Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 206 - Bundled Transactions › Rule 701-206.3 - Transactions Not Taxable as Bundled Transactions

Current through Register Vol. 47, No. 3, July 24, 2024
Generally, the entire sales price from a bundled transaction
				  is subject to sales tax. However, the transactions described in this rule are
				  not taxable as bundled transactions.
(1)
Sales involving mixed tangible
				personal property and services.
The retail sale of tangible personal
				property or a specified digital product and a service, if the tangible personal
				property or specified digital product is essential to the use of the service,
				and provided exclusively in connection with the service, and if the true object
				of the transaction is the service.
EXAMPLE: Seller A charges customer B for computer programming
				  services where customer B is also given a backup disk and instruction manual.
				  The true object of the transaction is the provision of the programming
				  services. Seller A is selling nontaxable services and is not making a sale of a
				  bundled transaction. Iowa sales tax is not due on the programmer's charge for
				  services; sales tax is due on seller A's purchases of tangible personal
				  property used to fulfill the service.
(2)
Sales involving
				services.
The retail sale of services, if one of the services is
				essential to the use or receipt of a second service, and provided exclusively
				in connection with the second service, and if the true object of the
				transaction is the second service. If the transaction is not a bundled
				transaction as a result of this exclusion, then the true object of the
				transaction will be the retail sale of the second service and should be taxed
				accordingly.
(3)
True
				object test.
The true object of a transaction is the main product that
				is the subject of the transaction. Determining the true object of a transaction
				is a fact-based inquiry and shall be made on a case-by-case basis. Factors that
				may be considered in determining the true object of a transaction include but
				are not limited to the nature of the seller's business and purchaser's reason
				for making the purchase.
(4)
Sales involving de minimis taxable products.
A transaction
				that includes taxable and nontaxable products and the seller's purchase price
				or sales price of the taxable products is de minimis. "De minimis" means the
				seller's purchase price or sales price of the taxable products is 10 percent or
				less of the total purchase price or sales price of the bundled products. A
				seller shall use either the seller's purchase price or seller's sales price of
				the products to determine whether the taxable products are de minimis. A seller
				may not use a combination of the seller's purchase price and seller's sales
				price of the products to determine whether the taxable products are de minimis.
EXAMPLE 1: Seller H sells a coupon book that includes a
				  packet of stickers for one nonitemized price of $75. The packet of stickers is
				  not provided free of charge. Seller H purchased the stickers, a taxable
				  product, for $2 per packet, which does not exceed 10 percent of the total
				  purchase price of the coupon book and stickers. Seller H's sale of the coupon
				  book and stickers is not a bundled transaction, and the sales price of $75 is
				  not subject to tax.
EXAMPLE 2: Technology Company F (company F) sells access to a
				  day-long live webinar about the latest trends occurring in the technology
				  industry for one nonitemized price of $200. The webinar, which allows for
				  participation that is substantially similar to an in-person presentation, is
				  not subject to Iowa sales tax. The customer also receives a smartwatch that is
				  included in the payment of the webinar but is not provided free of charge.
				  Company F's sales price of the smartwatch is $50, which exceeds 10 percent of
				  the total sales price of the fee. The watch is subject to sales tax by the
				  customer. Because company F's purchase price of the watch is not de minimis,
				  the $200 transaction is a bundled transaction and is subject to
				  tax.
(5)
Sales
				involving taxable and exempt food or medical products.
The retail sale
				of exempt tangible personal property and taxable tangible personal property
				where all of the following apply:
a. The
				transaction includes food and food ingredients, drugs, durable medical
				equipment, mobility enhancing equipment, prosthetic devices, or medical
				supplies; and
b. The seller's
				purchase price or sales price of the taxable tangible personal property is 50
				percent or less of the total purchase price or sales price of the bundled
				tangible personal property. Sellers may not use a combination of the purchase
				price and sales price of the tangible personal property when making the 50
				percent determination for a transaction.
EXAMPLE: Seller F offers its customers a package containing
				  two prepared hot dogs and five frozen hot dogs. The sales price for the two
				  prepared hot dogs is $5, and the sales price of the five frozen hot dogs is
				  $10. The package is sold for one nonitemized price of $15. The sales price of
				  the package is not taxable because the sales price of the taxable items (the
				  two prepared hot dogs) is 50 percent or less of the total sales price of the
				  package.