Never in my mind would I have imagined ‘spelunking’ in Iowa, but sure enough one of the wonders of Iowa is Maquoketa Caves State Park located just northwest of city of Maquoketa, and which has been listed on the National Register of Historic Places since 1991.
Within the park a trail system links more caves together than found in any other Iowa park, along with multiple rock formations, overlooks, densely forested areas, and a wealth of wildlife. Unfortunately, past explorers have not left a remnant of the stalactites and stalagmites that once graced these limestone foundations.
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Regretfully, you won’t be able to visit this park until next fall because of several major reconstruction projects taking place. By the way, when you do get to go camping at the park you will pay sales tax as part of your campground fees.
And speaking of sales tax, thanks to Avalara, the 'tax people', this article is our fourth in a new (2018) 50 part series, covering sales tax issues associated with each and every state tax jurisdiction in the United States. Insightful Accountant is publishing Sales Tax Tuesday 2018" every Tuesday to give you updated information as well as another look at some of the key information from our 2015 series. So, come take a ride with me in my big RV as we journey from state-to-state looking for what's great, and paying sales taxes all along the way.
Our fourth state in this series, in case you haven’t already figured it out is Iowa. As it was back in 2015, Iowa is still the 30th most populous state with 3,134,693 residents, and 26th most extensive in area with 56,273 square miles. Des Moines is the capital of Iowa and home to the Department of Revenue which is responsible for the registration, collection and administration of sales and uses taxes.
Did you know that Iowa’s capital building, completed way back in 1886, is the only state capital building with five domes? Des Moines also happens to be Iowa’s largest city, followed by Cedar Rapids, Davenport, Sioux City, and Iowa City.
When I think of Iowa, one or two things come to mind almost immediately, ‘corn’ and ‘caucuses’. As the heart of the corn belt, Iowa is the nation’s largest producer of corn, and by companion ‘ethanol’ (made from corn). In fact, 19% of our nation’s corn comes from more than 92,000 farms in Iowa. Almost everywhere you look there are corn fields in Iowa.
You might think that agriculture is probably the ‘big business’ in Iowa, especially since the state also happens to be the largest grower of soybeans, but in reality, manufacturing is the single largest sector of Iowa’s economy. Big within that manufacturing sector are food processing (turning corn and soybeans into processed foods, heavy machinery much of which is used in/by agriculture, and the production of agricultural chemicals.
Major agricultural companies in Iowa include Monsanto, Quaker Oats, Archer Daniels Midland, Cargill and Heartland Port. Additional producers include Tyson Foods, Heinz, Blue Bunny and ConAgra Foods. So even the manufacturing in Iowa has its roots (so to speak) in the state’s long agricultural history.
I mentioned that besides corn, ‘caucuses’ are a big deal in Iowa. That’s because every four years, Iowa holds the first presidential caucuses in our nation. Many people feel that these earliest of indicators are an accurate barometer of where our country will vote when it comes to presidential candidates.
With committed voters this active in politics you might think that Iowa elected officials might be skeptical about tightening-up on sales tax revenues from their constituents, but Iowa Governor Kim Reynolds has recently introduced a sweeping tax proposal to extend sales tax to remote sales, digital goods, and even more services. Governor Reynolds contends that her proposal would put Iowa Main Street businesses “on a level playing field with out-of-state corporations” by enforcing a new tax code that reflects the modern state of our global economy. One of the services that would come under taxation within these new provisions would be ‘personal transportation services’ aimed at forcing ride-share services like Uber to collect sales tax from every rider.
From my perspective it seems that Iowa already taxes more things than not, it doesn’t matter whether it’s merchandise or services, and when I start down the list of ‘taxable services’ I find that the very first thing on the list is ‘Aircraft rental’. It makes me wonder just how much sales tax was paid for that ill-fated charter flight the morning of February 3, 1959; you know, ‘The Day the Music Died’?
I told you in an earlier edition of Sales Tax Tuesday (2018) that we would be visiting some historical markers along our state-by-state journey, so we are stopping to pay our respects at a not so typical marker. Just moments after that chartered plane departed from the Mason City (IA) Airport on a snowy, snowy night, it crashed into a corn field taking the lives of Buddy Holly, Ritchie Valens and J.P. ‘The Big Bopper’ Richardson, three rock-n-roll legends along with the young pilot. Even today, the crash site is visited by thousands of ‘fans’ who trek nearly ½ mile down a dirt path to leave tokens, flowers and even love letters at the landmark to their fallen favorites.
But honoring one landmark deserves honoring another, especially when they are in such near proximity of one another, and extra-especially when one of the landmarks involves 'great food'. So as we head back toward I-35 from the crash site, we swing a little east and into Mason City proper where we find the Northwestern Steakhouse which has been serving up Greek inspired steaks since 1920.
