Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 219 - Sales and Use Tax on Construction Activities › Rule 701-219.10 - Contracts With Equipment Sales (mixed contracts)

Current through Register Vol. 47, No. 3, July 24, 2024
Construction contracts or contracts for reconstruction,
				  alteration, expansion, or remodeling with equipment sales, commonly known as
				  mixed contracts, place a dual burden on the contractor, as a contractor is a
				  consumer of construction materials and also a retailer of the machinery and
				  equipment.
(1)
Out-of-state
				supplier.
As a consumer by statute of construction building materials,
				supplies, and building equipment, a contractor is required to pay sales tax to
				the supplier at the time of purchase or remit use tax to the department if
				purchasing building materials, supplies, and building equipment from an
				out-of-state supplier.
(2)
When machinery and equipment do not become real property.
Machinery and equipment must be purchased for resale by the contractor if the
				machinery and equipment does not become real property. This means that the
				contractor does not pay tax to a supplier at the time of purchase of machinery
				and equipment, but instead, the contractor is responsible for collecting sales
				tax on the sales price from a sponsor and remitting it to the department.
EXAMPLE: Company A contracts with Company B to have Company B
				  build a new building and install all of the production machinery and equipment
				  for the new building. Company B must pay tax on its purchases of building
				  materials and supplies that lose their identity as tangible personal property
				  and become a component part of the real property. Company B also purchases some
				  refrigeration units for the new building that maintain their identity as
				  tangible personal property. These units must be purchased taxfree by Company B
				  because they will be resold. Company B would then charge Company A the tax on
				  the units that retain their identity as tangible personal property. The
				  installation charges for the units that remain as tangible personal property
				  would be part of the total sales price subject to tax unless they are
				  separately contracted or, if no written contract exists, are separately
				  itemized on the billing from Company B to Company A. If the installation
				  charges involve the performance of one or more enumerated services, they would
				  be subject to sales tax even when separately contracted for or separately
				  itemized on the billing from Company B to Company A.
(3)
Lump-sum amount.
In a
				mixed contract, the elements of the contract should be separated for sales tax
				purposes. When a mixed construction contract is let for a lump-sum amount, the
				machinery and equipment furnished and installed shall be considered, for the
				purposes of this rule only, as being sold by the contractor for an amount equal
				to the cost of the machinery and equipment.
(4)
Permits.
Persons
				required to collect sales tax in Iowa under machinery and equipment contracts
				or a mixed contract are required to have a sales and use tax permit.
This rule is intended to implement Iowa Code section
				  423.2(1)
"b."