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 701-225.5 - The Sales Price From the Leasing of All Tangible Personal Property Subject to Tax

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Leases.
The rental of tangible personal property is treated as
				the sale of that property for the purposes of Iowa sales and use tax law
				because "leases" and "rentals" of tangible personal property are taxable retail
				"sales" of that property. The rental of tangible personal property is not a
				taxable enumerated service. The resale exemption in favor of sales for resale
				of tangible personal property is applicable to sales and leases of tangible
				personal property for subsequent rental or lease.
EXAMPLE A: ABC buys blowers, hand tools, ladders, plumbers'
				  snakes, sanders, and tillers for subsequent short-term rental to various
				  customers. ABC's purchases of these items of equipment are purchases for resale
				  and are exempt from tax.
EXAMPLE B: In addition to its purchases of equipment for
				  subsequent rental, ABC leases from retailers, long-term, items of heavier
				  equipment, such as backhoes, forklifts, manlifts, tractors, and trenchers,
				  again for subsequent leasing to various customers. Since the leasing of
				  tangible personal property is now a purchase of that property, ABC's leasing
				  for later sublease is a purchase of tangible personal property and is exempt
				  from tax at the time of purchase as the purchase of tangible personal property
				  for subsequent resale.
(2)
Distinguishing leases and rentals of tangible personal property from
				the furnishing of nontaxable services.
In order to determine whether a
				particular fee is charged for the rental of tangible personal property or for
				the furnishing of a nontaxable service, the department looks at the substance,
				rather than the form, of the transaction. When the possession and use of
				tangible personal property by the recipient is merely incidental as compared to
				the nontaxable service performed, all of the sales price is derived from the
				furnishing of such nontaxable service and, unless a separate fee or charge is
				made for the possession and use of tangible personal property, no sales price
				is derived from the rental of tangible personal property. When the nontaxable
				service is merely incidental to the possession and use of the tangible personal
				property by the recipient, all of the sales price is derived from the
				furnishing of tangible personal property rental and, unless a separate fee or
				charge is made for the nontaxable service, no sales price is derived from the
				nontaxable service. When a tangible personal property rental agreement contains
				separate fee schedules for rent and for nontaxable service, only the sales
				price derived from the tangible personal property rental is subject to tax.
				This rule is not to be so construed as to be at variance with Iowa Code
				sections 423.2(6)
"bf"
and 423.2(8) concerning transportation
				services and bundled service contracts, respectively.
(3)
Rental of real property
				distinguished from rental of tangible personal property.
a. If a rental contract allows the renter
				exclusive possession or use of a defined area of real property and, incident to
				that contract, tangible personal property is provided that allows the renter to
				utilize the real property, if there is no separate charge for rental of
				tangible personal property, the sales price is for the rental of real property
				and is not subject to tax, unless taxable room rental is involved.
b. If a person rents tangible personal
				property and, incidental to the rental of the property, space is provided for
				the property's use, the sales price from the rental shall be subject to tax. It
				may at times be difficult to determine whether a particular transaction
				involves the rental of real property with an incidental use of tangible
				personal property or the rental of tangible personal property with an
				incidental use of real property.