These steaks are flavored with a blend of Greek spices and seasoning incorporated into a butter marinade. While the surrounds are simple, in fact many would call the place 'plain', the food is 'to die for'. What more can I say, even though you will pay 'sales tax' on your steak and pasta, it's well worth it.
Of course if it's fancy you want, and historic as well, there is one more place you just have to check-out while you are in Mason City. I’m talking about Frank Lloyd Wright’s Park Inn Hotel which is on the National Register of Historic Places. This classically restored hotel, is the last of 6 designed by the famed architect.
You will literally take a step-back-in-time as you enjoy the comforts of a simpler era. Take a deep breath while sitting in one of the comfortable leather chairs, you can almost smell the history.
While you won’t pay sales tax on your actual room you will pay hotel/motel tax not to exceed 7% and a 5% state excise tax. You will then pay the 6% state sales tax plus any local option (sales) taxes on all other hotel related sales other than the actual room charge.
As I said a little earlier, Iowa is one state that seems to tax a lot of ‘services’; perhaps more than most other states. For example, the service charges your bank places on your personal checking account are subject to Iowa sales tax. If you are lonely and plan on using a ‘dating service’, that’s taxable too. Storing your fur coat during the summer will also be taxable, as will having your watch cleaned at the local jewelry store. If your car is stuck in a snow drift, you will pay sales tax for the wrecker service to come drag it out. On the other hand, ‘snow removal’ isn’t on the list, so maybe you are better off just hiring some guys to dig your car out. With a list like this, it’s easy to see how merchants could get lured into a false sense of compliance when it comes to sales tax collections; the old ‘is it taxable’ or ‘isn’t it’?
Obviously, the reason that Iowa taxes all this merchandise, and all these services is they feel they need the revenues to support state government, and the services the state provides to the citizens. More than 48% of all of Iowa’s state revenues come from Sales and other gross receipt taxes. Unlike many states Iowa receives essentially no property taxes, so sales tax provides critical revenue for the state.
Staying current on the particulars of sales and use tax is almost a full-time job, especially when you think that the state is potentially about to revamp much of their sales tax requirements, that’s why you need a sales tax expert like Avalara to help you. So, let’s take a look at just a few of the Iowa sales tax facts. In case you missed them, you will find essential definitions related to terminology in this article within our opening article to this series.
- Iowa’s state sales tax rate is 6%. By the way, you won’t pay sales tax on non-prepared food you purchase.
- Depending on local municipalities, the tax rate can be as high at 7%.
- Iowa imposes sales tax on the retail sale of all tangible personal property unless specifically exempted.
- Conversely, only specifically enumerated services (which are many) specified under Iowa law are subject to sales tax.
- Iowa is a destination sourcing state. This means that sales tax is based on the location of the buyer, not the seller.
- Iowa is a member of Streamlined Sales Tax (SST).
- Iowa has one sales tax holiday in August for clothing and footwear. This year (2018) the holiday will be observed the first Friday (8/4) and Saturday (8/5) of August. For a list of what’s taxable and exempt during the holiday see this PDF.
- Iowa assesses a use tax for the use, storage, or consumption of something in a state, regardless of where the purchase was made. For example, if you buy a computer while visiting a state that doesn't charge sales tax, you may still need to pay a use tax when you bring it home to Iowa.
- Under Iowa law, contractors are considered consumers of building supplies and may not seek an exemption for resale. In other words, contractors must pay tax when they purchase building supplies and cannot charge their clients that sales tax.
- A couple of years back Iowa expanded exemptions established within the Streamlined Sales Tax rules as they relate to Manufacturing and Processing exemptions. These include sales/rental of computers, machinery and equipment including replacement parts and materials used to construct or self-construct computers, machinery and equipment; however, they did at the same time remove exemptions for hand tools, point-of-sale (POS) equipment and computers, and certain other industrial equipment and vehicles.
The proposed tax reforms being considered by the state would tax specified digital goods effective July 1, 2018 including: streaming video, video on-demand, pay-per-view, certain information services, the storage of tangible or electronic files, documents, or other records. The tax would also apply to services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products. Also taxed would be video game services and tournaments and all software as a service (SaaS) provided by or to anyone within the state.
"Oh Nuts, it’s taxable." Did you know that fruits, nuts and other ingredients combined with sugar are considered taxable candy in Iowa, but prepared fruit in sugar or similar base are exempt from tax because they are not considered candy. So it seems that nuts make the difference.
Whether you are selling merchandise, or providing dating services, campground spaces, ride-share services, or electronic file storage, you need to know for certain that you are properly administering your responsibilities under Iowa's extensive sales and use tax code. Trying to remain compliant manually makes you prone to error and consumes valuable hours of your time in collection, accounting and reporting for what is pass-through paperwork rather than revenue-generating activities.
Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avalara give you the assurance of compliance without sacrificing productivity so that your sales tax is way less taxing than ever before.