Iowa — Sales & Use Tax

Iowa imposes a 6 percent sales tax on the sales price of all sales of tangible personal property and certain enumerated services. The complementary use tax applies at the same rate to the use of tangible personal property and services within Iowa when sales tax has not been collected. Unlike tangible personal property, which is subject to sales tax unless specifically exempted, services are taxable only when specified by Iowa law. Iowa Code § 423.2(6) lists dozens of taxable services, including vehicle repair, alteration and garment repair, barber and beauty services, campgrounds, household appliance repair, and pay television. The Iowa Department of Revenue maintains a current list of taxable services.

Source: Iowa Code § 423.2; Iowa DOR Sales & Use Tax Guide; Iowa DOR Taxable Services

Remote sellers must collect Iowa sales tax if they have $100,000 or more in gross revenue from Iowa sales in the current or immediately preceding calendar year. The threshold includes all Iowa sales revenue—taxable, exempt, wholesale, and marketplace-facilitated transactions. Iowa eliminated its 200-transaction threshold effective July 1, 2019, leaving only the revenue threshold. A remote seller meeting the threshold must register and begin collecting tax on the first day of the next calendar month that starts at least 30 days after exceeding the threshold.

Source: Iowa Code § 423.14A; Iowa DOR Remote Sellers & Marketplace Facilitators

Iowa imposes a state sales tax at a rate of 6 percent on sales of tangible personal property and on the enumerated services listed in Iowa Code § 423.2(6). The complementary use tax applies at the same 6 percent rate under Iowa Code § 423.5. Tangible personal property is taxable unless specifically exempted; services are taxable only when enumerated by statute.

Iowa Code § 423.2, subsection 12, provides: "The sales tax rate of six percent is reduced to five percent on January 1, 2051." This scheduled reduction is codified in the statute and has not been repealed or superseded by subsequent legislation as of June 2026.

The state rate does not include local option sales taxes, which most Iowa jurisdictions impose at an additional 1 percent under Iowa Code chapter 423B. The local option tax applies to the same tax base as the state sales tax.

Source: Iowa Code § 423.2; Iowa Code § 423.5

Marketplace facilitators must collect and remit Iowa sales tax on all taxable sales made through their marketplace if they have $100,000 or more in gross revenue from Iowa sales in the current or immediately preceding calendar year. Once the threshold is met, the facilitator must collect tax on all marketplace sales sourced to Iowa, regardless of the location or sales volume of individual marketplace sellers. Iowa law does not permit facilitators and sellers to agree which party will collect the tax. Marketplace sellers who sell exclusively through a registered facilitator do not need to obtain an Iowa sales tax permit. These requirements became effective January 1, 2019.

Source: Iowa Code § 423.14A; Iowa DOR Remote Sellers & Marketplace Facilitators

Iowa assigns sales and use tax filing frequency based on annual tax liability. Effective July 1, 2022, Iowa eliminated semimonthly and quarterly filing options for sales and use tax, leaving only two filing frequencies: annual and monthly.

Annual filing

Businesses collecting less than $1,200 in sales and use tax per year file annual returns due January 31 of the following year. Annual filers are not required to file electronically, though they may do so.

Monthly filing

Businesses collecting $1,200 or more in sales and use tax per year file monthly returns due the last day of the month following the reporting period. Monthly filers must file electronically through GovConnectIowa. For example, the return and payment for tax collected in July is due August 31.

Seasonal filing

Seasonal businesses operating four months or fewer per year may file monthly returns only for months of operation if they meet the $1,200 annual threshold. The months need not be consecutive. To obtain seasonal filing status, a business must cancel its current permit and register for a new permit; businesses cannot switch to seasonal status through the Business Change Form.

Mandatory monthly filing for certain excise taxes

Certain excise taxes require monthly filing regardless of tax liability amount. These include hotel and motel tax, automobile rental tax, and construction equipment tax. Water service excise tax remains on a separate permit and return and may be filed either monthly or annually.

Elimination of semimonthly filing effective July 2022

On June 17, 2022, Governor Reynolds signed Senate File 2367, which eliminated semimonthly filing and deposit-payment requirements for sales and use tax effective July 1, 2022. Before this change, businesses with more than $60,000 in annual sales and use tax liability were required to make semimonthly deposit payments (twice per month) and file quarterly returns. Under the new law, all sales and use tax permit holders file either monthly or annually and remit actual taxes collected at the time of filing.

