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Reference Library - Iowa
Legislation & Sales Tax
Reference Library -Iowa
Legislation & Sales
Tax
Current Iowa 2008 Legislative Update report.
Click Here for "Farmers Guide to Iowa Tax" Information
Click Here for Local Option Tax and Out-of-State Business Information
Equipment
Rented to a Contractor Can be Exempt from Iowa Sales Tax
By
Tom Junge, Iowa Field Director
Recently, I was asked whether sales tax should be charged on a tele-handler rented to a contractor and used in the construction of a building. The dealer wanted something in writing and this is what I found.
Building Equipment
The term “building equipment” means any vehicle, machine, tool, implement or device used by a contractor in erecting structures for others; or reconstructing, altering, expanding or remodeling property of others that does not become a physical component part of the property upon which work is performed and is not necessarily consumed in the performance of such work.
The contractor must pay sales tax on any building equipment that is purchased by them but may rent building equipment exempt from sales tax.
Rental of the following are exempt when used in new construction, reconstruction, alteration, expansion, or remodeling:
self-propelled building equipment (does not include vehicles subject to registration)
self-constructed cranes
pile drivers
structural concrete forms
regular and motorized scaffolding
generators
attachments customarily drawn or attached to the above
auxiliary attachments which improve the performance, safety, operation or efficiency of the equipment and replacement parts
tools, including hand tools
compressors
drill presses
forms other than structural concrete forms
lathes
trailers for storage or a business office
portable toilets
While certain building equipment is exempt from local option taxes when purchased by a contractor or builder, it is not exempt from sales tax. This was discussed in a previous article. Visit www.state.ia.us/tax/educate/78527.html#exemptlocal#exemptlocal for more information.
Reference: Iowa Contractors Guide - www.state.ia.us/tax/educate/78527.html
By Tom Junge, Iowa Field Director
Are churches and nonprofit organizations exempt from tax?
Nonprofit entities, churches and religious organizations are not automatically exempt from paying state sales tax on taxable goods and services. This is true even if these entities remain exempt from the payment of state and federal income taxes. State sales tax must be paid unless some other general sales tax exemption applies. Local option sales tax must also be paid on purchases made in jurisdictions that impose the tax.
In other words, a nonprofit corporation, church or other religious organization is treated the same as any other private citizen for sales and use tax purposes when purchasing goods and taxable services at retail.
However, sales of items to any private nonprofit educational institution used for educational purposes are exempt. An “educational institution” means an institution that primarily functions as a school, college, or university with students, faculty, and an established curriculum. The faculty of an educational institution must be associated with the institution, and the curriculum must include basic courses that are offered every year. “Education institution” also includes an institution primarily functional as a library.
When tangible personal property or services are shared by a parochial school and church, the primary use determines if the purchase is taxable. Reference: www.state.ia.us/tax/educate/78595.html
Handling Charge now Exempt
In Iowa, delivery charges are exempt from sales tax, as long as they are separately stated, reasonable in amount, and related to the cost of transportation. Delivery charges are currently defined as “…charges assessed by a seller of personal property for preparation and delivery to a location designated by the purchaser of personal property including, but not limited to, transportation, shipping, postage, handling, crating and packing charges.”
Handling charges now fall under the definition of delivery charges and are exempt from tax on that basis. Under prior law, if the words “handling charge” were used, it was consider a labor charge and subject to sales tax. Reference: www.state.ia.us/tax/news/enew0905.html
Buying a Boat?
Sales of boats and other watercraft in Iowa are subject to the state sales tax rate of 5 percent and any applicable local option taxes. As of July 1, 2005, this is the case not only for sales by dealers, but also for sales between individuals. The “casual sale” exemption no longer applies to sales of boats and other watercraft by individuals who are not regularly engaged in making such sales.
Anyone purchasing a boat from an individual should obtain a receipt that shows the purchase price of the boat and the cost of the trailer if one was purchased with the boat. The buyer will then pay the 5 percent sales tax, plus any applicable local option tax, on the cost of the boat to the county recorder when the boat is registered. The rate of local option tax is based on where the buyer takes possession of the boat.
The 5 percent motor vehicle use tax on the cost of the trailer is paid to the county treasurer when the trailer is registered with them. Local option tax does not apply to purchases subject to motor vehicle use tax, so the trailer will be taxed at the 5 percent rate only. Reference: www.state.ia.us/tax/news/enew0905.html
David Wetsch, an attorney with Wetsch & Abbott, P. L. C., detailed information about the implementation and documentation of the Convert to Theft law during the I-NED Annual Meeting held September 22 in Clive, Iowa. The law, which went into effect in Iowa on July 1, 2005 reads, “If someone rents property and fails to return it, that is evidence of misappropriation.” (Section 714.1 – Subsection 2)
“If a lease specifies when the equipment is to be returned and it is not returned within 72 hours, it is considered a misappropriation,” explained Wetsch. “In addition, if a time is not specified, and the equipment is not returned within five days after PROPER notice sent by certified mail, it also is a misappropriation regardless of whether or not the recipient signed for the mail.”
Wetsch recommends sending notices via restricted certified mail with a return receipt, AND standard mail. He warned members to use extreme caution when writing this letter, and strongly encouraged them to have their corporate attorney review any letter they draft.
He explained, “You CANNOT say, ‘If you don’t give me my equipment back in five days I’m going to prosecute.’ That’s a crime in and of itself. You can include the language, ‘the law in the state of Iowa has changed,’ and then quote that section of the law.”
He recommends amending equipment leases to contain this language. “In order to take full advantage of this law change, leases should be reviewed and revisions considered to fully state payment terms.” He also encouraged distributors to utilize the Internet to check out customers and potential customers.
