Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 285 - Taxable and Exempt Sales Determined by Method of Transaction or Usage › Rule 701-285.13 - Drop Shipment Sales

Current through Register Vol. 47, No. 3, July 24, 2024
A "drop shipment" generally involves two transactions and
				  three parties. The first party is a consumer located inside Iowa. The second
				  party is a retailer located outside the state. The third party is a supplier
				  who may be located inside or outside of Iowa. A drop shipment sale occurs when
				  the consumer places an order for the purchase of tangible personal property
				  with the out-of-state retailer. The retailer does not own the property ordered
				  at the same time the consumer's order is placed. The retailer then purchases
				  the property from the supplier. The supplier ships the property directly to the
				  consumer in Iowa. The supplier in a drop shipment sale is not required to
				  collect sales or use tax from the consumer, even if the requisite nexus to
				  require collection exists.
If delivery of goods under a contract for sale occurs outside
				  of Iowa, sale of the goods occurs outside of Iowa. If delivery of the goods
				  under the contract for sale occurs within Iowa, the sale occurs in Iowa. If the
				  sale occurs in Iowa and the retailer possesses the requisite nexus to require
				  it to collect Iowa sales tax, the retailer is obligated to collect Iowa sales
				  tax upon the sales price from its sale of the goods to the consumer. If the
				  sale occurs in Iowa but the retailer does not have nexus sufficient to require
				  it to collect Iowa sales or use tax, or if the retailer fails to collect sales
				  tax, the consumer is obligated to pay use tax directly to the
				  department.
EXAMPLE A: A consumer in Des Moines, Iowa, purchases goods
				  from a retailer in Minneapolis, Minnesota. The Minneapolis retailer contracts
				  with a supplier in Iowa to manufacture and ship the goods to the consumer. The
				  retailer has nexus with Iowa, and delivery under the contract for sale has
				  occurred in this state. In this case, the consumer is obligated to pay and the
				  retailer is obligated to collect Iowa sales tax. The supplier is not obligated
				  to collect any Iowa tax.
EXAMPLE B: A consumer in Des Moines, Iowa, purchases goods
				  from a retailer in Minneapolis, Minnesota. The Minnesota retailer contracts
				  with a supplier in Iowa to manufacture and ship the goods to the consumer. The
				  retailer has no nexus with Iowa. Delivery under the contract of sale is in
				  Iowa. Under these circumstances, the consumer is obligated to pay use tax
				  directly to the department. Neither the retailer nor the supplier is obligated
				  to collect any Iowa tax.
EXAMPLE C: A consumer in Des Moines, Iowa, purchases goods
				  from a retailer in Minneapolis, Minnesota. The retailer contracts with a
				  supplier in Minneapolis to manufacture and ship the goods to the consumer in
				  Des Moines. The retailer has nexus with this state; delivery under the contract
				  for sale is in Minnesota. Under the circumstances, the consumer is obligated to
				  pay and the retailer is obligated to collect Iowa use tax. The supplier is not
				  obligated to collect or pay any Iowa tax.
This rule is intended to implement Iowa Code sections
				  423.1,
				  423.14, and
				  423.14A.