The elimination of semimonthly filing applies only to sales and use tax. Iowa withholding tax (a separate tax type) still requires semimonthly deposit payments for employers with more than $120,000 in annual withholding tax liability. Practitioners should not confuse the two regimes—sales tax has only monthly and annual filing; withholding tax retains quarterly, monthly, and semimonthly schedules.

Filing-frequency changes

The Iowa Department of Revenue may change a taxpayer's filing frequency if tax collections increase or decrease substantially over multiple filing periods. Retailers may request a filing frequency change by logging into GovConnectIowa and submitting a Filing Frequency Change request or by submitting an Iowa Business Tax Change Form (92-033). The change is usually effective at the beginning of the next tax period. Taxpayers under the annual filing threshold of $1,200 may request to file and pay monthly.

Due-date adjustments

If the due date falls on a Saturday, Sunday, or holiday as defined in Iowa Code § 421.9A, the due date is the following day that is not a Saturday, Sunday, or holiday. If filing on paper (permitted only for annual filers), the postmark date is accepted as the filing date.

Source: Iowa Code § 421.9A; Iowa DOR Filing Frequency & Return Due Dates; Iowa DOR Sales and Use Tax Permit, Return Filing, and Payment Changes; Iowa DOR Sales & Use Tax Guide; Iowa DOR Iowa Tax/Fee Descriptions and Rates

Iowa authorizes counties and cities to impose a local option sales and services tax at a rate of one percent on transactions subject to the state sales tax. The local option tax must be approved by voters in the jurisdiction and may be imposed in a city, in the unincorporated area of a county, or county-wide. Within a county, some cities may impose the tax while others do not. A jurisdiction may enact the local option tax on January 1 or July 1. The rate is fixed at one percent by Iowa Code § 423B.1(3)—local jurisdictions cannot vary the rate.

Tax Base and Sourcing

The local option sales tax applies to the same tax base as the state sales tax. All sales subject to state sales tax under Iowa Code chapter 423 are subject to local option sales tax. Remote sellers and marketplace facilitators that meet Iowa's economic nexus threshold under Iowa Code § 423.14A must collect local option sales tax on taxable sales sourced to Iowa, the same as retailers with a physical presence in Iowa. This obligation became effective July 1, 2019.

Iowa does not impose a local option use tax—that is, purchasers who self-assess Iowa use tax on out-of-state purchases do not separately calculate or remit local option tax. However, the absence of a local option use tax does not relieve remote sellers with nexus from collecting local option sales tax. Once a remote seller or marketplace facilitator meets the $100,000 economic nexus threshold, the seller must collect both state sales tax and applicable local option sales tax on all taxable sales sourced to locations within Iowa jurisdictions that impose the local option tax.

The local option tax applies to transactions sourced under Iowa's general sourcing rules (Iowa Code § 423.15 and Iowa Admin. Code r. 701-205) to a location within the jurisdiction imposing the tax. Retailers use the same destination-based sourcing rules that apply to state sales tax to determine whether a sale is subject to local option tax and in which jurisdiction the tax applies.

The local option tax cannot be imposed on any transaction not subject to state sales tax. Specific exemptions from local option tax include motor fuel and special fuel consumed for highway use (if fuel tax is paid and no refund has been or will be allowed); sales by the Iowa Department of Transportation; and sales of natural gas or electricity in jurisdictions where those sales are subject to a franchise fee or user fee during the period the fee is imposed.

Collection and Administration

Retailers collect local option sales tax using the same state sales tax permit required under Iowa Code § 423.36. No separate local option tax permit is required. Retailers remit local option tax to the Iowa Department of Revenue along with state sales tax; no payment is made directly to local jurisdictions. Returns break down local option taxable sales and tax by county. The amount of local option tax collected is not included when determining a retailer's filing frequency—only state sales tax liability determines whether a retailer files monthly or annually.

When a retailer should have collected both state sales tax and local option sales tax but failed to do so, the retailer remains liable for the uncollected local option tax even if the purchaser subsequently remits use tax to Iowa. Because there is no local option use tax, the retailer's failure to collect cannot be cured by the purchaser's use tax payment.

