less than $1,200 per year
• Monthly if your sales tax liability is $1,200 or more per year

For annual filers, your return and your payment will be due on January 31st of the following year.

Iowa recently changed their filing periods for filing periods beginning on or after July 1, 2022. This means there are only annual and monthly filing periods now, depending on if your sales tax liability is more or less than $1,200. All payments are made via GovConnectIowa or by paper.

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 5% of the total tax due. If your return is filed on time, but you have not remitted at least 90% of the tax due by the due date, a penalty of 5% of the total tax due will be charged to your account. You may be subject to both fees, if both are applicable. This supersedes a previous rule and is documented here.

Interest is added to outstanding balances as well at varying rates, and it accrues monthly.

Resources

• Iowa Sales and Use Tax Guide Questions
• Iowa Online Sales Tax Registration
• Iowa Sales Tax Filing Frequencies

Iowa Sales Tax Software

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, so you must stay on top of the myriad regulations, due dates, and other requirements to keep your small business in good standing across the board. Fortunately, you can take advantage of the collection of features that TaxTools and its tax calculator provide 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 your sales in each state and can produce up-to-date reports with location data whenever you need them. It also integrates smoothly with popular e-commerce platforms, so you won’t have to tailor your sales process to accommodate it.

So, sign up for a free trial today if you’re ready to see how TaxTools can help take the stress out of managing sales tax for your business.

Last updated March 2024