For example, in Google type in “Iowa Supreme Court.” Click on “on-line records” and type in the business/person’s name. “Most states have this system in place, and Iowa’s system continues to get better and better.” added Wetsch. Another recommended Web site is www.accurint.com.
Wetsch encouraged members to take the following items to small claims court: a copy of the lease, the receipt from the post office for the restricted certified mail, and a copy of the letter sent to the customer. (Note: before sending the letter to the customer, record near the top of the letter, “Mailed by standard mail and restricted certified mail #XXXX on MM-DD-YY.”)
According to Wetsch, a valid legal description (obtained from the county assessor’s website) remains essential to a properly executed mechanics lien. “Mechanics liens can be filed 90 days after the last work was done on the project and leased equipment is a lienable item,” he stressed. “A notice must be provided to the primary contractor, providing the details of the equipment rented to subcontractors. If this notice is not given, you cannot file a mechanics lien.”
Wetsch explained that small claims court is now up to $5,000. “It’s a relatively simple process,” added Wetsch. “While the people at the court house cannot give you advice, they can help you fill out the forms.” Anything over $5,000 goes through district court. “You will probably need a lawyer for district court since the forms and procedures are more complex,” he added.
He stressed that exact company names remain essential for successful judgments. For example, if a company name is Smith Sewer, LLC and you only enter Smith Sewer, it will not work. He also emphasized the importance of using credit applications with all customer rentals, leases and sales. For example, if the credit applicant is Smith Sewer, LLC and you discover in the Supreme Court search that they were just incorporated last Tuesday, get a personal guarantee on the transaction. Whenever personal guarantees are obtained, Wetsch suggests that they run on a separate page.
Wetsch recommends making a photocopy of checks received and placing the copies in the file. “Then if the need arises, you have the person’s bank information to file a garnishment and so forth,” he stressed. He added that it’s understood that the person may have multiple bank accounts, so the one on file may not always have the money when needed.
According to Wetsch, real estate judgments are good for 10 years, while bank accounts (and so forth) remain good for 20 years. All judgments are renewable indefinitely.
Iowa Legislative Update - Three Bills Now in Effect
Reminder: Grain Cart Weight Restrictions
All fence line feeders, grain carts, and tank wagons (operated on highways, bridges or culverts) shall comply with the axle weight requirements (20,000 lbs. single axle/34,000 lbs. tandem axle) beginning July 1, 2005. The year of manufacture (beginning July 1, 2001) of the vehicle is to be permanently made a part of the identification plate on the vehicle. The law allows the weight on any one axle or on a group of axles; or the overall gross weight of a fence line feeder, grain cart or tank wagon; to exceed the maximum weight restrictions by 20 percent. Exempt are all implements of husbandry loaded on hauling units to transport the implements for repair.
Convert-to-Theft Bill
HSB 138, Iowa’s Convert-to-Theft bill, took effect on July 1, 2005. This bill provides evidentiary rules for theft of personal property that is leased or rented. Failing to return or make acceptable arrangements to return personal property within 72 hours following the expiration or termination of the lease or rental agreement is material evidence of the intent to deprive of use and possession. In addition, the willful concealment, or the sale, pawning, loan, abandonment, or giving away of the leased or rented personal property is material evidence of intent to deprive of use and possession.
The bill also specifies that the provision does not apply if the personal property that is leased or rented is a motor vehicle, if the reason it is not returned in a timely manner is due to a defect making the vehicle inoperable, and the lessee or renter has given notice of the defect to the lessor or owner prior to the expiration of the lease or rental agreement. Obtaining possession of personal property by means of deception is also made evidence of intent to deprive of use and possession.
The owner of the personal property is deemed to be the owner of property until the owner has endorsed the sale and transfer of ownership, or unless there has been a written agreement to the contrary. The bill’s provisions apply to all forms of leases and rental agreements concerning personal property. Proper notice is defined as written notice sent by certified or restricted certified mail to the last known address of the lessee or renter, regardless of whether or not the lessee or renter signs a receipt for the notice.
Transfer of Business
HF 373, passed by the Iowa Legislature in 2005, went into effect July 1, 2005. It says that if an owner of a dealership notifies his/her manufacturer in writing of an impending sale of the dealership, the manufacturer has 60 days to accept or reject the request. The supplier cannot unreasonably deny the request and must provide the dealer with a written notice stating the reasons for denial.
For complete text of these bills and for updates on Iowa legislature, visit www.legis.state.ia.us/aspx/Cool-ICE/DisplayBills.htm
Iowa Legislative Update - April 2004
Following is a brief look at legislation affecting members in Iowa.
HF 373, a bill for an act relating to equipment dealerships by providing for the sale or transfer of a dealership and providing for the Act’s applicability, was unanimously passed in the House on March 2, 2005, passed in the Senate on March 14, 2005, and has gone to the governor for his signature.
The bill reads, “If a supplier has contractual authority to approve or deny a request for a sale or transfer of a dealer’s business or an equity ownership interest therein, the supplier shall approve or deny such a request within 60 days after receiving a written request from the dealer. If the supplier has neither approved nor denied the request within the 60-day period, the request will be deemed approved. The dealer’s request shall include reasonable financial information, personal background information, character references and work histories for the acquiring persons. If a supplier denies a request made pursuant to this paragraph, the supplier must provide the dealer with a written notice of such denial that states the reasons for such denial. A supplier may only deny a request based on the failure of the proposed transferees to meet the reasonable requirements consistently imposed by the supplier in determining approval of such transfer and/or approvals of new dealers.”
HSB 138, the lease or rental convert to theft bill is still in the House.
