Iowa Sales Tax Rates

Total Range for 2024

6%-8%

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Why do you need to collect sales tax in Iowa?

If you’re selling goods and services in Iowa then sales tax might apply! To determine your obligation, you need to understand “nexus,” which ties businesses to states for tax purposes.

Two types of nexus exist:

  1. Physical Nexus: Having a physical presence, like an office, warehouse, or employees in Iowa, triggers this type. If you do, you likely need to collect sales tax.
  2. Economic Nexus: This kicks in when your sales within Iowa exceed a certain economic threshold. Even without a physical presence, surpassing this threshold requires collecting sales tax.

Is what you’re selling taxable in Iowa?

Now that you’ve grasped the basics of Iowa’s sales tax and nexus thresholds, let’s delve into whether your specific products or services are taxable.

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How to register for sales tax in Iowa

You can register for a sales tax permit in Iowa through two methods:

  • Online: The Iowa Department of Revenue offers an online registration system through GovConnectIowa. This is the faster and preferred method. https://tax.iowa.gov/businesses/business-permit-registration
  • Paper Application: You can also register by mail by completing the Iowa Business Tax Permit Registration form (Form 78-005). This form can be downloaded from the Iowa Department of Revenue’s website.

Before You Register:

  • Make sure you have your Federal Employer Identification Number (FEIN) obtained from the IRS.
  • If you are a corporation, partnership, LLC, or association, have each business owner’s full name and Social Security Number (SSN) ready.

After Registering:

  • You can typically begin collecting sales tax immediately after submitting your application online. The system will provide a copy as your temporary proof of registration.
  • You’ll receive a formal letter with your account number, IDR ID, and filing/payment instructions within a business day (electronically) or up to 6 weeks by mail.

How to collect sales tax in Iowa

Here’s how to collect sales tax in Iowa:

  1. Determine the Correct Tax Rate:
  • Iowa is a destination-based state for sales tax. This means you charge the sales tax rate applicable to your customer’s shipping address, not your business location.
  • The state sales tax rate in Iowa is currently 6%. However, many localities in Iowa have additional local option taxes that are added on top of the state rate.
  1. Collect the Tax at Checkout:
  • Once you know the applicable tax rate, you need to collect it from your customer at the time of sale.
  • Most point-of-sale systems or e-commerce platforms can automatically calculate and add the sales tax based on the customer’s shipping address.
  1. Keep Accurate Records:
  • It’s crucial to maintain accurate records of all your sales transactions, including the sales price, the amount of sales tax collected, and the customer’s shipping address. These records are essential for filing your sales tax returns.
Example:
  • Jeans cost $40, Des Moines has a 1% local tax.
  • State sales tax (6%): $40 x 6% = $2.40
  • Total sales tax (including local): $2.40 + ($40 x 1%) = $2.80
  • You pay $2.80 in sales tax.

FAQs

Do you have a physical nexus in Iowa?

A physical nexus in Iowa means your business has a physical presence in the state, which obligates you to register for and collect sales tax. Here’s how to determine if you have a physical nexus:

  • Physical Location: Owning or leasing a store, warehouse, office, or any other permanent or temporary place of business in Iowa establishes physical nexus.
  • Employees or Representatives: Having employees, salespeople, or other representatives working in Iowa, even temporarily, can trigger a nexus.
  • Inventory Storage: Storing inventory within Iowa, even if through a third-party warehouse, can create a nexus.
  • Property Installation: If your business installs property it sells in Iowa, even if you don’t have a physical location there, it might establish nexus.
  • Delivery Frequency: Regularly delivering products directly to Iowa customers may be considered a physical presence.

Additional Considerations:

Affiliate Nexus: Iowa has affiliate nexus laws. If your business has an affiliate in Iowa with a similar business name and product line that maintains a physical presence for deliveries, you might have nexus.

Do you have an economic nexus in Iowa?

Here’s how to determine if you have economic nexus in Iowa, which means you have a substantial enough economic presence to require sales tax registration:

  • Sales Threshold: Iowa has an economic nexus threshold based on annual sales revenue.
    • If your business makes more than $100,000 from sales into Iowa in a calendar year (previous or current), you likely have economic nexus.
    • This includes all sales, regardless of whether they are taxable or exempt.
What is use tax in Iowa?

In Iowa, use tax applies to purchases of tangible personal property that you intend to use in the state, but for which no sales tax was collected at the time of purchase. It essentially ensures a fair playing field for Iowa businesses that charge sales tax.

