Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 225 - Resale and Processing Exemptions Primarily of Benefit to Retailers › Rule 701-225.4 - Tangible Personal Property Purchased by a Person Engaged in the Performance of a Service

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
In general.
a. Tangible
				personal property purchased by a person engaged in the performance of a service
				is purchased for resale and not subject to tax if (1) the provider and user of
				the service intend that a sale of the property will occur, and (2) the property
				is transferred to the user of the service in connection with the performance of
				the service in a form or quantity capable of a fixed or definite price value,
				and (3) the sale is evidenced by a separate charge for the identifiable piece
				or quantity of property.
b.
				Tangible personal property which is not sold in the manner set forth
				in
"a"
above is not purchased for resale and thus is subject to
				tax at the time of purchase by a person engaged in the performance of a
				service. Such tangible personal property is considered to be consumed by the
				purchaser who is engaged in the performance of a service, and the person
				performing the service shall pay tax upon the sale at the time of purchase.
EXAMPLE 1. An investment counselor purchases envelopes. These
				  envelopes are used to send out monthly reports to the investment counselor's
				  clients regarding their accounts. Tax is due at the time the investment
				  counselor purchases the envelopes if the clients are not billed for these
				  items. Each envelope is transferred to a client in a form or quantity which is
				  capable of a fixed or definite price value. However, there must also be an
				  actual sale to the client (customer) of an item of personal property in order
				  that there be a "resale" of the item.
EXAMPLE 2. An automobile repair shop purchases solvents which
				  are used in cleaning automobile parts and thus in performing its automobile
				  repair service. Tax is due at the time the automobile repair shop purchases the
				  solvents since the solvents are not sold to the customer and, in this case, the
				  items are not transferred to a customer in a form or quantity which is capable
				  of a fixed or definite price value. Thus, the solvents are deemed consumed by
				  the purchaser engaged in the performance of the service.
EXAMPLE 3. A retailer purchases television picture tubes
				  tax-free and makes a separate charge for the picture tube to the customer.
				  Since the tube is transferred to the customer in a form or quantity capable of
				  a fixed or definite price value, the retailer may purchase the picture tube
				  exempt from tax for subsequent resale.
EXAMPLE 4. A beauty shop or barber shop purchases shampoo and
				  other items to be used in the performance of its service. Tax is due at the
				  time the beauty shop or barber shop purchases such items from its supplier
				  because the customers of the beauty shop or barber shop are not separately
				  billed for the items and because the items are not transferred to the customer
				  in a form or quantity capable of a fixed or definite price value. The items are
				  consumed by the beauty shop or barber shop.
EXAMPLE 5. A car wash purchases water, electricity, or gas
				  used in the washing of a car. The car wash would be the consumer of the water,
				  electricity, or gas, and tax is due at the time of purchase. The items
				  purchased by the car wash are not transferred to the customer in a form or
				  quantity capable of a fixed or definite price value, and the customer is not
				  billed for the items.
EXAMPLE 6. An accounting firm purchases plastic binders which
				  are used to cover the reports issued to its customers. These binders would be
				  subject to tax at the time of purchase by the firm where the customer of the
				  firm is not billed for the item, because there is no sale to the
				  customer.
EXAMPLE 7. A meat locker purchases materials such as wrapping
				  paper and tape which it uses to wrap meat for customers who provide the locker
				  with the meat. These materials would be subject to tax at the time of purchase
				  by the meat locker because they are not sold to the customer in a form or
				  quantity capable of a fixed or definite price value.
EXAMPLE 8. A jeweler purchases materials such as main springs
				  and crystals to be used in the performance of a service. These items are
				  purchased by the jeweler for resale when they are transferred to the customer
				  in a form or quantity capable of a fixed or definite price value, and each item
				  is actually sold to the customer as evidenced by a separate charge
				  therefor
EXAMPLE 9. A lawn care service applies fertilizer,
				  herbicides, and pesticides to its customers' lawns. The following are examples
				  of invoices to customers which are suitable to indicate a lawn care service's
				  purchase of the fertilizer, herbicides, and pesticides for resale to those
				  customers: "Chemicals... 31 Gal.... $60"; "Fertilizer..50 lbs.... $100"; and
				  "Materials applied to lawn... 4 bushel... $40". The following are examples of
				  information placed upon an invoice which would not indicate a purchase for
				  resale to the customers invoiced: "Fifty percent of the charge for this service
				  is for materials placed on a lawn," or "Lawn chemicals...$30" or "Fifty pounds
				  of fertilizer was applied to this lawn."