Effective Dates

Local option taxes may be imposed only on January 1 or July 1, and the imposition date must be at least 90 days after the date of the election approving the tax. The imposition date must be uniform in all areas of the county voting on the tax at the same election. Jurisdictions may also submit a ballot measure providing for automatic repeal of the local option tax on a specific date (which must fall on January 1 or July 1) without requiring a subsequent election.

Source: Iowa Code § 423B.1; Iowa Code § 423B.5; Iowa Code § 423.14A; Iowa Admin. Code r. 701-270.6; Iowa Admin. Code r. 701-270.7; Iowa DOR Remote Sellers & Marketplace Facilitators; Iowa DOR Local Option Sales Tax FAQ

Iowa imposes distinct penalties for late filing and late payment of sales and use tax under Iowa Code § 421.27, and both may apply if a taxpayer files late and pays late. Interest accrues separately on all unpaid tax under Iowa Code § 421.7.

Failure to timely file penalty

A 5 percent penalty is assessed on the unpaid tax when a sales and use tax return is not filed by the due date. This penalty applies to the amount of tax remaining unpaid as of the due date, regardless of whether the taxpayer later pays the tax. Once imposed, the failure-to-file penalty is assessed on all subsequent amounts found by the taxpayer or the Department to be due for the same tax period.

Failure to timely pay penalty

A separate 5 percent penalty is assessed on unpaid tax when the taxpayer files a return by the due date but fails to pay at least 90 percent of the tax due by that date. Iowa law provides a safe harbor: if the taxpayer pays at least 90 percent of the correct tax by the original due date, no late-payment penalty is assessed on the remaining balance, even if the return itself is filed late or the final balance is paid late. The 90 percent test is calculated on the correct amount of tax due, not the amount the taxpayer initially reported.

Both penalties may apply

If a taxpayer both fails to file a return by the due date and fails to pay at least 90 percent of the tax by the due date, Iowa assesses both the failure-to-file penalty and the failure-to-pay penalty. The two penalties are independent and cumulative under Iowa Code § 421.27(1) and (2). A taxpayer in this scenario incurs a total penalty of 10 percent of the unpaid tax—5 percent for late filing and 5 percent for late payment.

Audit penalty

If the Iowa Department of Revenue discovers an underpayment during an audit or examination, a 5 percent penalty is added to the additional tax found to be due. This audit penalty applies in addition to any late-filing or late-payment penalty already assessed.

Fraudulent return or willful failure to file

A 75 percent penalty is assessed on any unpaid tax or fraudulent claim when a taxpayer willfully fails to file a return or files a fraudulent return with the intent to evade tax. This penalty is not subject to waiver under any circumstance. Iowa Code § 421.27(7) and the Iowa Department of Revenue treat fraud penalties as non-waivable.

Interest

Interest is added to all unpaid tax from the original due date of the return until the tax, penalty, and interest are paid in full. Interest accrues at a rate set annually by the Director of Revenue under Iowa Code § 421.7. The rate is based on the average monthly prime rate during the preceding twelve-month period (October through September), rounded to the nearest whole percent, plus two percentage points. The monthly rate is the annual rate divided by twelve, rounded to the nearest one-tenth of a percentage point. Interest accrues each calendar month or fraction of a month—a partial month is treated as a full month for purposes of calculating interest. The interest rate may change each calendar year.

Interest is imposed in addition to any penalty. Even when a penalty is waived, interest continues to accrue on unpaid tax from the original due date.

Penalty waivers

Iowa Code § 421.27 and Iowa Administrative Code rule 701-10.7 permit the Department to waive late-filing and late-payment penalties under limited circumstances, including: (1) at least 90 percent of the tax due was paid by the due date; (2) for monthly or quarterly filers, one late return or one late payment within a three-year period (the taxpayer must then make timely filings and payments for three years before being eligible for another waiver under this provision); (3) death of the taxpayer, a member of the taxpayer's immediate family, or the person directly responsible for filing the return and paying the tax, when the death interfered with timely filing or payment; (4) serious long-term illness or hospitalization of the taxpayer, a family member, or the person responsible, when such illness interfered with timely filing or payment; or (5) other good-cause circumstances enumerated in the statute and administrative rules. The Department does not waive the 75 percent fraud penalty under any circumstance.

Penalty waiver requests are submitted on Iowa Department of Revenue Form 78-629 (Penalty Waiver Request) or, for eligible tax types, through GovConnectIowa.

