Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 219 - Sales and Use Tax on Construction Activities › Rule 701-219.13 - Tax on Enumerated Services

Current through Register Vol. 47, No. 3, July 24, 2024
The tax on the services enumerated in 2005 Iowa Code section
				  423.2 is basically a
				  tax on labor. When such services are performed on or connected with new
				  construction, reconstruction, alteration, expansion or remodeling of real
				  property or structures, the services are exempt from tax. Neither the repair
				  nor the rental of machinery on the job site is exempt from tax under this rule.
				  See rule
				  701-219.21
				  (423) for an explanation of the exemption in favor of rented machinery used by
				  a contractor on a job site.
The distinction between a repair (see subrule 219.13(1)) and
				  new construction, reconstruction, alteration, expansion and remodeling
				  activities (see subrule 219.13(2)) can, oftentimes, be difficult to grasp.
				  Therefore, the intent of the parties and the scope of the project may become
				  the factors which determine whether certain enumerated services are taxable. An
				  area of particular difficulty is the distinction between repair and remodeling.
				  Remodeling a building or other structure means much more than making repairs or
				  minor changes to it. Remodeling is a reforming or reshaping of a structure or
				  some substantial portion of it to the extent that the remodeled structure or
				  portion of the structure is in large part the equivalent of a new structure or
				  part thereof. See
Board of Commissioners of Guadalupe County v.
				  State,
43 N.M. 409, 94 P.2d 515 (1939) and
City of Mayville v.
				  Rosing,
19 N.D. 98, 123 N.W. 393 (1909).
(1)
Repair.
Repair is
				synonymous with mend, restore, maintain, replace and service. A repair
				contemplates an existing structure or tangible personal property which has
				become imperfect and constitutes the restoration to a good and sound condition.
				A repair is not a capital improvement; that is, it does not materially add to
				the value or substantially prolong the useful life of the property.
2005 Iowa Code section
				  423.1(42)
				   defines a person engaged in the business of
				  performing taxable services as a retailer. Since retailers may purchase
				  building materials, supplies and equipment for resale, persons making taxable
				  repairs (repairpersons and servicepersons) are not considered to be contractors
				  and are not subject to the provisions of 2005 Iowa Code subsection
				  423.2(1)
"b."
In addition, such persons are not considered to be
				  owners, subcontractors or builders. Repairpersons and servicepersons will
				  normally purchase building materials and supplies free of tax for subsequent
				  resale to their customers; contractor-retailers will also do this. However,
				  contractors, subcontractors or builders who may make repairs are subject to
				  2005 Iowa Code subsection
				  423.2(1)
"b"
and must pay tax at the time building materials, supplies
				  and equipment are purchased from vendors even though the contractors,
				  subcontractors or builders hold a valid sales tax permit. See rules
				  701-219.2
				  (423) and
				  701-219.3
				  (423). In determining who is a contractor and who is a retailer of repair
				  services, the department looks to the total business of the entity in question
				  and not to any one portion of it. Thus, the fact that a business whose overall
				  activity is contracting has a division engaged in taxable repair services does
				  not transform that business into a retailer providing services rather than a
				  contractor. When contractors do repair work, they may separately itemize labor
				  and materials charges and collect sales tax on all charges. A contractor's
				  markup on a materials charge is part of any taxable sale. A contractor can take
				  a credit for any tax paid on the purchase of materials that are sold as part of
				  a service transaction.
When other persons making repairs sell tangible personal
				  property at retail in connection with any taxable service enumerated in 2005
				  Iowa Code section
				  423.2, those persons
				  shall collect and remit tax on the sales price. The person making repairs shall
				  purchase tangible personal property for resale when the property is used in the
				  repair job and is resold to a customer. Reference rule
				  701-18.31
				  (422,423) for an explanation of when persons performing services sell the
				  property that the persons use in performing those services to their customers.
				  Nonexclusive examples of repair situations are as follows:
a. Repair of broken or defective
				glass.
b. Replacement of broken,
				defective or rotten windows.
c.
				Replacing individual or damaged roof shingles.
d. Replacing or repairing a segment of
				worn-out or broken kitchen cabinets.
e. Repair or replacement of broken or damaged
				garage doors or garage door openers.
f. Replacing or repairing a part of a broken
				or worn tub, shower, or faucets.
g.
				Replacing or repairing a broken water heater, furnace or central air
				conditioning compressor.
h.
				Restoration of original wiring in a house or building.