For the complete text of these bills and for updates on Iowa legislature, visit http://www.legis.state.ia.us/aspx/Cool-ICE/DisplayBills.htm.
By Tom Junge, Iowa Field Director
Are Churches Exempt From Paying Sales Tax?
Churches, religious organizations and other nonprofit entities are not
exempt from paying state sales taxes on taxable goods and services.
This is true even if these entities are exempt from paying state and
federal income taxes.
The Iowa
Department of Revenue encourages businesses to give customers its phone
number when
disagreements over sales tax arise. To
talk with a tax specialist call 1-800-367-3388. If you prefer to communicate via e-mail, send it to idrf@idrf.state.ia.us.
Buying Computers For Your Business?
Your purchase may be exempt from Iowa sales tax.
Your purchase is exempt if you are a “commercial enterprise,” which
includes businesses and manufacturers conducted for profit, insurance
companies and financial institutions.
If your
business is a “profession” or “occupation,” your computers are
taxable. For example, lawyers and
doctors do not qualify for the exemption.
Farming is also considered an occupation; therefore, farmers do not
qualify for the exemption.
More
information is available at http://www.state.ia.us/tax/educate/78575.html.
Freight/Transportation Charges/Shipping
Freight/delivery/transportation charges are exempt if they are separately invoiced or separately stated on the bill.
When freight or transportation charges are not separately stated in the sale agreement, they become part of the purchase price and are subject to tax.
Service call fees: Trip fee/flat fee is taxable, whereas a mileage charge ($.00/mile) is not.
Ask Before You Sell!
An item may be taxable to one buyer and not another.
For example, the sale of a skid loader is:
· Exempt when sold to a farmer if it will be used directly and primarily in agricultural production.
· Subject to the 5 percent state rate only when sold to a construction contractor who will use it directly and primarily in new construction, reconstruction, alteration, expansion or remodeling of real property or structures.
· Subject to the state rate and any local option sales tax when sold to most other customers.
Iowa
Sales Tax Changes - July 1, 2004
By
Tom Junge, Iowa Field Director
Effective July 1, 2004, Iowa will change the rule that determines sales tax jurisdiction on the sale of products sent from a retailer via mail or common carrier (Fed Ex, UPS, Freight Carriers) to a customer. Before this date, the sales tax of the retailer’s location was applied. After July 1, the sales tax charged is the tax coinciding where the customer resides.
For example, previously the Association charged the Polk County sales tax rate for forms and supplies shipped via UPS to Iowa dealers. After July 1, the office will charge the sales tax of the county where the dealer or distributor resides.
This change will make the sales tax jurisdiction the same regardless if delivered by a dealer’s vehicle or common carrier. A chart providing local option tax jurisdictions is available at www.state.ia.us/tax/business/business.html. Dealers may use this chart to make changes to customer records.
For out-of-state shipments:
If you have a presence (nexus) in a state, you will need to have a sales tax permit for that state and collect the sales tax for where the customer resides. Nexus is generally having a salesman, serviceman or customer service representative traveling the area, or a facility or inventory in the state.
If you have no presence (nexus) in a state, then you do not need to collect sales tax for items shipped via common carrier. The customer is required to pay a use tax in the state where they reside.
There are varying definitions for nexus. Please review the states that you do business in for their definition. These can usually be found on the Internet. If you would like us to research a state, please call the Association office at 800-622-0016.
Industrial
& Outdoor Power Eq. Now Included in Chapter 322F of the Iowa Code
By Tom Junge, Iowa Field Director
Effective July 1, 2003 the Iowa buyback law (as we call it) will include industrial and outdoor power equipment. For those unfamiliar with this law, it includes:
· required notice of termination;
· good cause for termination;
· repurchase of specified equipment, attachments, parts, service tools and computers;
· death or incapacity of dealer terms;
· supplier’s assignees and successors in interest;
· supplier violations; and
· supplier liability.
While the bill won’t be rewritten until September or October, this is how we expect the changes will read:
322F.1 – Definitions
“Dealer” or “dealership” means a person engaged in the retail sale of equipment.
“Equipment” means agricultural equipment, construction equipment, industrial equipment, utility equipment or outdoor power equipment. However, “equipment” does not include self-propelled machines designed primarily for transportation of persons or property on a street or highway.
“Agricultural equipment” means a device, part of a device or an attachment of a device designed to be principally used for an agricultural purpose. “Agricultural equipment” includes but is not limited to equipment associated with livestock or crop production, horticulture or floriculture. “Agricultural equipment” includes but is not limited to tractors; trailers; combines; tillage, planting and cultivating implements; balers; irrigation implements, and all-terrain vehicles.
“Construction equipment,” “industrial equipment” or “utility equipment” means a device, part of a device or an attachment to a device to be principally used for a construction or industrial purpose. “Construction equipment,” “industrial equipment” or “utility equipment” includes equipment associated with earthmoving, industrial material handling, mining, forestry, highway construction or maintenance and landscaping. “Construction equipment,” “industrial equipment” or “utility equipment” includes but is not limited to tractors, graders, excavators, loaders and backhoes.
“Outdoor power equipment” means equipment using small motors or engines, if the equipment is used principally for outside service, including but not limited to aerators, augers, blowers, brush clearers, brush cutters, chain saws, dethatchers, edgers, hedge trimmers, lawn mowers, pole saws, power rakes, snowblowers and tillers.
322F.2 – Notice of Termination
A supplier shall terminate a dealership agreement for equipment other than outdoor power equipment by cancellation, renewal, or a substantial change in competitive circumstances only upon good cause and upon at least ninety days’ prior written notice delivered to the dealer by certified mail or restricted certified mail.
