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 701-225.3 - 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 that is not sold in the manner set forth in
				paragraph 225.3(1)
"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 the clients' 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 that 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: A retailer purchases television power supplies
				  tax-free and makes a separate charge for the power supply to the customer.
				  Since the power supply is transferred to the customer in a form or quantity
				  capable of a fixed or definite price value, the retailer may purchase the power
				  supply exempt from tax for subsequent resale.
EXAMPLE 3: A beauty shop purchases shampoo and other items to
				  be used in the performance of the shop's service. Tax is due at the time the
				  beauty shop purchases such items from the shop's supplier because the customers
				  of the beauty 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.
EXAMPLE 4: An accounting firm purchases plastic binders that
				  are used to cover the reports issued to the firm's 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 5: A meat locker purchases materials, such as
				  wrapping paper and tape, that the meat locker 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 the materials are not sold
				  to the customer in a form or quantity capable of a fixed or definite price
				  value.
EXAMPLE 6: 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 the items 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 7: A lawn care service applies fertilizer,
				  herbicides, and pesticides to the lawn care service's customers' lawns. The
				  following are examples of invoices to customers that 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 that 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."