Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 203 - Elements Included in and Excluded From a Taxable Sale and Sales Price › Rule 701-203.9 - Taxation of Transactions Due to Rate Change

Current through Register Vol. 47, No. 3, July 24, 2024
The following provisions shall apply in determining whether
				  or not a transaction is subject to an existing rate of sales or use tax or to a
				  new rate of sales or use tax. In the examples contained in the rest of this
				  rule, assume that a bill has been enacted into law which increases the sales
				  and use tax rate from 6 to 7 percent and that the effective date of this bill
				  is July 1.
(1)
General
				principles.
A change in the sales tax rate applies to a sale of
				tangible personal property and specified digital products if delivery of the
				property or product under a contract of sale occurs on or after the effective
				date of the legislation which changes the rate of taxation. The intent of the
				parties to the contract for sale determines when delivery occurs. However, in
				the event the intent is not readily established from the contract, the rules
				set out in the Uniform Commercial Code (Iowa Code chapter 554) shall apply in
				order to determine the place of delivery.
In the examples below, so long as delivery under a contract
				  for sale occurs on or after July 1, the 7 percent sales tax rate applies. It is
				  not necessary that any other aspects of the sale, such as payment for the
				  delivered property, occur on or after that date.
In the three examples immediately below, "delivery" is
				  physical transfer of possession of the tangible personal property directly from
				  the seller to the purchaser. However, see subrule 14.3(2) for examples of
				  delivery which do not involve transfer of possession directly from the buyer to
				  the seller, and subrule 14.3(3) which explains a type of delivery which does
				  not involve any physical transfer of possession of property.
Example A: A enters into a sales contract to purchase a
				  riding lawn mower from B. This contract (offer and acceptance) is entered into
				  on June 20. B delivers the lawn mower to A on June 28, and A pays B for the
				  lawn mower on July 3. Since delivery, under the contract for sale, occurred
				  prior to July 1, the sales tax in this example is computed at the rate of 6
				  percent.
Example B: A wants to purchase a home computer from B. On
				  June 28, A orders the computer from B and the parties agree that the contract
				  of sale is made if and when B makes delivery of the home computer to A. B
				  delivers the computer on July 10. In this example, the sales tax is at the rate
				  of 7 percent because delivery was not made until July 10. It is the delivery
				  after July 1, rather than the lack of the valid contract of sale prior to that
				  date, which determines that the rate of tax shall be 7 rather than 6
				  percent.
Example C: On May 1, A enters into a conditional sales
				  contract with B to purchase a television set. The contract requires A to make
				  monthly installment payments for 36 months, beginning June 1. The contract also
				  requires B to deliver the television to A on or before July 15. B retains title
				  to the television set solely for the purpose of securing payment from A. A
				  makes the first monthly payment to B on June 1. B delivers the television to A
				  on the last day allowable, July 15. The 7 percent rate will apply. See subrule
				  14.3(4) for more discussion of conditional sales.
(2)
Shipment by carrier.
The
				following principles shall be used to determine the conditions under which
				delivery is made pursuant to a contract for sale when the retailer utilizes a
				carrier to ship tangible personal property to a purchaser. If the contract for
				sale makes no reference of an F.O.B. (free on board) or F.A.S. (free along
				side) point or of any other point at which title and risk of loss with regard
				to the tangible personal property are transferred from the retailer to the
				purchaser and contains no other indication of a delivery point, it shall be
				presumed that delivery of the property occurs when the seller transfers
				possession of the property to the carrier. If property is sold under a C.I.F.
				(cost, insurance and freight) or a C. & F. (cost and freight) contract, it
				shall also be presumed that delivery occurs when the retailer transfers
				possession of the property to the carrier. If a contract for sale makes mention
				of an F.O.B. or F.A.S. point, it shall be presumed that the parties intended
				delivery of the property at the time the property reaches that point.
(3)
Constructive delivery.
"Constructive delivery" has occurred if the retailer and the purchaser agree
				that title, risk of loss, and right of possession to tangible personal property
				have passed from the retailer to the purchaser; that is, the parties agree that
				a sale has occurred, but actual physical possession of the property remains
				with the retailer or someone other than the buyer after the sale. If parties to
				a contract of sale have agreed upon constructive delivery, the sale occurs at
				the time of constructive delivery and not at the time of transfer of physical
				possession of the property from buyer to seller or at an F.O.B., F.A.S., or
				similar type of point.