A supplier shall terminate a dealership agreement for outdoor power equipment by cancellation or renewal only upon good cause and upon at least ninety days’ prior written notice delivered to the dealer by restricted certified mail or hand delivered by a representative of the supplier to the dealer or designated representative of the dealer.
A written termination notice must specify each deficiency constituting good cause for the action.
322F.3 Termination of Agreement – Repurchase of Equipment
The supplier must pay the dealer or credit the dealer’s account with one-hundred percent of the net cost of all equipment used in demonstrations, including equipment leased primarily for demonstration or lease, at the equipment’s agreed upon depreciated value, provided that such equipment is in new condition and has not been abused.
322F.7 Supplier Violation
A supplier violates this chapter if the supplier does any of the following:
For a dealership agreement governing equipment other than outdoor power equipment, takes action terminating, canceling, failing to renew the dealership agreement; or substantially changes the competitive circumstances intended by the dealership agreement, due to the result of conditions beyond the dealer’s control, including drought, flood, labor disputes or economic recession.
For a dealership agreement governing outdoor power equipment, takes action terminating, canceling, or failing to renew the dealership agreement due to the results of conditions beyond the dealer’s control, including drought, flood, labor disputes, or economic recession.
322F.8 Supplier Liability
For a dealership agreement governing equipment other than outdoor power equipment, a dealer may be granted injunctive relief against unlawful termination, cancellation or the nonrenewal of the dealership agreement, or a substantial change of competitive circumstances as provided in section 322F.2.
For a dealership agreement governing outdoor power equipment, a dealer may be granted injunctive relief against unlawful termination, cancellation or the nonrenewal of the dealership agreement as provided in section 322F.2.
322F.9 Applicability
For all dealership agreements governing agricultural equipment used principally for floriculture and for all dealership agreements governing construction equipment, industrial equipment, utility equipment and outdoor power equipment, this chapter applies to those dealership agreements in effect that have no expiration date and all other such dealership agreements entered into or renewed on or after the effective date of this act. Any dealership agreement in effect on the effective date of this Act, which by its own terms will terminate on a subsequent date, shall be governed by the law as it existed prior to the effective date of this Act.
This bill took considerable effort to pass legislation and dealers should appreciate the protection it offers. If a copy of this complete law is needed before it is finalized by the state, contact the Association office we can provide you with a working document of the bill.
Frequently
Asked Questions (FAQs) Regarding Iowa Sales Tax
By Tom Junge, Iowa Field Director
1)
We sent some people to a training class at one of our suppliers.
The bill for the training class included sales tax.
Should it have been taxed?
Training is a service that is exempt from sales tax.
However, if books, manuals, etc. are purchased separately as part of
the training, those tangible materials are subject to sales tax.
2)
Should sales tax be charged to anyone for warranty work?
They knew the customer didn’t pay, but wondered if it’s to be
charged to the distributor or manufacturer for replacement parts and/or labor.
No sales tax is collected on warranty work.
It is presumed that any applicable sales tax was collected at the time
the warranty was put into effect. If
the warranty was included with the original purchase, tax would have been
collected on the sale if the item purchased was subject to sales tax.
If the warranty was purchased separately and sales tax was applicable,
then it was collected at that time. If
there’s a deductible on the warranty (e.g. consumer is responsible for the
first $50 of warranty work) then sales tax is collected on the deductible
amount only.
3)
Is a Gopher Plow exempt from sales tax?
It is felt that a
Gopher Plow is not directly and primarily used in the production of
agriculture. When in doubt, collect the sales tax and inform the customer that
they can file for a refund by submitting a claim to the revenue department.
The customer can use form IA 843 Claim for Refund.
This form can be found at www.state.ia.us/tax/forms/sales.html#sales
Effective July 1, 1999 any person operating farm equipment on a roadway must comply with the posted weight restrictions on embargoed bridges and culverts. If weight restrictions are not posted, there are no limitations. Exceptions to the weight embargo apply to road maintenance equipment and implements being hauled by an implement dealer, as well as fire apparatus.
Tank wagons and grain carts manufactured after July 1, 2001 must comply with the weight requirements (either posted or 20,000 lbs-single axle/34,000 tandem axle). Those currently in operation and purchased before July 1, 2001 are legal until July 1, 2005. After this date, they must comply with weight restrictions. The year the tank wagon or grain cart is manufactured is to be permanently made a part of the identification plate of the vehicle. Fraudulently altering or defacing the year is punishable as a class “D” felony by imprisonment for up to five years and a fine of at least $500 but not more $7,500.
During a routine conversation with an Iowa Tax Specialist
last month, I asked if the number of sales tax audits has increased, decreased
or remained steady. I asked this
question since it seemed like I knew more dealers who were audited the past
two years than any other time over the ten years I have worked for the
Association. Like most others, I
also wondered if the state would increase efforts to collect taxes since it
needed the revenue. She
emphasized that while there has been a slight increase in the number of
audits, it has nothing to do with the state’s fiscal situation.
She went on to explain that during weaker economic times, sales become
harder to come by and, as a result, retailers in some areas lose sales due to
another retailer bending the rules and not charging sales tax, which causes
complaints against the offending retailer to increase.
Complaints from competitive retailers remain the number one reason why
the state performs an audit on a particular retailer. The number of complaints also continues to grow.
The tax specialist also mentioned that the state is currently in the process
of auditing an ATV dealer. She led me to believe there were instances of sales tax
evasion in regards to the sale of ATVs using the claim that the ATV was used
for the production of agriculture. She
encouraged me to remind dealers that accepting the “Exemption Certificate”
from a customer will not eliminate the dealer’s liability if the dealer
knows that the equipment is not being used directly and primarily in the
production of agriculture or livestock production.
