Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 270 - Local Option Sales and Services Tax › Rule 701-270.11 - Computation of Local Option Tax Due From Mixed Sales on Excursion Boats

Current through Register Vol. 47, No. 3, July 24, 2024
Particular difficulties exist in calculating the amount of
				  local option sales tax due for sales occurring on an excursion gambling boat
				  sailing into and out of jurisdictions imposing the local option sales tax.
				  Ordinarily, whether local option sales tax is payable to a particular
				  jurisdiction is based on destination sourcing. More information can be found in
				  Iowa Code section 423.15 and 701-Chapter 205.
				  However, it can be quite difficult to determine if a moving excursion gambling
				  boat is at any one point in time within or outside of a jurisdiction imposing
				  the local option tax. Thus, it is difficult to determine if a delivery of
				  property or provision of a service on the boat has occurred inside or outside
				  of a local option tax jurisdiction. Because of this, the department will accept
				  the use of any formula that rationally apportions the progress of an excursion
				  gambling boat among jurisdictions that impose a local option tax and those that
				  do not.
Below are four examples setting out two possible formulas for
				  apportionment. Examples 1 and 3 utilize a "distance" formula for apportionment.
				  Examples 2 and 4 utilize a "time" formula for apportionment. In Examples 1 and
				  2, state sales tax is included in the sales price of the taxable items. In
				  Examples 3 and 4, state sales tax is added to taxable gross receipts. In all
				  examples, local option sales tax is included in the sales price; also, for
				  every example, it is assumed that the local option sales tax rate is 1 percent
				  in every jurisdiction where it is imposed.
EXAMPLE 1: The excursion gambling boat "Auric" is based in
				  Clinton. Assume that during a particular cruise there occurs $10,000 worth of
				  vending machine and nongambling game sales. State sales tax and local option
				  tax must be included in the amounts charged for these vending machine and
				  nongambling game sales. Assume that the Auric, on an ordinary cruise, travels
				  round trip for 50 miles on the Mississippi River, 25 of those miles through
				  waters that are part of a local option sales tax jurisdiction and 25 of those
				  miles that are not. The amount of state sales tax due and the amount of local
				  option sales tax (LOST) due using a "distance" apportionment formula are
				  determined as follows:
1. (25 Ã·
				50) Ã— 0.01 = 0.005
(miles in LOST jurisdiction Ã· total miles) Ã—
				  LOST rate = effective LOST rate
2. 1 + 0.06 + 0.005 = 1.065
1 + state sales tax rate + effective LOST rate = (1 +
				  effective total tax rate)
3.
				$10,000.00 Ã· 1.065 = $9,389.67
Gross receipts Ã· (1 + effective total tax rate) =
				  total sales
4. $9,389.67
				Ã— 0.06 = $563.38
Total sales Ã— state tax rate = state tax amount
5. $9,389.67 Ã— 0.005 =
				$46.95
Total sales Ã— effective LOST rate = LOST amount
6. $563.38 + $46.95 = $610.33
State tax amount + LOST amount = total tax amount
EXAMPLE 2: The excursion gambling boat "Blue Diamond" is
				  based in Davenport. Assume that, as in Example 1, during a particular cruise
				  there occurs $10,000 worth of vending machine and nongambling game sales.
				  Again, state sales tax and local option tax are included in the amounts charged
				  for these vending machine and nongambling game sales. The Blue Diamond spends
				  three hours on the water during an ordinary cruise. One hour is spent sailing
				  in waters where no local option sales tax is imposed; two hours are spent in
				  waters where the local option tax is imposed. In this case, the Blue Diamond's
				  operator can use a formula based on time spent sailing inside and outside of a
				  local option tax-imposing jurisdiction rather than distance traveled within and
				  without such a jurisdiction as in Example 1, so long as there is a reasonable
				  amount of evidence to indicate that the formula reflects with some accuracy the
				  ratio of nontaxable and taxable sales. The calculation is performed as
				  follows:
1. (2 Ã· 3) Ã—
				0.01 = 0.00666
(hours in LOST jurisdiction Ã· total hours) Ã—
				  LOST rate = effective LOST rate
2. 1 + 0.06 + 0.00666 = 1.06666
1 + state sales tax rate + effective LOST rate = (1 +
				  effective total tax rate)
3.
