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 701-225.6 - Certain Inputs Used in Taxable Vehicle Wash and Wax Services

Current through Register Vol. 47, No. 3, July 24, 2024
The sales price from the sale of water, electricity,
				  chemicals, solvents, sorbents, or reagents to a retailer to be used in
				  providing a service that includes a vehicle wash and wax that is subject to
				  Iowa Code section 423.2(6)  is
				  exempt from tax.
(1)
Definitions.
For the purposes of this rule, terms mean the
				same as defined in Iowa Code section
				423.1 and 701-Chapter 200.
				Additionally, the following definitions apply:
"Secondary vehicle wash and wax facility"
means a vehicle wash and wax facility whose primary purpose is to sell tangible
				  personal property or services other than vehicle wash and wax services, but
				  which also provides vehicle wash and wax services that are taxable under Iowa
				  Code section 423.2(6).
				  Examples of "secondary vehicle wash and wax facilities" include but are not
				  limited to vehicle dealerships, convenience stores, service stations, and
				  wholesale and retail fuel marketing locations that provide taxable vehicle wash
				  and wax services in addition to their primary business purpose. A facility that
				  provides vehicle wash and wax services that also sells tangible personal
				  property or other services is presumed to be a "secondary vehicle wash and wax
				  facility" unless it can prove otherwise.
"Stand-alone vehicle wash and wax facility"
means a vehicle wash and wax facility whose primary purpose is to provide
				  vehicle wash and wax services that are taxable under Iowa Code section
				  423.2(6). A
				  vehicle wash and wax facility is considered a "stand-alone vehicle wash and wax
				  facility" although it sells a de minimis amount of products and services
				  related to vehicle wash and wax services. Nonexclusive examples of products and
				  services related to vehicle wash and wax services include coin-operated vacuum
				  stations and air fresheners and vehicle wipes that are sold out of vending
				  machines.
"Vehicle"
means the same as defined in Iowa
				  Code section 321.1.
"Vehicle wash and wax facility"
means any
				  retailer that provides vehicle wash and wax services.
"Vehicle wash and wax services"
or
"vehicle wash and wax"
means washing and waxing services
				  performed inside or outside of the vehicle or both whether the services are
				  performed by hand, machine, or coin-operated devices.
"Water"
means water directly consumed or
				  used in providing the taxable vehicle wash and wax service. "Water" does not
				  include, for example, charges or fees for storm water, sanitary sewer, or solid
				  waste services since these are not fees for water directly used or consumed in
				  providing the taxable vehicle wash and wax service.
(2)
Purchases made by a stand-alone
				vehicle wash and wax facility.
Purchases of water, electricity,
				chemicals, solvents, sorbents, or reagents by a stand-alone vehicle wash and
				wax facility are presumed to be 100 percent exempt from sales tax. The
				stand-alone vehicle wash and wax facility is not required to provide the
				retailers of such items with an exemption certificate.
(3)
Purchases made by a secondary
				vehicle wash and wax facility.
a.
Sales price of electricity and water.
The exemption for the
				sales price of electricity and water purchased by secondary vehicle wash and
				wax facilities applies only to the sales price from the sale of electricity and
				water directly consumed or used in providing vehicle wash and wax services, as
				distinguished from electricity and water used and consumed for other purposes
				not related to vehicle wash and wax services (e.g., electricity to operate
				office equipment or lighting, and water used for cleaning the inside of a gas
				station or for irrigation).
(1) Separately
				metered electricity and water. Ideally, a secondary vehicle wash and wax
				facility will have separate meters to measure its nonexempt electricity and
				water usage and its exempt electricity and water used for providing taxable
				vehicle wash and wax services. A secondary vehicle wash and wax facility that
				separately meters its exempt and nonexempt electricity and water usage and does
				not use the exempt electricity and water for any other purpose than providing a
				taxable vehicle wash and wax service does not have to file an exemption
				certificate with the retailers. The retailer should not charge tax on the
				charges associated with the meters that measure electricity and water used
				solely for providing the taxable vehicle wash and wax services.
However, if water or electricity that is measured by the
				  meter that separately measures the vehicle wash and wax facility is used for
				  both taxable vehicle wash and wax services and nonexempt purposes (e.g.,
				  consumed in performance of its business operations), the secondary vehicle wash
				  and wax facility must allocate the use of the electricity or water according to
				  exempt and nonexempt use if an exemption for nontaxable use is to be claimed.
				  To obtain the exemption for electricity or water under this rule, a secondary
				  vehicle wash and wax facility that has both exempt and nonexempt electricity or
				  water usage measured by the same meter must request the exemption by providing
				  an exemption certificate to the electricity or water retailer.
The exemption certificate shall indicate what percentage of
				  the electricity or water is used for taxable vehicle wash and wax services and
				  is therefore exempt. The exemption certificate shall be in writing and detail
				  how the percentages of exempt and nonexempt usage were developed. The rationale
				  provided for the percentage of exempt water and electricity must be reasonable
				  after the nature of the secondary vehicle wash and wax service facility's
				  primary purpose and all other facts and circumstances are considered. A
				  secondary vehicle wash and wax facility that cannot, or does not want to,
				  determine the percentage of exempt electricity or water usage may forego the
				  exemption. The exemption certificate is valid for three years, but the
				  secondary vehicle wash and wax facility must amend its exemption certificate to
				  reflect any changes that would affect the exemption amount (e.g., summer month
				  water usage compared to winter month water usage).
(2) Exempt and nonexempt usage measured by
				the same meter. When electricity and water are purchased for vehicle wash and
				wax services as well as for taxable uses, and the use of the electricity or
				water is recorded on a single meter, a secondary vehicle wash and wax facility
				must allocate the use of the electricity or water according to exempt and
				nonexempt use if an exemption for nontaxable use is to be claimed. To obtain
				the exemption for electricity or water under this subparagraph, a secondary
				vehicle wash and wax facility that has both exempt and nonexempt electricity or
				water usage measured by the same meter must request the exemption by providing
				an exemption certificate to the electricity or water retailer.
The exemption certificate must indicate what percentage of
				  the electricity or water is used for taxable vehicle wash and wax services and
				  is therefore exempt. The exemption certificate shall be in writing and detail
				  how the percentages of exempt and nonexempt usage were developed. The rationale
				  provided for the percentages of exempt water and electricity must be reasonable
				  after the nature of the secondary vehicle wash and wax service provider's
				  primary purpose and all other facts and circumstances are considered. A
				  secondary vehicle wash and wax facility that cannot, or does not want to,
				  determine the percentages of exempt electricity and water usage may either
				  forego the exemption or install a separate meter. The exemption certificate is
				  valid for three years, but the secondary vehicle wash and wax facility must
				  amend its exemption certificate to reflect any changes that would affect the
				  exemption amount (e.g., summer month water usage compared to winter month water
				  usage).
Exemption statutes are strictly construed against the
				  taxpayer in favor of taxation. The secondary vehicle wash and wax facility has
				  the burden of proof regarding the exempt percentages and is liable for any
				  mistakes or misrepresentations made regarding the computation or for failure to
				  notify the electricity or water retailer in writing of the percentage of exempt
				  usage, if required.