This, in turn, brought up a discussion on the growing number of acreage owners
and, as a result, an increase in equipment (ATVs, compact tractors, zero-turn
mowers, utility vehicles, etc.) sold to these customers.
She stressed that cats, dogs, mules and HORSES are not
considered livestock and that dealers need to hold the line on this issue.
“Livestock” is defined as domesticated animals to be raised on a
farm for food or clothing. Sheep,
cattle, goats, hogs, ostriches, rheas, emus, chickens, ducks, turkeys, pigeons
and fish are considered livestock.
The tax specialist also fears that some dealers allow their salesmen to
suggest to the customer that since they have two horses, a compact tractor
used to clean the barn or mow the pasture can be exempt if the customer signs
an “Exemption Certificate” claiming it is used in the production of
livestock. In this case and
most cases involving the sale of equipment to acreage owners, she feels the
dealer would be held liable for the sales tax because the dealer cannot
accept the “Exemption Certificate” following the “Good Faith”
provision.
She also informed me that the department now has a new computer system that
will allow them to enter a customer name and address and the system will flag
the retailer’s customers who are probably not involved in the production of
agriculture. I believe this
system could have a huge impact on the severity of future dealer audits.
As I mentioned in previous articles relating to sales tax on equipment that is
sold under questionable circumstances, collect the sales tax and inform the
customer that they can file for a refund.
Better yet, give them the refund form (IA 843 Claim for Refund).
You can print this form from the Internet at http://www.state.ia.us/tax/forms/sales.
Many times the customer will back down and pay the sales tax if the
dealer forces the issue.
By Tom Junge, Iowa Field Director
At this year’s Iowa legislative session, all-terrain vehicles were given provisions similar to farm implements regarding the buyback of equipment and parts in the event of a dealership termination.
In section 321G.1, "All-terrain vehicle” is defined as a motorized flotation-tire vehicle with not less than three low-pressure tires, but not more than six low-pressure tires.
Two Iowa Codes that deal with this matter. Chapter 322D pertains to dealers not engaged in the retail sale of equipment designed for primary use in agricultural operations. All-terrain vehicles sold by any business type except an ag equipment dealer falls under this chapter.
Chapter 322F pertains to farm implement franchise agreements and covers a farm implement dealer that sells all-terrain vehicles.
Both chapters address the repurchase of all unused equipment and attachments purchased from the supplier within 24 months preceding notification of intent to terminate.
The main differences between the two chapters are:
Chapter 322D of the Iowa Code states that, upon termination, a dealer has a right to the following payment:
b. Eighty-five percent of the net prices of any repair parts, including superseded parts, which were purchased from the franchiser and held by the franchisee on the date that the franchise terminated.
c. Five percent
of the net prices of parts resold under paragraph "b" for
handling, packing, and loading of the parts.
However, this payment shall not be due to the franchisee if the
franchiser elects to perform the handling, packing, and loading.
Chapter 322F of the Iowa Code states that if a dealership agreement is terminated by cancellation or nonrenewal, the supplier must repurchase equipment and parts in the dealer’s inventory and must repurchase special tools and computer hardware or software required for the dealership.
The supplier must pay the dealer or credit the dealer’s account with 90 percent of the net price for repair parts, including superseded parts listed in the price lists or catalogs in use by the supplier on the date of termination. The supplier shall also pay the dealer or credit the dealer’s account (on the date of termination) with five percent of the net price on all parts returned for the dealer’s handling, packing, and loading of the parts to be returned to the supplier.
More importantly, Chapter 322F provides dealership termination protection that Chapter 322D does not include.
Section 322F.2 states that a supplier shall terminate a dealership agreement by cancellation, nonrenewal, or a substantial change in competitive circumstances only upon good cause and upon at least ninety days’ prior written notice delivered to the dealer by certified or registered mail. The notice must specify each deficiency constituting good cause for the action. The notice must also state that the dealer has sixty days to cure a specified deficiency. If the deficiency is cured within sixty days from the date that the notice is delivered, the notice is void. However, if the deficiency is based on a dealer’s inadequate representation of a manufacturer’s product relating to sales, as provided in section 322F.1, the notice must state that the dealer has eighteen months to cure the deficiency. If the deficiency based on inadequate representation of a manufacturer’s product relating to sales is cured within eighteen months from the date the notice is delivered, it is void.
As you can see, Chapter 322F offers not only repurchase rights but dealer termination protection. This remains important at a time when manufacturers increase pressure on market share and sales quotas.
For a complete copy of these amended codes, contact the Association office.
When dealing with the sale of goods in the state of Iowa that are subject to the Iowa sales tax, the local option sales tax becomes an issue when determining the tax rate. The question remains, when do you charge the local option tax?
Delivery remains the key issue here. Delivery is defined as the location in which the ownership of goods is transferred from the owner to the seller. Following are four scenarios:
1. A customer takes delivery of goods at your business. Since the sale occurs at your place of business, you charge the local option tax (if applicable).
2. If the seller transfers the property to the buyer from the seller’s own vehicle, then the transfer usually takes place at the buyer’s residence or place of business. In other words, if you use your vehicle to deliver an item to the customer’s place, their local option tax would apply (if applicable).
3. If you ship an item via common carrier or U.S. Postal Service to the customer, delivery occurs at the time and place you transfer possession of property to the common carrier or U.S. Postal Service, thus delivery is considered to occur at your place and your local option tax applies (if applicable).