Example: A owns an art gallery in Des Moines. Art collector B
				  from Cedar Rapids visits the gallery. Collector B wishes to purchase a painting
				  that is very large. However, collector B cannot immediately transport the
				  painting back to Cedar Rapids. On June 1, A and B sign a contract for the sale
				  of the painting. Title to the painting, risk of loss, and the right to take
				  possession of the painting immediately pass to B. However, the parties also
				  agree that B can store the painting with A in return for a small monthly
				  charge. B inquires of various parties whether or not they would be willing to
				  transport the painting from Des Moines to Cedar Rapids. B finds no one
				  satisfactory to do this and eventually signs a separate contract for transport
				  with A in which A agrees to do the transporting. The transport of the painting
				  is accomplished on September 1. The painting was delivered from A to B in Des
				  Moines on June 1. Thus, its sale occurred on that date rather than September 1.
				  Delivery was accomplished with the "constructive" delivery which occurred on
				  June 1 rather than by the physical transfer of possession from A to B which
				  occurred on September 1. Because of this, the rate of tax is 6 and not 7
				  percent.
(4)
Conditional sales.
A "conditional sale" is no different from
				an absolute sale, except in the matter of payment.
Hansen v.
				Kuhn,
284 N.W. 249, 226 Iowa 794 (1939). A conditional sale has not
				occurred until delivery under a contract of conditional sale has occurred. See
				Example C in subrule 14.3(1) for an example of a conditional sales contract in
				which delivery of the property under the contract occurred long after the
				making of the contract and after the buyer had made several payments under the
				contract. As soon as delivery has occurred, tax on the sales price of the sale
				is due to the department. See rule
				701-16.47 (423) for additional
				discussion of conditional sales.
(5)
Use tax-changed rate of taxation
				on the use of tangible personal property and specified digital
				products.
A changed use tax rate applies to the use of tangible
				personal property and specified digital products in Iowa when the first taxable
				use occurs on or after the effective date of the legislation which changes the
				rate of tax. In the following example, assume that the change in the use tax
				rate is from 6 to 7 percent and that the legislation which enacts this change
				is effective as of July 1.
Example: On May 24, A and B enter into a contract for A's
				  purchase of a machine from B. Under the contract, delivery of the machine to A
				  is to occur outside the state of Iowa, F.O.B., Minneapolis, Minnesota. On June
				  27, A takes delivery of the machine in Minneapolis. A then transports the
				  machine into Iowa on July 2. A's transport of the machine into Iowa constitutes
				  a use of the machine by A in Iowa for the first time. Under these
				  circumstances, the machine is subject to the 7 percent rate since the tax rate
				  in effect at the time of first use, July 2, governs if property is purchased
				  outside of Iowa.
(6)
Changed rate for the sales tax on enumerated services.
A
				changed sales tax rate on enumerated services applies if services are rendered,
				furnished, or performed in Iowa on or after the effective date of the
				legislation which changes the rate. The date upon which the parties enter into
				a service contract is not of importance in determining whether the old rate or
				new rate is applicable. Nor, for the purpose of computing the sales tax, is it
				important to know when the product or result of the service is used by the
				ultimate user. This situation must be distinguished from the application of use
				tax to services. For use tax purposes, the date when the product or result of
				the service is used may be important. See subrule 14.3(7). For the purposes of
				this subrule and subrules 14.3(7), 14.3(8), and 14.3(9), assume that the rate
				of tax is being raised from 6 to 7 percent and that the effective date of the
				legislation which increases the rate is July 1.
Example A: On June 1, A and B enter into a service contract
				  in which B agrees to provide testing laboratory services to A. B performs these
				  services in Iowa on June 26. The results of these services are forwarded to A
				  on July 8, and A observes those results and makes use of them on that latter
				  day. Under these circumstances, the testing laboratory services were subject to
				  service tax at the rate of 6 percent because B rendered, furnished, or
				  performed the services on June 26, which is prior to July 1.
Example B: On June 1, B offers to perform testing laboratory
				  services for A. A and B agree that the offer is not accepted until B actually
				  performs the test laboratory services. The services are performed on July 5,
				  and the results forwarded to A on July 8. Under these circumstances, the
				  testing laboratory services are subject to tax at the 7 percent rate. The
				  services are subject to that rate because the services were rendered on July 5
				  and not because the parties entered into the contract for services on July 5.
				  As in Example A above, if a contract had been entered into before July 1, and
				  the services performed after that date, service tax at the 7 percent rate would
				  still have been applicable.
Example C: On June 7, A enters into a service contract with B
				  for the repair of A's automobile. The contract provides that A shall make
				  installment payments for 12 months. The automotive repairs are extensive. B
				  begins repair of the automobile on June 9 and completes repair on June 27.
