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 Iowa Code section 423.2
				  is a tax on labor. When such services are performed on or connected with new
				  construction, reconstruction, alteration, expansion or remodeling of
				  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. Rule
				  701-219.21 (423) provides an
				  explanation of the exemption in favor of rented machinery used by a contractor
				  on a job site.
The distinction between a repair and new construction,
				  reconstruction, alteration, expansion, and remodeling activities can,
				  oftentimes, be difficult to grasp. Therefore, the intent of the parties and the
				  scope of the project are factors that determine whether certain enumerated
				  services are exempt. 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.
(1)
Repair.
Since retailers,
				as defined in Iowa Code section 423.1(47), may purchase building materials,
				supplies, and equipment for resale, persons making taxable repairs are not
				considered to be owners, contractors, subcontractors, or builders and are not
				subject to the provisions of Iowa Code section
				423.2(1)
"b."
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 Iowa Code
				section 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. 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; if the labor and materials charges are billed
				as one lump sum, the entire amount is subject to sales tax. 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 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. Rule
				  701-225.3 (423) provides 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.