Source: Iowa Code § 421.27; Iowa Code § 421.7; Iowa DOR Penalties and Interest Rates

Iowa imposes sales tax on "specified digital products" under Iowa Code § 423.2(10) and on "software as a service" as a separately enumerated taxable service under Iowa Code § 423.2(6)(bu). These provisions became effective January 1, 2019, when Iowa Senate File 2417 (2018 Iowa Acts) repealed the prior exemptions for electronically delivered products and online services.

Specified Digital Products Defined and Taxed

Iowa Code § 423.2(10)(a) imposes a 6 percent tax on the sales price of "specified digital products." Iowa Code § 423.1(55B)(a) defines "specified digital products" as "electronically transferred digital audio-visual works, digital audio works, digital books, or other digital products." The statute provides detailed sub-definitions:

• Digital audio-visual works (§ 423.1(55B)(b)(1)): a series of related images shown in succession and imparted with sounds, if any.
• Digital audio works (§ 423.1(55B)(b)(2)): works that result from the fixation of a series of musical, spoken, or other sounds, including ringtones. The statute defines "ringtones" as digitized sound files downloaded onto a device and used to alert the customer with respect to a communication.
• Digital books (§ 423.1(55B)(b)(3)): works that are generally recognized in the ordinary and usual sense as books.
• Other digital products (§ 423.1(55B)(b)(5)): greeting cards, images, video or electronic games or entertainment, news or information products, and computer software applications.

"Electronically transferred" is defined in § 423.1(55B)(b)(4) as "obtained or accessed by the purchaser by means other than tangible storage media, including but not limited to a specified digital product purchased through a computer software application, commonly referred to as an in-app purchase, or through another specified digital product, or through any other means."

The Iowa Department of Revenue's guidance publication, Taxation of Specified Digital Products, Software, and Related Services, states that before January 1, 2019, "all products delivered electronically were exempt from sales tax." Effective January 1, 2019, prewritten computer software became subject to sales tax "whether delivered or accessed in physical form (as tangible personal property) or electronically (as a specified digital product)." The guidance states that custom software sold in either physical or electronic form is now "taxed in the same manner as prewritten computer software," reversing the prior exemption for custom software.

Software as a Service (SaaS)

Iowa Code § 423.2(6)(bu) lists "software as a service" as a taxable service. The Iowa Department of Revenue guidance states that Iowa law "only imposes tax on 'software as a service' (SaaS)," distinguishing SaaS from other cloud-based services such as infrastructure as a service (IaaS), which the guidance says "are generally considered" IaaS and not subject to tax under the SaaS provision. The Department has separately determined that web-based storage is taxable under Iowa Code § 423.2(6)(bq) as "storage of tangible or electronic files, documents, or other records."

Iowa Code § 423.2(6)(bs) also lists as taxable "services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing either specified digital products or software sold as tangible personal property."

Commercial Enterprise Exemption

Iowa Code § 423.3(104) exempts specified digital products, prewritten computer software, and the enumerated services listed in Iowa Code § 423.2(6)(bq) (storage), (br) (information services), (bs) (services related to installing, maintaining, or enhancing specified digital products or software), and (bu) (software as a service) when purchased by a commercial enterprise and used "exclusively" by that commercial enterprise.

Iowa Code § 423.3(104)(b)(1) defines "commercial enterprise" to include businesses, manufacturers, insurance companies, financial institutions, public utilities, professions, and occupations. The statute expressly excludes nonprofit organizations from the definition of "commercial enterprise," except that nonprofit insurance companies and nonprofit financial institutions are included.

Iowa Admin. Code r. 701-225.7(1) implements the exemption and defines "exclusively" to mean that "any use for noncommercial purposes occurs during the product's total use time, is so small as to make accounting for that use unreasonable or impractical." The regulation provides that "use in the ordinary course of a commercial enterprise's business constitutes exclusive use by a commercial enterprise."

To claim the exemption, the commercial enterprise must provide the vendor with Iowa Sales/Use/Excise Tax Exemption Certificate (Form 31-014A). The commercial enterprise exemption became effective January 1, 2019.

Effective Date and Repeal of Prior Exemptions

Iowa Senate File 2417 (2018 Iowa Acts) enacted the taxation of specified digital products and SaaS effective January 1, 2019. The legislation repealed Iowa Code §§ 423.3(65), (66), and (67), which had exempted access to online computer services, information services, and electronically delivered goods and services.