4. If the buyer and seller indicate their intent for the sale to occur elsewhere by use of the term F.O.B. (which means “free on board”) or of a phrase similar to F.O.B., then the “delivery” and sale of good will occur at the F.O.B. point.
Under the Iowa Uniform Commercial Code, the term F.O.B. at a named place is a delivery term under which:
1. F.O.B. (the place of shipment) – the seller must bear the expense and risk of putting the goods in the possession of a carrier. In this case, your local option would apply.
2. F.O.B (the place of destination) – the seller must bear the expense and risk until the goods reach the place where tender of delivery takes place. In this case, the customer’s local option tax would apply.
Example: If a dealer delivers a lawn mower to a customer in a jurisdiction that has a local option tax, the point-of-sale is at the customer’s residence. Therefore, you must collect the local option tax in addition to the state sales tax. However, if the customer picks up the lawn mower at your facility instead (which resides in a jurisdiction that does not have a local option tax), only the state sales tax needs to be collected. It is advised that the dealer indicate on the retail order the point-of-sale, whether delivered or picked-up.
The point-of-service constitutes the point-of-sale. Therefore, if service is performed in a jurisdiction that has a local option tax, that tax must be collected.
Example: If a dealer makes a service call in a jurisdiction that has a local option tax, the dealer needs to collect the state sales tax on labor along with the local option tax. If that same service is performed at your facility (which is in a jurisdiction that does not have a local option tax), only the state sales tax needs to be collected.
The State of Iowa offers a very good website where you can download forms, order publications and read up on tax laws. Here are a few links you might find beneficial.
www.state.ia.us/tax/forms/sales.html#sales
Sales Tax Exemption Certificate
IA 843 Claim for Refund
Local Option Tax Information (jurisdictions, tax rates, maps, etc.)
www.state.ia.us/tax/educate/educate.html
Farmers guide to Iowa taxes (78-507)
Information for agribusinesses (78-636)
www.itrl.state.ia.us/
Iowa Tax Research Library
Sales
Transactions Made to Individuals Residing Outside of Iowa
Part 3 of Iowa Sales Tax Series
By Tom Junge, Iowa Field Director
Generally
speaking, federal law prohibits the taxation of interstate commerce.
Thus, if a dealer ships taxable goods out of Iowa, Iowa sales tax
should not be applicable, no matter what F.O.B. shipping point or F.O.B.
destination point is used.
General Exemption
Iowa Coda 422.45 (46)
The gross receipts from the sale of property which the seller transfers to a carrier for shipment to a point outside of Iowa, places in the United States mail or parcel post directed to a point outside of Iowa by means of the seller’s own vehicles, and which is not thereafter returned to a point within Iowa, except solely in the course of interstate commerce or transportation is exempt from Iowa sales tax. This exemption shall not apply if the purchaser, consumer or their agent, other than a carrier, takes physical possession of the property in Iowa.
Example: A dealer mails or ships replacement parts to a customer who resides outside the state. The parts are exempt from Iowa sales tax. However, the customer needs to pay use tax applicable to their state.
Likewise, the sale of equipment/machinery, attachments or replacement parts to a farmer who resides outside the state when the point of delivery/sale is made in Iowa is considered an Iowa sale and is eligible for the ag exemption. Farmers residing outside the state will need to sign the Iowa exemption certificate and must pay the use tax, if any, in the state in which they reside.
What confuses this simple concept is when a dealer has “nexus,” or a presence in another state. If a dealer has a presence in another state, they are required to collect the sales tax of that state.
The Midwest Border States Compact (MBSC) was developed to address this issue. The MBSC consists of a group of states working together to eliminate unfair competition and to increase compliance by informing consumers about use tax and seeking registration from out-of-state businesses. State governments are becoming more aggressive in searching out taxpayers that may owe outstanding tax liabilities. These states exchange information and cooperate in enforcement efforts.
If you have business presence for tax purposes (nexus), you are required by law to register. Examples of nexus activities include:
Having a representative, agent, or salesperson in the state for the purpose of selling or taking orders.
Leasing tangible personal property or licensing rights for use within the state.
Maintaining a business location within the state.
Delivering goods with company-owned vehicles.
Performing services, installation, construction or repairs.
Stocking inventory in a public warehouse or on consignment.
Example: You have a salesperson that occasionally travels in another state and you sell an item to a customer in that state. By law, you are required to collect the sales tax for that state.
States included in the Midwest Border States Compact include: Illinois, Kansas, Minnesota, Missouri, Nebraska and South Dakota. Wisconsin is not in the Compact, but has a similar nexus definition.
If you feel you have nexus in another state, contact the appropriate state tax agency for forms and instructions to help you comply with filing requirements. Registration alone does not subject you to liability for failure to collect past sales or use taxes. Liability depends on whether or not you had nexus with the state in question in the past and the laws and policies of each state.
Even if you do not have nexus, your registration will prevent the inconvenience of having your customers contacted directly by state tax authorities seeking to collect use tax. Consumers are responsible for remitting use tax on purchases bought from unlicensed out-of-state vendors. The states will bill them for unpaid use tax plus penalty and interest.
Next month, I will discuss when to charge the local option sales tax.
Ag
Equipment Sales Tax Exemption
Iowa Department of Revenue and Finance Clarifies Exempt Items
By Tom Junge, Iowa Field Director
Recently, a dealer in Iowa received a sales tax audit conducted by the Department of Revenue and Finance. Upon this audit, the Revenue agent determined that certain items did not qualify for the ag equipment sales tax exemption. These items included combine head carriers, sprayers, rotary cutters, blades and backhoe diggers.
