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 701-225.7 - Certain Inputs Used in Taxable Vehicle Wash and Wax Services

Current through Register Vol. 47, No. 3, July 24, 2024
On or after May 25, 2012, sales 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)
				   are exempt from tax. This rule applies to
				  bills received or sales occurring, as the case may be, on or after May 25,
				  2012.
(1)
Definitions.
For the purposes of this rule, the following
				definitions apply:
"Chemical"
means a substance which is
				  primarily used for producing a chemical effect. A chemical effect results from
				  a chemical process wherein the number and kind of atoms in a molecule are
				  changed in form (e.g., where oxygen and hydrogen are combined to make water). A
				  chemical process is distinct from a physical process wherein only the state of
				  matter changes (e.g., where water is frozen into ice or heated into
				  steam).
"Reagent"
means a substance used for various
				  purposes (i.e., in detecting, examining, or measuring other substances; in
				  preparing materials; in developing photographs) because it takes part in one or
				  more chemical reactions or biological processes. A reagent is also a substance
				  used to convert one substance into another by means of the reaction that it
				  causes. To be a reagent for purpose of the exemption, a substance must be
				  primarily used as a reagent.
"Retailer"
or
"supplier"
means and includes every person engaged in the business of selling tangible
				  personal property or taxable services at retail or the furnishing of gas,
				  electricity, water, pay television, or communication service, and tickets or
				  admissions to places of amusement and athletic events or operating amusement
				  devices or other forms of commercial amusement from which revenues are derived.
				  However, when in the opinion of the director it is necessary for the efficient
				  administration of this rule to regard any salespersons, representatives,
				  truckers, peddlers, or canvassers as agents of the dealers, distributors,
				  supervisors, employers, or persons under whom the salespersons,
				  representatives, truckers, peddlers, or canvassers operate or from whom they
				  obtain tangible personal property sold by them irrespective of whether or not
				  they are making sales on their own behalf or on behalf of such dealers,
				  distributors, supervisors, employers, or persons, the director may so regard
				  them, and may regard such dealers, distributors, supervisors, employers, or
				  persons as retailers for the purposes of this rule. "Retailer" includes a
				  seller obligated to collect sales or use tax.
"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.
"Solvent"
means a substance in which another
				  substance can be dissolved and which is primarily used for that purpose.
"Sorbent"
means a solid material, often in a
				  powder or granular form, which acts to retain another substance, usually on the
				  sorbent's surface, thereby removing the other substance from the gas or liquid
				  phase. The sorbent and the second material bond together at the molecular or
				  atomic scale via physiochemical interactions. A substance is not a sorbent
				  based on an ability to absorb heat or thermal energy.
"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 which are sold out of vending
				  machines.
"Vehicle"
means any self-propelled motor
				  vehicle designed primarily for carrying passengers (nine or fewer) excluding
				  motorcycles and motorized bicycles; any pickup truck designed to carry both
				  passengers and cargo; or any vehicle which is commonly on a highway and
				  propelled by any power other than muscular power. Nonexclusive examples of a
				  vehicle are motorcycles, motorized bicycles, pickup trucks, tractors, and
				  trailers.
"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 as 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
				suppliers of such items with an exemption certificate. See 701-paragraph
				15.3(2)
"g."
(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; 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 suppliers. See
				701-paragraph 15.3(2)
"g."
The supplier 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 which is measured by the
				  meter which 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 supplier.
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 supplier.
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 (See
Dial Corp. v. Iowa Dep't of
				  Revenue,
634 N.W.2d 643, 646 (Iowa 2001)). The secondary vehicle wash
				  and wax facility has the burden of proof regarding the exempt percentages (See
id
. and Iowa Code section
				  421.60(6))
				  and is liable for any mistakes or misrepresentations made regarding the
				  computation or for failure to notify the electricity or water supplier in
				  writing of the percentage of exempt usage, if required.
(3) Credit. A supplier of electricity or
				water that sells electricity or water to vehicle wash and wax facilities may
				bill customers for sales tax even if the facility qualifies for the exemption
				from sales tax under this rule if the supplier cannot adjust its billing
				process in time to accommodate this exemption. Subsequently, the electricity or
				water supplier shall provide a credit for tax collected from a vehicle wash and
				wax facility, and the credit is to appear on the first possible billing date
				after May 25, 2012.