Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 205 - Sourcing of Taxable Services, Tangible Personal Property, and Specified Digital Products › Rule 701-205.2 - General Sourcing Rules for Taxable Services

Current through Register Vol. 47, No. 3, July 24, 2024
Except as otherwise provided in the agreement, retailers
				  providing taxable services in Iowa shall source the sales of those services
				  using the destination sourcing requirements described in Iowa Code section
				  423.15. In determining whether
				  to apply the provisions of Iowa Code section
				  423.15 to the sale of a taxable
				  service, it is necessary to determine the location where the result of the
				  service is received, is first used, or could potentially be first used by the
				  purchaser or the purchaser's donee. The provisions of these rules do not affect
				  the obligation of a purchaser or lessee to remit additional tax, if any, to
				  another taxing jurisdiction based on the use of the service at another
				  location.
(1)
Determining the
				result of a service.
Determining the location where the result of a
				service is received by a purchaser requires a fact-based inquiry on a
				case-by-case basis.
EXAMPLE 1: Company Z is a photography business located in
				  Mason City, Iowa. Company Z enters into an agreement with Customer Y, a
				  resident of the state of Illinois, to take a photoshoot in Okoboji, Iowa.
				  Company Z charges Customer Y $2,000 for the photoshoot itself and $1,000 for
				  printed photos once they are finalized. Customer Y pays Company Z $3,000 in
				  advance for the photoshoot and photographs. The photoshoot takes place as
				  planned in Okoboji, and three weeks later Company Z sends Customer Y a package
				  containing the photographs to Customer Y's Illinois address.
The photoshoot is the result of Company Z's service, which
				  occurs in Okoboji, Iowa-the location where the performance of the photoshoot
				  begins. Company Z must therefore charge Iowa sales tax and any applicable local
				  option tax on the $2,000 charge for the photoshoot. The $1,000 charge for the
				  photographs is a sale of tangible personal property and is sourced to
				  Illinois-the location where the photographs are delivered. Company Z therefore
				  does not need to charge Iowa sales tax on the $1,000 but may be responsible for
				  collecting and remitting Illinois tax.
EXAMPLE 2: Same facts as in Example 1, except that Company Z
				  charges Customer Y a one-time, flat $3,000 charge without any itemization or
				  breakdown of the cost. This $3,000 charge represents the sale of tangible
				  personal property and is sourced to Illinois-the location where the photographs
				  are delivered. Company Z therefore does not need to charge Iowa sales tax on
				  the $3,000 but may be responsible for collecting and remitting Illinois
				  tax.
(2)
Subsequent
				use in Iowa.
If an Iowa purchaser is determined to owe sales tax in
				another state based on first use, Iowa use tax may still apply. If, subsequent
				to the first use in another state, the product or result of a service is used
				in Iowa, Iowa use tax applies. (More information can be found in Iowa Code
				section 423.5.)
(3)
Measurement of use tax
				due.
If tax has been imposed on the sales price of services performed
				on tangible personal property in another state at a rate that is less than the
				Iowa use tax rate, the purchaser will have to pay Iowa use tax at a rate
				measured by the difference between the Iowa use tax rate and the tax rate
				imposed in the state where the service was first used. (More information can be
				found in Iowa Code section
				423.22.) There is no local
				option use tax.
EXAMPLE: An Iowa resident first uses the results of services
				  performed on tangible personal property in another state and pays that state's
				  5 percent sales tax to that state. The Iowa resident returns to Iowa to use the
				  tangible personal property on which the service was performed. Iowa's use tax
				  rate on the services performed on the tangible personal property is 6 percent.
				  The resident must remit to the department 1 percent use tax; no local option
				  use tax is due. If, on the other hand, the other state's sales tax rate is
				  equal to or greater than Iowa's use tax rate, the Iowa resident does not have
				  to remit use tax to the department on the services performed on tangible
				  personal property.