Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 204 - Rules Necessary to Implement the Streamlined Sales and Use Tax Agreement › Rule 701-204.8 - Freight, Other Transportation Charges, and Exclusions From the Exemption Applicable to These Services

Current through Register Vol. 47, No. 3, July 24, 2024
The determination of whether freight and other transportation
				  charges are subject to sales or use tax is dependent upon the terms of the sale
				  agreement.
(1)
Charges
				separately stated.
When tangible personal property or a taxable
				service is sold at retail in Iowa or purchased for use in Iowa and under the
				terms of the sale agreement the seller is to deliver the property to the buyer
				or the purchaser is responsible for delivery and such delivery charges are
				stated and agreed to in the sale agreement or the charges are separate from the
				sale agreement, the sales price of the freight or transportation charges is not
				subject to tax. This exemption does not apply to the service of transporting
				electrical energy or the service of transporting natural gas.
(2)
Charges not separately
				stated.
When freight and other transportation charges are not
				separately stated in the sale agreement or are not separately sold, the sales
				price of the freight or transportation charges become a part of the sales price
				of the sale of tangible personal property or a taxable service and are subject
				to tax. Where a sales agreement exists, the freight and other transportation
				charges are subject to tax unless the freight and other transportation charges
				are separately contracted. If the written contract contains no provisions
				separately itemizing such a charge, tax is due on the full contract price with
				no deduction for transportation charge, regardless of whether or not such
				transportation charges are itemized separately on the invoice.
(3)
Exemption.
The sales
				price from charges for delivery of electricity or natural gas are exempt from
				tax to the extent that the sales price from the sale, furnishing, or service of
				electricity or natural gas or its use are exempt from sales or use tax under
				Iowa Code chapter 423. The exclusions from this exemption relating to the
				transportation of natural gas and electricity are applicable to all contracts
				for the performance of these transportation services. Below are examples that
				explain some of the principal circumstances in which the transport of natural
				gas or electricity is a service subject to tax.
(4)
Applicable charges.
Freight and transportation charges include but are not limited to the following
				charges or fees: freight, transportation, shipping, delivery, or trip
				charges.
(5)
Examples.
EXAMPLE 1: Consumer ABC, located in Des Moines, contracts
				  with supplier DEF, located in Waterloo, for DEF to sell gas and electricity to
				  ABC. ABC then contracts with utility GHI to transport the energy over GHI's
				  network (of pipes or wires) from Waterloo to ABC's facility in Des Moines.
				  GHI's transport of ABC's energy is a taxable service. The transportation of
				  natural gas and electricity by a utility is a taxable service of furnishing
				  natural gas or electricity whether or not that utility or some other utility
				  produces the natural gas or generates the electricity furnished. A utility's
				  transportation of gas or electricity is a "transportation service" specifically
				  excluded from the exemption in Iowa Code section
				  423.3(70).
EXAMPLE 2: Consumer ABC contracts with utility DEF for DEF to
				  provide electricity from DEF's generating plant in Mason City to ABC's location
				  in Cedar Rapids. Transport of the electricity is by way of DEF's network of
				  long-distance transmission lines. The contract between ABC and DEF states the
				  prices to be paid for the purchase of various amounts of electricity and also
				  sets out the amounts to be paid for transport of electricity and constitutes
				  separate sales of electricity and transportation services. In these
				  circumstances, amounts that ABC pays DEF for transport of the electricity are
				  taxable.
EXAMPLE 3: As in Example 2, consumer ABC contracts with
				  utility DEF for the delivery of electricity from DEF's generating plant in
				  Mason City to ABC's location in Cedar Rapids, ownership of the electricity to
				  pass to ABC in Cedar Rapids. Also, as in Example 2, the contract between ABC
				  and DEF states varying prices to be paid for the purchase and transportation of
				  varying amounts of electricity and constitutes separate sales of electricity
				  and transportation services. Transport of the electricity will be by way of
				  GHI's transmission lines. DEF contracts with GHI for the transport of the
				  electricity to ABC's plant in Cedar Rapids. At the time the contract is signed,
				  GHI asks DEF for an exemption certificate stating that DEF will resell GHI's
				  transportation service to ABC. GHI must either secure the certificate or
				  collect Iowa sales tax from DEF. GHI is furnishing a taxable electricity
				  transportation service to DEF, which DEF will in turn furnish to ABC. DEF must
				  collect tax from ABC.
EXAMPLE 4: In this example, the same contract exists between
				  ABC and DEF as exists in Example 3. However, in this example, a breakdown at
				  DEF's plant in Mason City prevents DEF from generating the electricity that it
				  is contractually obligated to provide to ABC. DEF is forced to purchase both
				  electricity and its transport from JKL. The contract between DEF and JKL states
				  the prices to be paid for the purchase of various amounts of electricity and
				  also sets out the amounts to be paid for the transport of this electricity and
				  constitutes separate sales of electricity and transportation services. JKL asks
				  DEF for an exemption certificate stating that DEF has purchased the electricity
				  and its transport for resale to ABC. In this case, JKL must secure an exemption
				  certificate from DEF to avoid collecting tax on its sale and transport of the
				  electricity for DEF.
EXAMPLE 5: Again, ABC and DEF have contracted, as they did in
				  Example 2, for DEF to sell and transport electricity from Mason City to Cedar
				  Rapids. However, their agreement mentions only one combined price for sale and
				  delivery of the electricity. There is no separately contracted price for
				  transport of the electricity, in contrast to the situation in Example 2. In
				  this case, the entire amount that ABC pays to DEF is taxable as the entire
				  amount paid is for the sale of tangible personal property.
EXAMPLE 6: Manufacturer EFG contracts with utility DEF for
				  the purchase of natural gas with a separate contract for its delivery. The gas
				  is to be transported from DEF's storage facility near Osceola to EFG's
				  manufacturing plant in Fort Dodge by way of DEF's pipeline. Ownership of the
				  gas passes from DEF to EFG in Fort Dodge. EFG uses 92 percent of the gas that
				  is transported to its plant in processing the tangible personal property
				  manufactured there. The receipts that EFG pays DEF for the transport of the gas
				  are excluded from the transportation exemption, but they are not excluded from
				  the processing exemption. Ninety-two percent of those receipts are exempt from
				  tax because that is the percentage of gas used by EFG in processing. In
				  addition, utility DEF charges manufacturer EFG $9.95 as a delivery fee for the
				  gas. Since the purchase of the gas has a 92 percent exemption from Iowa sales
				  tax because of a 92 percent usage in processing, 92 percent of the delivery
				  charge of $9.95 is also exempt from tax.
This rule is intended to implement Iowa Code sections
				  423.2 and
				  423.3.