Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 219 - Sales and Use Tax on Construction Activities › Rule 701-219.9 - Machinery and Equipment Sales Contracts With Installation

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Machinery and equipment sales with installation.
Machinery and
				equipment sales contracts with installation are transactions that are
				considered a sale of tangible personal property to a final consumer. Therefore,
				the individual who sells the equipment with installation must purchase the
				machinery and equipment tax-free as a purchase for resale. This rule should not
				be confused with subrule 219.3(3) regarding equipment. The contract should
				itemize the sales tax separately. If a contractor wishes to avoid an
				itemization of sales and use tax on machinery and equipment that remains
				tangible personal property, the contractor can do so by figuring the tax as a
				general overhead expense and including a statement in the contract and related
				invoices that "sales tax is included in the contract price."
If the sales transaction is one completed out of state and
				  shipped in interstate commerce to a consumer or a user in Iowa, and not
				  otherwise exempt from tax, the final purchaser is required to pay Iowa use tax
				  on the purchase price of the machinery and equipment.
(2)
Taxable services sales with
				installation.
Certain services that are enumerated in Iowa Code
				section 423.2 are subject to tax when performed under a contract for the
				installation of machinery and equipment that is not done in connection with new
				construction, reconstruction, alteration, expansion, or remodeling of a
				building or structure. Examples of enumerated services include electrical
				installation; plumbing; welding; and pipe fitting. Other labor charges for job
				site installation that do not involve a taxable enumerated service are not
				subject to tax if the charges are separately contracted or, if no written
				contract exists, are separately itemized on the billing from the seller to the
				purchaser.
EXAMPLE: Company B contracts with Company A to furnish and
				  install a portable conveyor unit in Company A's new building. Company B can
				  purchase the portable conveyor unit tax-free because the portable conveyor unit
				  maintains its identity as tangible personal property after installation and
				  does not become a component part of the real property. Company B would then
				  charge tax to Company A on the sale of the portable conveyor unit. Installation
				  charges would be part of the total sales price subject to tax unless they are
				  separately contracted or, if no written contract exists, separately itemized on
				  the billing from Company B to Company A. If the installation charges involve
				  the performance of one or more enumerated services, they would be subject to
				  sales tax even when separately contracted for or separately itemized on the
				  billing from Company B to Company A.
This rule is intended to implement Iowa Code sections
				  423.2(6),
				  423.3, and
				  423.5.