I-NEDA held discussions with the Department of Revenue and Finance on behalf of the dealer. Following these discussions, the Department of Revenue and Finance declared these items to be exempt as long as they are used in the production of agriculture. They also put in writing that a seller who accepts in good faith a properly completed exemption certificate is relieved of any tax liability.
The following letter addressed to LaVerne Schroeder, I-NEDA’s Iowa Legislative Director, further explains these changes.
December 17, 2001
Dear Mr. Schroeder:
During recent discussions with the Department of Revenue and Finance, you asked for information concerning the taxability of various items. These items included combine head carriers, sprayers, rotary cutters, blades, and backhoe diggers.
There is an exemption in Iowa Code section 422.45(26) for farm machinery and equipment directly and primarily used in agricultural production. This exemption is also explained in department rule 701-18.44. The department would agree with your position that these items are used in agricultural production. Thus, they would qualify for the exemption under section 422.45(26).
Another criteria for the exemption is that the items must be directly and primarily used in agricultural production. This is more of a fact issue that the purchaser needs to verify. Proof of the exemption should be handled by an exemption certificate. The items must also be self-propelled implements or customarily drawn by a self-propelled implement unless the items are used in livestock or dairy production.
A seller who accepts in good faith a properly completed exemption certificate is relieved of any tax liability. If it is discovered that the item does not qualify for an exemption, then the purchaser becomes directly responsible for any tax due. As you can see, a properly completed exemption certificate is very valuable for a seller in this situation. The exemption certificates are explained in department rule 701-15.3.
This information is available on the department’s website. The web address is www.statc.ia.us/tax. The Code and rules are available in the Tax Research section and the forms are available in the Tax Forms section.
Sincerely,
David L. Casey, Manager
Audit Services Section
Compliance Division
Iowa
Sales Tax in Review – Part II
Local
Sales and Service Tax (Iowa Code 422B.8)
By Tom Junge, Iowa
Field Director
A local sales and service tax may be imposed by a jurisdiction on the gross receipts taxed by the state. A local sales and service tax shall be imposed on the same basis as the state sales and service tax and may not be imposed on the sale of any property or on any service not taxed by the state.
Point of service and point of delivery constitute the point of sale. Therefore, the local option sales tax applies if service is performed or a taxable product is delivered within a local option jurisdiction. “Delivery” is the location in which the ownership of the goods is transferred from the seller to the buyer and where the service is rendered, furnished, or performed.
In most instances, the transfer takes place at the seller’s place of business. However, if the seller transfers the property to the buyer from the seller’s own vehicle, then the transfer usually takes place at the buyer’s residence or place of business.
Example 1 – Delivering Equipment
If a
dealer delivers a lawn mower to a customer in a local option jurisdiction, the
point of sale resides in that jurisdiction.
Therefore, the dealer must collect both the local option tax and the
state sales tax. However, if the
customer picks up the lawn mower at the dealer’s facility (located in a
jurisdiction that does not have a local option tax), only the state sales tax
needs to be collected. Dealers
are advised to indicate the point of sale (whether delivered or picked-up by
the customer) on the retail order.
Example 2 – Service Calls
Using
the same scenario, if a dealer makes a service call in a jurisdiction that has
a local option tax, the dealer needs to collect the state sales tax on labor
along with the local option tax. However,
if that same service is performed at the dealer’s facility, only the state
sales tax has to be collected (non-local option jurisdiction).
Remember, certain types of construction equipment remain exempt from the local option sales tax and the local school infrastructure sales tax. That equipment is defined as:
“... self‑propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to self‑propelled building equipment, pile drivers, and motorized scaffolding, including auxiliary attachments which improve the performance, safety, operation, or efficiency of the equipment and replacement parts and are directly and primarily used by contractors, subcontractors, and builders for new construction, reconstruction, alterations, expansion, or remodeling of real property or structures ...”
The above language took effect May 20, 1999.
Examples of equipment include: dozers, graders, asphalt and concrete pavers, cranes, rollers, skid steers, backhoes, excavators and equipment drawn by self‑propelled equipment, like rollers. (Covered equipment is not limited to these specific examples.)
This exemption only applies to local option sales taxes, not the state sales tax.
In order for this provision to be applicable, it must include equipment or parts specifically described above and the equipment must be directly and primarily used by contractors, subcontractors or builders for the purposes specifically described above.
In addition, a purchaser claiming the purchase is exempt from the local option sales taxes must complete an Iowa Sales Tax Exemption Certificate. Please note: this certificate does not reflect a category for construction equipment and local option sales taxes. We recommend you check the “other” box under the section, “Purchaser is doing business as a” and write in either “contractor, subcontractor or builder.” Under the section, “Purchaser is claiming exemption for the following reason” check the “other” box and write in “qualifying self‑propelled building equipment or parts under Section 42213.8 and Section 422E.3.” It remains very important to describe the equipment or part being purchased.
The
Iowa Department of Revenue and Finance also allows contractors to complete a
blanket exemption certificate to be filed with equipment dealers.
Next month, I will cover the shipping of goods and having presence in
another state.
Iowa
Sales Tax in Review
By Tom Junge, Iowa Field Director
Since we receive numerous phone calls from dealers regarding Iowa sales tax on ag equipment, I thought it would be helpful to revisit a few areas of the law and/or Iowa Department of Revenue’s interpretation over the next few months. This month, I’ll start with Good Faith (Iowa Code 422.47 (3) b & d).
“The sales tax liability for all sales of tangible personal property and all services is upon the seller and purchaser unless the seller takes in ‘good faith’ from the purchaser a valid exemption certificate stating under penalties of perjury that the purchase is for resale or for production of agricultural products (Iowa Code 422.45). If the tangible personal property or services are purchased tax-free pursuant to a valid exemption certificate which is taken in good faith by seller, and the tangible personal property or services are used or disposed of by the purchaser in a nonexempt manner, the purchaser is solely liable for the taxes and shall remit the taxes directly to the department.”