Source: Iowa Code § 423.2; Iowa Code § 423.1; Iowa Code § 423.3; Iowa DOR Taxation of Specified Digital Products, Software, and Related Services; Iowa Admin. Code r. 701-225.7

Iowa exempts numerous categories of tangible personal property and services from sales and use tax under Iowa Code § 423.3. The statute contains over 100 numbered subsections. The exemptions below represent those most frequently applied.

Food and Food Ingredients

Iowa Code § 423.3(57) exempts the sales price from all sales of "food and food ingredients." The exemption does not apply to alcoholic beverages, candy, dietary supplements, food sold through vending machines, or prepared food, soft drinks, or tobacco.

Iowa Code § 423.3(57) defines "prepared food" to include food sold in a heated state or heated by the seller (including food sold by a caterer) and two or more food ingredients mixed or combined by the seller for sale as a single item. "Prepared food" does not include food that is only cut, repackaged, or pasteurized by the seller; eggs, fish, meat, or poultry requiring cooking by the consumer to prevent foodborne illness per U.S. Food and Drug Administration guidelines; or bakery items sold by the seller that baked them. The statute lists bakery items as including but not limited to breads, rolls, buns, biscuits, bagels, croissants, pastries, donuts, Danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas.

Prescription Drugs and Medical Devices

Iowa Code § 423.3(60) exempts the sales price from the sale or rental of prescription drugs, durable medical equipment, mobility-enhancing equipment, prosthetic devices, and other medical devices intended for human use. The exemption applies when the item is dispensed to an "ultimate user," defined in § 423.3(60)(i) as an individual who has lawfully obtained and possesses a prescription drug or medical device for the individual's own use or for the use of a member of the individual's household.

Iowa Code § 423.3(60)(g) defines "prescription drug" to include a drug intended to be dispensed to an ultimate user pursuant to a prescription issued by a duly licensed practitioner, or oxygen or insulin dispensed for human consumption with or without a prescription. Oxygen and insulin are exempt whether or not prescribed.

Iowa Code § 423.3(60)(h) defines "prosthetic device" as a replacement, corrective, or supportive device, including repair and replacement parts, worn on or in the body to artificially replace a missing portion of the body, prevent or correct physical deformity or malfunction, or support a weak or deformed portion of the body. The subsection provides that "prosthetic device" includes but is not limited to orthopedic or orthotic devices, ostomy equipment, urological equipment, tracheostomy equipment, and intraocular lenses.

Sales for Resale

Iowa Code § 423.3(2) exempts the sales price of sales for resale of tangible personal property or taxable services, or for resale of tangible personal property in connection with the furnishing of taxable services. The exemption does not apply to sales of machinery, equipment, attachments, and replacement parts specifically enumerated in Iowa Code § 423.3(47) and used in the manner described in that subsection.

Manufacturing Machinery, Equipment, and Supplies

Iowa Code § 423.3(47)(a) exempts the sales price from the sale of computers, computer peripherals, machinery, equipment, replacement parts, supplies, and materials used to construct or self-construct such items, when: (1) directly and primarily used in processing by a manufacturer; (2) directly and primarily used to maintain the integrity of the product or unique environmental conditions required for either the product or the equipment used in processing, including test equipment used to control quality and specifications of the product; (3) directly and primarily used in research and development of new products or processes; (4) directly and primarily used in recycling or reprocessing of waste products; or (5) pollution-control equipment.

Iowa Code § 423.3(47)(d)(4)(a) defines "manufacturer" as "a business that primarily purchases, receives, or holds personal property of any description for the purpose of adding to its value by any process of manufacturing with a view to selling the property for gain or profit." Iowa Code § 423.3(47)(d)(4)(b) provides that manufacturing includes refining, purifying, combining of different materials, packing of meats, and activities subsequent to the extraction of quarrying or mining materials. Iowa Code § 423.3(47)(d)(4)(c) excludes persons primarily engaged in construction contracting, repairing personal or real property, providing health care, farming (including cultivating agricultural products and raising livestock), or transporting for hire.

Iowa Code § 423.3(47)(d)(7) defines "replacement part" to mean tangible personal property (other than computers, machinery, equipment, or supplies) that: replaces a component capable of being separated from the computer, machinery, or equipment; performs the same or similar function as the component it replaced; and restores the item to operational condition or upgrades or improves its efficiency.