				$10,000.00 Ã· 1.06666 = $9,375.06
Gross receipts Ã· (1 + effective total tax rate) =
				  total sales
4. $9,375.06
				Ã— 0.06 = $562.50
Total sales Ã— state tax rate = state tax amount
5. $9,375.06 Ã— 0.00666 =
				$62.44
Total sales Ã— effective LOST rate = LOST amount
6. $562.50 + $62.44 = $624.94
State tax due + LOST due = total tax amount
EXAMPLE 3: The excursion gambling boat "Golconda" is based in
				  Dubuque. On an ordinary cruise, it will travel a round trip of 50 miles on the
				  Mississippi River. During 25 of those 50 miles, the Golconda is passing through
				  waters that are part of a local option sales tax jurisdiction. Assume that on
				  one particular cruise, $100,000 in taxable gross receipts is collected on the
				  boat. Local option sales tax is included in the $100,000 amount but not state
				  sales tax. Thus, the total amount collected is $106,000; $100,000 in gross
				  receipts, $6,000 in state sales tax. Local option tax is calculated as
				  follows:
1. (25 Ã· 50) Ã—
				0.01 = 0.005
(miles in LOST jurisdiction Ã· total miles) Ã—
				  LOST rate = effective LOST rate
2. 1 + 0.005 = 1.005
1 + effective LOST rate
3. $100,000.00 Ã· 1.005 = $99,502.49
Gross receipts including LOST Ã· (1+ effective LOST
				  rate) = total sales
4.
				$99,502.49 Ã— 0.06 = $5,970.15
Total sales Ã— state tax rate = state tax amount
5. $100,000.00 " 99,502.49 =
				$497.51
Gross receipts including LOST " total sales = LOST
				  amount
6. $5,970.15 +
				$497.51 = $6,467.66
State tax due + LOST due = total tax amount
7. $99,502.49 + $497.51 + $5,970.15 =
				$105,970.15
Total sales + LOST amount + state tax amount = total amount
				  collected by vendor
EXAMPLE 4: The excursion gambling boat "Black Jack" is based
				  in Davenport. Assume that during a particular cruise there is $150,000 in
				  taxable gross receipts collected on the Black Jack. The full amount collected
				  is $159,000; $9,000 in state sales tax and $150,000 in gross receipts. The
				  Black Jack spends three hours on the water during an ordinary cruise. One hour
				  is spent sailing in waters where no local option sales tax is imposed; two
				  hours are spent in waters where the local option tax is imposed. In this case,
				  as in Example 2, the Black Jack's operator can use a formula based on time
				  spent sailing inside and outside of a local option tax-imposing jurisdiction
				  rather than distance traveled within and without such a jurisdiction so long as
				  there is a reasonable amount of evidence to indicate that the formula reflects
				  with some accuracy the ratio of nontaxable and taxable sales. In this example,
				  tax is computed as follows:
1. (2
				Ã· 3) Ã— 0.01 = 0.00666 effective LOST rate
(hours in LOST jurisdiction Ã· total hours) Ã—
				  LOST rate = effective LOST rate
2. 1 + 0.00666 = 1.00666
1 + effective LOST rate
3. $150,000.00 Ã· 1.00666 = $149,007.61
Gross receipts including LOST but not state tax Ã· (1 +
				  effective LOST rate) = total sales
4. $149,007.61 Ã— 0.06 = $8,940.46
Total sales Ã— state tax rate = state tax amount
5. $150,000.00 " 149,007.61 =
				$992.39
Gross receipts including LOST but not state tax " total sales
				  = LOST amount
6. $8,940.46 +
				$992.39 = $9,932.85
State tax amount + LOST amount = total tax amount
7. $149,007.61 + $992.39 +
				$8,940.46 = $158,940.46
Total sales + LOST amount + state tax amount = total amount
				  collected by vendor Upon beginning operation, a licensee may choose to employ
				  either the "distance" method of apportionment set out in Examples 1 and 3 or
				  the "time" method set out in 2 and 4 above without informing the department in
				  advance of filing a sales tax return of the licensee's choice. A licensee
				  cannot use both methods of apportionment. If a licensee commencing operation
				  wishes to use another method of apportionment, the licensee must petition the
				  department for permission to use this alternative method and present whatever
				  evidence the department shall rationally require that the alternative method
				  better reflects the ratio of taxable to nontaxable sales before using the
				  alternative method. Any licensee wishing to change from any existing method of
				  apportionment to another method must also petition the department and receive
				  permission to change its method of apportionment.
This rule is intended to implement Iowa Code sections
				  99F.10(6)  and
				  423B.5.