Should you collect sales tax in Iowa?
Sales tax is levied on the retail sale of tangible personal property to your customers, including leasing or renting. However, you will collect the sales tax if you determine the nexus in Iowa. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office in Iowa. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Iowa.
A physical nexus is integrated when your business is engaged in the following in Iowa:
- Selling a tangible personal property in Iowa.
- Maintaining, occupying, or using a place of business or an office in Iowa.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- You have a stock of goods in Iowa.
Constituting an Economic Nexus in Iowa?
If you are a remote seller (i.e., one who doesn’t have a physical presence in the state) and your business sales in Iowa exceed $100,000 during the current or previous calendar year, you are required to comply with and register under sales tax rules.
Click here for more detailed guidance.
How can you Register for Sales tax in Iowa?
To get a sales tax permit in Iowa, you need to apply online at the Iowa online portal (i.e., GovConnectIowa).
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Iowa.
- Contact information.
- NAICS code.
- Estimated taxable sales.
- Nature of business.
Once you apply for the sales tax permit in Iowa, you will receive a letter containing your account number, IDR ID, etc. Generally, it takes around six weeks to get your sales tax license once you apply for it.
Is your product or services liable to Sales tax in Iowa?
Tangible Property: Sales tax in Iowa is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Many services are subject to sales tax in Iowa, such as repairing, communication services, and information services, etc. For more information, click here.
Digital Product: Iowa charges sales tax on digital products. So, if you sell digital products such as software, streaming services, e-books, etc., you need to collect sales tax. Refer here for the guidance issued by the state.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is taxable in Iowa.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, newspapers/ magazines, interstate communication, etc.
You can also visit the Iowa Department of Revenue website (“Taxable or Exempt?” section) for more concise information about taxability and exemptions in Iowa.
How should you collect and calculate state taxes in Iowa?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Iowa-based. The sales tax is destination-based in Iowa, which means you must collect taxes on tangible property sold to buyers based in Iowa.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Iowa has a base sales tax rate of 6%, followed by the local tax rates, which can be up to 1% based on the cities and municipalities. Click here for the sales tax rates in Iowa (including local rates).
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of the items sold. If shipping charges are separately stated on the invoice, there will be no tax applicability; however, you need to collect the tax on the full sales price, including shipping charges, if not stated separately. Click here for the official guidance.
How should you file sales tax in Iowa?
E-file: You can e-file your return using GovConnectIowa.
Payments are also to be remitted along with returns. GovConnectIowa is used to make online payments. The state accepts payments through checks, EFT, credit cards, etc. Visit the GovConnectIowa portal for more information, or reach out to us if you have any doubts.
Even if your sales tax liability is zero, you must file the return to avoid penalty or interest.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Iowa Department of Revenue assigns you a filing frequency, which can be Monthly or Yearly. According to your filing frequency, the due date for filing sales tax would be the last Day of the month following the relevant reporting period.
You must file monthly if your sales and use tax is $1,200 or more per year. Otherwise, you’ll have an option to file Annually. Also, you may file a request to change the filing frequency by submitting an Iowa Business Tax Change (92-033).
Note: If the due date happens to be a holiday or weekend, the next business day will be considered the final due date. Use this link (“Return Filing” section) on the Iowa official website to learn more about due dates and filing frequencies.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a penalty of 5% of sales tax if you file or pay after the due date. If there is an indication of perpetuating the fraud, a penalty of 75% of the tax due can be applied to you. Go through the comprehensive guide of penalties and interest issues by the Iowa Department of Revenue.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.
Sales tax holiday in Iowa
The Iowa sales tax holiday applies to clothing and footwear items having a selling price of less than $100. It requires sellers to charge the sales tax at reduced or zero rates. For detailed information on the sales tax holiday, refer to the Iowa Revenue Department advisory here.