Iowa Code § 423.3(47)(d)(8) defines "supplies" to include tangible personal property (other than computers, machinery, equipment, or replacement parts) that: (a) is connected to machinery or equipment and requires regular replacement because it is consumed or deteriorates during use, including but not limited to saw blades, drill bits, filters, and other similar items with a short useful life; or (b) is used in conjunction with machinery or equipment and is specially designed for use in manufacturing specific products and may be used interchangeably and intermittently on a particular machine, including but not limited to jigs, dies, tools, and other similar items; or (c) comes into physical contact with other tangible personal property used in processing and is used to assist with or maintain conditions necessary for processing, including but not limited to cutting fluids, oils, coolants, lubricants, and other similar items with a short useful life.

Iowa Code § 423.3(47)(c) excludes hand tools, point-of-sale equipment (subject to specified exceptions), and vehicles subject to registration (unless directly and primarily used in recycling or reprocessing of waste products).

Iowa Code § 423.3(47)(b) also exempts fuel and electricity consumed by computers, machinery, equipment, or computer peripherals used in the exempt manners described in § 423.3(47)(a), subparagraphs (1) through (5).

Agricultural Production Inputs

Iowa Code § 423.3(3) exempts the sales price of agricultural breeding livestock and domesticated fowl.

Iowa Code § 423.3(5) exempts the sales price of agricultural limestone, herbicide, pesticide, insecticide (including adjuvants, surfactants, and other products directly related to the application enhancement of those products), food, medication, and agricultural drain tile (including installation of agricultural drain tile), any of which are to be used in disease control, weed control, insect control, or health promotion of plants or livestock produced as part of agricultural production. Iowa Code § 423.3(5) also provides an exemption for commercial fertilizer, tile intakes, outlet pipes and guards, aluminum and gabion structures, erosion control fabric, water control structures, and miscellaneous tile fittings used in agricultural production.

Iowa Code § 423.3(11) exempts the sales price (exclusive of services) of farm machinery and equipment, including auxiliary attachments that improve the performance, safety, operation, or efficiency of the machinery and equipment and replacement parts, when the implement, machinery, or equipment is directly and primarily used in livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants. The farm machinery exemption also covers machinery and equipment used in the production of grains, seed for planting, fruits and tree nuts, grapes for wine or juice, maple syrup, and honey. Iowa Code § 423.3(11) provides that vehicles subject to registration under Iowa Code chapter 321 or replacement parts for such vehicles are not eligible for this exemption.

Government Purchases

Iowa Code § 423.3(31) exempts the sales price of goods, wares, or merchandise sold to, and of services furnished to and used for public purposes by, a tax-certifying or tax-levying body of the state or a governmental subdivision of the state. The exemption includes regional transit systems as defined in Iowa Code § 324A.1, the state board of regents, department of human services, state department of transportation, municipally owned solid waste facilities that sell processed waste as fuel to a municipally owned public utility, and all divisions, boards, commissions, agencies, or instrumentalities of state, federal, county, or municipal government that have no earnings going to the benefit of an equity investor or stockholder.

Source: Iowa Code § 423.3

Iowa applies destination-based sourcing rules for sales and use tax on tangible personal property, specified digital products, and taxable services. Iowa sales tax or use tax only applies if the sale is sourced to Iowa under the rules in Iowa Code § 423.15. Iowa's sourcing statute implements the Streamlined Sales and Use Tax Agreement (SSUTA) destination sourcing framework.

General Sourcing Rules for Tangible Personal Property and Specified Digital Products

Iowa Code § 423.15(1) establishes a five-tier cascade of sourcing rules for sales of tangible personal property and specified digital products. Sellers apply the first rule that yields a definite location, in the following order:

1. Product received by purchaser at seller's business location. The sale is sourced to the seller's business location where the purchaser receives the product. This applies when the buyer picks up the item in person at a retail store or seller location.

1. Product shipped or delivered to purchaser. When the product is shipped or delivered by the seller or by common carrier to an address known to the seller, the sale is sourced to the delivery address. This is the delivery destination, regardless of FOB terms, the shipping company's location, or whether the seller uses its own vehicle or a third-party carrier. Iowa Admin. Code r. 701-205.6 (formerly r. 701-223.6) explicitly states that "the terms of a sale as F.O.B. (origin) are irrelevant for purposes of sourcing a sale," and "the sale of a product delivered to a shipping company is not sourced to the location of the shipping company."