				  Since sales tax is due when the service is rendered, furnished, or performed,
				  the tax is 6 percent of the contract price. Installment payments made on and
				  after July 1 do not accrue any greater rate of tax. This situation is different
				  from a service contract entered into prior to July 1, which requires periodic
				  payments for continuous services, as set forth under subrule 14.3(8).
Example D: A, a civic center, contracts with B, an orchestra,
				  to perform on July 10. The contract is made on May 26. A sells tickets of
				  admission for B's July 10 concert. The tickets are sold in the month of June
				  and from July 1 to and including July 9. All ticket sales in June are subject
				  to tax at the 6 percent rate, and all ticket sales in July are subject to tax
				  at the 7 percent rate. In this example, the contract between A and B is not a
				  taxable service contract. The taxable events are the sales of admission tickets
				  between A and the purchasers of the tickets. The date when a ticket is
				  delivered to a purchaser controls whether the tax rate is 6 or 7
				  percent.
(7)
Changed rate of use tax on services.
If the product or result
				of a taxable service rendered, furnished, or performed outside of this state is
				first used in this state on or after July 1, the 7 percent use tax rate
				applies.
Example: On June 14, A and B enter into a contract for repair
				  of A's machine, the repair to be done outside of Iowa. On June 28, the machine
				  is delivered to B who performs the taxable service of machine repair and
				  returns the machine to A in Iowa on July 1. Under these circumstances, the
				  product or result of the taxable machine repair service is first used by A on
				  July 1; therefore, the 7 percent tax rate applies.
(8)
Service contracts requiring
				periodic payments.
If parties enter into a service contract prior to
				July 1, and the contract requires periodic payments, payments made on or after
				July 1 under the contract are subject to the 7 percent sales or use tax rate.
Example A: A and B enter into an agreement for the lease of
				  equipment on April 1. The lease is for a term of five years and requires
				  monthly payments. A is the lessee and B is the lessor. For all rental payments
				  made on or after July 1, the tax rate is 7 percent.
Example B: On May 1, A joined a private club and paid
				  membership fees for the privilege of participating in athletic sports provided
				  to club members. A must make periodic payments every three months. These
				  payments are made in January, April, July, and October. Under these
				  circumstances, A's July payment and payments made subsequently are subject to
				  tax at the rate of 7 percent.
(9)
Gas, electricity, water, heat,
				solid waste collection, sewer, pay television, and communication
				services.
The sales price from the sales, furnishing, or service of
				gas, electricity, water, heat, and communication service are subject to the
				sales, services, and use tax at the 7 percent rate when the date of billing the
				customer falls on or after July 1. The sales price from the services of solid
				waste collection and disposal, sewer, and pay television are also treated in
				this manner.
Example A: A is the customer of the B water utility. A
				  receives a bill from B on July 5. The billing date is July 1, and the bill is
				  for water provided during the month of June. Under these circumstances, sales
				  tax should be billed at the rate of 7 percent, because the date of billing is
				  July 1.
Example B: A is the customer of the B electric utility
				  company. A receives a bill from the B company on July 2. There is no billing
				  date set forth on the bill. The bill was mailed by the B company to A on June
				  28. Under these circumstances, the billing date is June 28, and the sales tax
				  should be billed at the rate of 6 percent. Had B listed a billing date in its
				  books and records as a receivable different than the mailing date, i.e., June
				  26, this latter date (June 26) would be considered the billing date.
Example C: A is the customer of the B rural electric
				  cooperative (REC). A is responsible for reading its meter and remitting the
				  proper amount for electricity and sales tax to B. B, in its tariff filed with
				  the Interstate Commerce Commission (ICC), has set forth the first date of each
				  month as the last day for its customers to read their meters. B does not send a
				  bill to A. Under these circumstances of customer self-billing where no bill is
				  sent by B to A, the first date of each month is the billing date and where that
				  date falls on July 1 and the first date of each month thereafter, the sales tax
				  should be paid at the rate of 7 percent.
If the date set forth in the tariff had been the last day of
				  the month, then a self-billing attributable to June 30 would require payment of
				  sales tax at the 6 percent rate.
Example D: A is the customer of B telephone company. A
				  receives a bill from B company on July 3, covering intrastate long distance
				  telephone calls in June and local service in July. The billing date on the face
				  of the bill is June 28. Under these circumstances, all telephone services,
				  local and intrastate long distance, should be billed sales tax at the rate of 6
				  percent.
If, in this example, the billing date on the bill had been
				  July 1, the sales tax should be billed at the rate of 7 percent for all
				  telephone services, local and intrastate long distance.
This rule is intended to implement Iowa Code section
				  423.2.