“A valid exemption certificate is taken in “good faith” by the seller, when the seller has exercised that caution and diligence which honest persons of ordinary prudence would exercise in handling their own business affairs, and includes an honesty of intention and freedom from knowledge of circumstances which ought to put one upon inquiry as to the facts. In order for a seller to take a valid exemption certificate in good faith, the seller must exercise reasonable prudence to determine the facts supporting the valid exemption certificate, and if any facts upon such certificate would lead a reasonable person to further inquiry, then such inquiry must be made with an honest intent to discover the facts.”
If a dealer knowingly accepts exemption certificate (status) for items not used directly and primarily in the production of agriculture, the dealer becomes liable along with the customer for the sales tax. When in doubt, collect tax and have the customer file for a refund. Following are four examples of how to apply Iowa sales tax on ag equipment.
Example 1 – Lawn Mowers
A farmer
does not want to pay sales tax on a lawn mower that he says is used for
production of agriculture. He
claims it is used to mow waterways, around farm buildings and fence rows. The dealer accepts an exemption certificate and does not
charge sales tax. The dealer and
customer are both liable. The
dealer becomes liable because he/she accepted the exemption certificate on a
taxable item. The Revenue
Department will collect unpaid taxes, interest and penalty from the dealer.
The dealer may try to collect unpaid taxes from the customer.
(Lawn mowers are taxable. The
only exception is customers who are sod farmers.)
Example 2 – ATV’s & Gators
A farmer purchases an ATV or “Gator” from a dealer and claims
it will be used in the production of agriculture.
To accept an exemption certificate from the farmer, the dealer will
need to exercise reasonable prudence to determine whether the facts support
the valid exemption certificate. If
the farmer states the actual purpose of use to the dealer and the dealer
honestly believes it will be used in agriculture production, the dealer can
accept an exemption certificate and reduce their liability.
(It is advised that
dealers collect the tax and have the farmer file for refund or write in detail
the exempt purpose of use on the retail order and have customer sign it.)
Example
3 – Multi-Use Items*
A
farmer purchases a 3-point mounted snow blower and claims it will be used in
the production of agriculture. To
accept an exemption certificate from the farmer, the dealer will need to
exercise reasonable prudence to determine the facts to support the valid
exemption certificate. For example, if the farmer has no livestock and it is used to
clean the yard and driveway, the dealer will need to collect the sales tax.
On the other hand, if the farmer will use it to clean the feedlot (must
be used mainly for this purpose) it could be considered primarily used in the
production of agriculture.
Example
4 – Multi-Use Items*
A customer purchases a skid loader for livestock production and the
dealer in “good faith” takes a valid exemption certificate knowing that
skid loaders are used in the production of agriculture.
The customer, however, does not use the skid loader in livestock
operation and instead uses it for a landscaping business.
The customer remains solely liable.
However, if the dealer knows that the skid loader will not be used for
the production of agriculture (following the good faith rule) the dealer
cannot accept the exemption certificate.
If the dealer does accept the exemption certificate, he/she will become
liable along with customer.
*Skid loaders, rotary cutters, rear-mounted blades, etc. fall into this multi-use category. On all multi-use items, it is advised to document use on retail order.
Leased
Equipment, Theft & Enforcement - Iowa Code Can Provide Help
By Craig S. Shannon,
Grefe & Sidney P.L.C.
How well do you know your County Attorney? Perhaps you will come to know him or her better after reading this article.
If you rent equipment or machinery, it would be unusual if all of your lessees paid for and returned their leased items in a timely manner. Assuming this to be the case, you may be interested in knowing the substantial help the Iowa Code can provide.
Iowa Code §714.1 (2) defines
“theft” as follows:
“A person
commits theft when the person does any of the following:
…Misappropriates property
which the person has in trust, or property of another which the person has in
the person’s possession or control, whether such possession or control is
lawful or unlawful, by using or disposing of it in a manner which is
inconsistent with or a denial of the trust or of the owner’s rights in such
property, or conceals found property, or appropriates such property to the
person’s own use, when the owner of such property is known to the person.
Failure by a bailee or lessee of personal property to return the
property within seventy-two hours after a time specified in the written
agreement of lease or bailment shall be evidence of misappropriation.”
Emphasis added.
This law has been applied to assist lessors when lessees fail to timely return the leased property in question. For example:
In State v. Bugely, 408 N.W.2d 394 (Iowa App. 1987), the defendant entered into a rental agreement with a car rental agency to rent a car to get to work. The defendant did not return the car when it was to be brought back, so the rental company filed a criminal complaint with the Ames police with regard to the missing car. The defendant was convicted of theft.
In Eggman v. Scurr, 311 N.W.2d 7 (Iowa 1981), Mr. Eggman entered into a written contract for the lease of an automobile from a leasing company on January 11, 1979. He was to return the vehicle on January 15. As of February 1, the vehicle had not been returned and all efforts to contact the defendant were fruitless. Mr. Eggman was convicted of theft.
In State v. Gates, 306 N.W.2d 720 (Iowa 1981), the defendant rented two U-Haul trailers in Waterloo. Neither trailer was returned within seventy-two hours after the time specified for return in the rental agreement. The Court said the failure to return the property is not conclusive evidence, but it may be considered in connection with all other evidence in determining whether the State has proved beyond a reasonable doubt whether the defendant is guilty of theft.
Iowa Code section §714.1 (2) is a powerful incentive to lessees to timely return leased property.
To use