The United States v. Wayfair Supreme Court landmark decision last summer created an entirely new landscape for state sales and use taxes. BrownWinick’s previous articles explained the decision and provided an update focused for businesses. To summarize, many more businesses are subject to out-of-state sales tax laws under a concept known as “economic nexus” based on how much in sales or how many sales the business has in a state. Before this decision, nexus was triggered only when a business was physically present in the state.
This article focuses on Iowa’s recent update to its economic nexus law and provides additional guidance for in-state and out-of-state businesses selling to Iowa consumers. If you’re an Iowa business selling outside of Iowa, those other states likely have, or will likely soon have, sales tax laws similar to Iowa’s.
Effective January 1, 2019, Iowa’s economic nexus law required all businesses to collect Iowa sales tax if (1) the business had a physical presence in Iowa or (2) the business had gross revenues exceeding $100,000 or 200 separate transactions in the current or previous calendar year. As of July 1, 2019, Iowa eliminated the “200 separate transaction” threshold. Therefore, all businesses with a physical location in Iowa and all businesses that sell $100,000.01 worth of “tangible personal property, services, or specified digital products” to consumers in Iowa in 2018 or 2019 are required to register for an Iowa sales tax permit and begin collecting Iowa sales tax.
If your business exceeds Iowa’s economic nexus threshold, there are five steps your business should take.
First, you should register for an Iowa sales tax permit online. BrownWinick can help you with this.
Second, your business should determine whether your products and services are subject to sales tax or whether Iowa law provides an exemption. If a sales tax exemption applies (for example, certain medical supplies), your business might need to collect exemption certificates from your customers/clients.
Third, you should determine the applicable sales tax rate. Iowa’s current state-wide sales tax rate is 6%, and each Iowa town can add an additional 1% local option sales tax (bringing the total rate to 7%). All but 60 Iowa towns have added the 1% local option sales tax, with elections currently scheduled for some of those towns to approve the additional 1%.
Fourth, your business will need to determine its reporting and deposit requirements. Iowa generally requires quarterly sales tax returns and requires businesses to deposit their collected sales tax quarterly, monthly, or twice per month, depending on the amount of sales tax collected annually.
Fifth, you should carefully review your current and new contracts. BrownWinick has seen recent contract provisions (especially with governmental entities) requiring the business to certify it is in compliance with all applicable sales tax laws. Some contracts have deemed a violation of sales tax laws as a breach of the contract.
BrownWinick Can Help
Determining your business’ sales tax requirements can be complex, but BrownWinick is here to help. If you have additional questions, Iowa has a helpful Iowa tax reform guidance webpage (scroll down for Iowa’s sales tax updates). And of course, feel free to contact any BrownWinick attorney in the tax practice group to answer all your tax questions and help you with all of your business needs.
This article was written for general informational purposes and should not be relied upon for compliance with Iowa tax law.