  • You’re responsible for paying this tax to ensure fairness with in-state businesses that collect sales tax.
  • The rate is the same as the state sales tax (6%) and might include local option taxes.
  • Report and pay use tax on your individual income tax return.
Do you need a seller/reseller permit?
  • In Iowa, a seller’s permit (also called a sales tax permit)  isn’t exactly what you need.  Here’s a breakdown:
    • You need a sales tax permit: If your business has a physical nexus or economic nexus in Iowa.
    • Resale certificate: If you buy products for resale with the intent to collect sales tax later, you can use a resale certificate to avoid paying sales tax upfront.
How to get a sales tax permit/license in Iowa?

You can obtain a sales tax permit (also referred to as a business tax permit) in Iowa through two methods:

  • Online: This is the faster and preferred method. Head to the Iowa Department of Revenue’s website and navigate to the GovConnectIowa portal.
  • Paper Application: If online registration isn’t an option, you can download and mail the Iowa Business Tax Permit Registration form (Form 78-005) from the same website.

Before Registering:

  • Gather your Federal Employer Identification Number (FEIN) from the IRS.
  • If you’re a corporation, partnership, LLC, or association, have each business owner’s full name and Social Security Number (SSN) ready.

After Registering:

  • You can typically begin collecting sales tax immediately after submitting your online application. The system will provide a copy as your temporary proof of registration.
  • You’ll receive a formal letter with your account number, IDR ID, and filing/payment instructions within a business day (electronically) or up to 6 weeks by mail.
When are Iowa's Returns Due?

The due date for your Iowa sales tax returns depends on your filing frequency, which is determined by the Iowa Department of Revenue based on your estimated sales tax collections. Here’s a breakdown:

  • Filing Frequencies: Iowa has three filing frequencies for sales tax returns: monthly, quarterly, and annually.
  • Due Dates: Generally, sales tax returns are due on the 20th or the last day of the month following the reporting period. Annual filers (those with the lowest sales tax liability) have their returns due on January 31st of the following year.
  • Weekends and Holidays: If the due date falls on a weekend or holiday, the return is due on the next business day.
How to file sales tax in Iowa

Filing sales tax in Iowa involves two main steps: submitting your return and remitting the collected tax. Here’s a breakdown of the process:

  1. Filing Your Sales Tax Return:
  • Online Filing (Recommended): The Iowa Department of Revenue strongly encourages filing electronically through their GovConnectIowa portal. This is the fastest and most convenient method.
  • Paper Filing (Alternative): If online filing isn’t an option, you can file a paper return using Form ST-120, Iowa Sales and Use Tax Return. You can download the form from the Iowa Department of Revenue’s website.

Before You File:

  • Gather your records: You’ll need your sales tax permit number, total sales for the reporting period, amount of sales tax collected, and any relevant deductions or credits.
  • Know your due date: Your filing frequency (monthly, quarterly, or annually) determines your due date. Generally, it’s the 20th or the last day of the month following the reporting period, with weekends and holidays pushing it to the next business day.
  1. Remitting Sales Tax:
  • Electronic Payment (Preferred): GovConnectIowa allows you to pay electronically through various methods like ACH transfer or credit card (fees may apply).
  • Mail-in Payment (Alternative): You can mail a check or money order payable to “Iowa Department of Revenue” to the address provided on the return form.
Is anyone exempt from sales tax in Iowa?

In Iowa, there are generally two categories of exemptions for sales tax:

Exempt Customers: Certain types of customers may not be required to pay sales tax when they purchase goods or services in Iowa. Here are some examples:

  • Government Agencies: Federal, state, and local government agencies are typically exempt from paying sales tax on purchases made for official government business.
  • Certain Non-Profit Organizations: Qualifying non-profit organizations may be exempt from sales tax on purchases used exclusively for their charitable or educational purposes.
  • Merchants Purchasing for Resale: Businesses that hold a valid resale certificate can purchase goods without paying sales tax upfront, as they will collect it when they sell the items.

Exempt Goods and Services: Some specific goods and services are not subject to sales tax in Iowa. These include:

  • Most Non-Prepared Food Items: Groceries and other food items for home consumption are generally exempt. (Note: Prepared restaurant meals are taxable.)
  • Prescription Drugs and Medical Supplies: These are exempt to help make healthcare more affordable.
  • Educational Services: Educational services provided by public and private non-profit schools are typically exempt.

 

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