1. Purchaser's address obtained during consummation of the sale. If the first two rules do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument (such as a credit card billing address) if no other address is available, when use of this address does not constitute bad faith.

1. Address from which the product is shipped or first made available. When the first three rules do not apply—including when the seller lacks sufficient information to apply the previous rules—the sale is sourced to the address from which tangible personal property was shipped, from which the specified digital product or computer software delivered electronically was first available for transmission by the seller, or from which the service was provided, disregarding for these purposes any location that merely provided the digital transfer of the product sold.

1. Fallback: seller's address. Iowa Code § 423.15(1)(e) provides a fallback when none of the previous rules apply.

Sourcing Rules for Taxable Services

Iowa Admin. Code r. 701-205.2 (formerly r. 701-223.2) provides that retailers providing taxable services in Iowa must source those sales using the destination sourcing requirements described in Iowa Code § 423.15. The location where the result of a service is received, first used, or could potentially be first used by the purchaser or the purchaser's donee determines the sourcing.

For services performed on tangible personal property, Iowa Admin. Code r. 701-205.3 clarifies that the service is sourced to the location where the purchaser (or the purchaser's donee) regains possession or can potentially make first use of the tangible personal property on which the seller performed the service. The location where the seller performs the service is not determinative of where the purchaser receives the service. The terms "receive" and "receipt" do not include possession by a shipping company on behalf of the purchaser; when a shipping company delivers tangible personal property on which the service was performed, the service is deemed received where the shipping company delivers the property to the purchaser.

For example, if an Iowa resident takes a lawnmower to an Illinois repair shop and picks it up in Illinois, the service is sourced to Illinois (though Iowa use tax may apply on subsequent use in Iowa). But if the Illinois shop delivers the repaired lawnmower to the Iowa resident's home in Iowa, the service is sourced to Iowa and Iowa sales tax applies.

For tickets or admissions to places of amusement, fairs, and athletic events, Iowa Admin. Code r. 701-205.5 provides that sales are sourced in the same manner as services, using the destination sourcing requirements. Generally, the sale of a service is sourced to the location where the purchaser makes first use of the service. In the case of an event that the purchaser attends at a physical location, first use occurs at the location of the event, regardless of where the ticket is purchased or delivered.

Leases and Rentals of Tangible Personal Property

Iowa Code § 423.15(2) provides that the lease or rental of tangible personal property (other than transportation equipment or property subject to special rules in Iowa Code § 423.16) requiring recurring periodic payments is sourced to the primary property location for each period covered by the payment. The primary property location is the address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with Iowa Code § 423.15(1).

Application to Local Option Sales Tax

Iowa's destination sourcing rules determine not only whether Iowa state sales tax applies, but also which local jurisdiction's local option sales tax applies. Retailers use the same destination-based sourcing rules under Iowa Code § 423.15 and Iowa Admin. Code r. 701-205 to determine whether a sale is subject to local option tax and in which jurisdiction the tax applies. When a product is delivered to a purchaser's address in an Iowa city that imposes the one percent local option sales tax, the retailer must collect both the six percent state sales tax and the one percent local option tax.

Exceptions and Special Rules

Iowa Code § 423.16 lists specific transactions to which the general sourcing rules in Iowa Code § 423.15 do not apply, including sales of motor vehicles, trailers, semitrailers, aircraft, watercraft, modular homes, manufactured homes, and mobile homes. These transactions have separate sourcing rules specified in § 423.16.

Iowa Code § 423.19 provides special sourcing rules for direct mail. Iowa Code § 423.20 provides separate sourcing rules for telecommunications services.

Items Withdrawn from Inventory by a Manufacturer

Iowa Admin. Code r. 701-205.6(7) (formerly r. 701-223.6(7)) provides that when a manufacturer manufactures tangible personal property and uses the property for any purpose except resale or processing, such use is subject to sales tax and is sourced to the county in which the manufacturer first used the property. Taxable use includes using such property as building materials, supplies, or equipment in the performance of a construction contract. Tax is computed upon the cost to fabricate the property.

Source: Iowa Code § 423.15; Iowa Admin. Code r. 701-205.2; Iowa Admin. Code r. 701-205.3; Iowa Admin. Code r. 701-205.5; Iowa Admin. Code r. 701-205.6; Iowa Code § 423.16; Iowa Code § 423.19; Iowa Code § 423.20