WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Iowa is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Iowa include physical property, like furniture, home appliances, and motor vehicles.
Groceries, prescription medicine, and gasoline are all tax-exempt.
Some services in Iowa are subject to sales tax. For a detailed list of taxable services view this page from the Iowa Department of Revenue website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Iowa does not require businesses to collect sales tax on the sale of digital goods.
However, Iowa has one exception to this policy. Businesses must collect sales tax on pre-written computer software that is sold online.
HOW TO REGISTER FOR IOWA SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Personal identification info (SSN, address, etc.)
- Business identification info (EIN, address, etc.)
- Business entity type (sole-proprietor, corporation, LLC, etc.)
- Date you started to sell in Iowa
- Types of products or services sold
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Ames, Iowa. Since books are taxable in the state of Iowa, Mary charges her customers a flat-rate sales tax of 7% on all sales. This includes Iowa’s state sales tax rate of 6.0% and story county’s sales tax rate of 1.0%.
The state of Iowa follows what is known as a destination-based sales tax policy. This means that long-distance sales within Iowa are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Davenport, Iowa. A customer living in Garden Grove, Iowa finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 6.0% state tax rate for Iowa plus 1.0% for Decatur county’s tax rate. At a total sales tax rate of 7.0%, the total cost is $374.50 ($24.50 sales tax).
Iowa businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Iowa seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Iowa requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
- Annual filing: If your business collects less than $10 in sales tax per month then your business should elect to file returns on an annual basis.
- Quarterly filing: If your business collects between $10 and $500 in sales tax per month then your business should elect to file returns on a quarterly basis.
- Monthly filing: If your business collects between $500 and $5000 in sales tax per month then your business should file returns on a monthly basis.
- Semi-Monthly filing: If your business collects more than $5000 in sales tax per month then your business should file returns on a semi-monthly basis.
Note: Iowa requires you to file a sales tax return even if you have no sales tax to report.
All Iowa sales tax return deadlines fall on the last day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines:
Annual filing: January 31, 2020
- Q1 (Dec. - March. ): Due April 30
- Q2 (April - June ): Due July 31
- Q3 (July - Sept. ): Due October 31
- Q4 (Oct. - Dec. ): Due January 31
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20th for the month of March, or May 20th for the month of April.
Semi-monthly filing: The first period that is paid for is for the 1st through the 15th of the month and is due by the 25th of the month. The second section is for the 15th through the last day of the month and is due by the 10th of the following month. **electronic payment required**
For a complete list of deadlines, check out the Tax Filing Calendar on the Iowa Department of Revenue website.
Penalties for Late Filing
Iowa charges a failure to timely file penalty of 10% of the unpaid tax if you do not file your return by its due date while also paying less than 90% of the tax that is due. If this penalty takes place, then the late payment penalty will not be applied.
Iowa also charges a late payment penalty that is equal to 5% of the unpaid tax if the return was filed but less than 90% of the tax was paid for.
The state assesses the unpaid tax with a compounded interest rate of 5% per year or 0.4% per month or partial month for any unpaid tax or penalty.