Iowa Broadens Scope of its Sales and Use Tax
Legislative Changes Effective January 1, 2019
Iowa expanded its taxable enumerated services to include Software as a Service (“SaaS”) and over fifty other new services including information services, storage services (both tangible and electronic), subscription services, and photography services. Additionally, Iowa imposes sales tax on specified digital products. Taxable digital products include digital audio works, digital books, digital movies, and electronic games.
Effective January 1, 2019, as a response to the U.S. Supreme Court decision in South Dakota v. Wayfair, Iowa now requires remote sellers meeting certain criteria to register to collect Iowa sales tax. Prior to this law, only businesses with a physical presence in Iowa were required to collect and remit Iowa sales tax. As a result of the law change, remote sellers must collect Iowa sales tax if gross revenue exceeds Iowa’s Small Remote Seller Exception. The exception applies to remote sellers who have:
- Less than $100,000 in gross revenue from Iowa sales; or,
- Fewer than 200 separate sales transaction into Iowa
What SaaS and Digital Product Exemptions Apply?
Iowa offers an exemption for the purchase of SaaS and specified digital products used exclusively by commercial enterprises. To take advantage of this commercial enterprise exemption, businesses must provide their vendor with Iowa’s Sales/Use/Excise Tax Exemption Certificate (Form 31-014A).
How to Become Compliant
Iowa joins a growing number of states that have enacted economic nexus legislation following the South Dakota v. Wayfair decision. If your company has not completed a comprehensive state tax nexus review, your business may not be compliant with states that are continuing to update their legislation. As your business considers becoming compliant for sales tax, we recommend that you also consider the impact for state income or business activity taxes.
If you would like to learn more about how the Wayfair decision or Iowa’s legislative changes may impact your business, we encourage you to reach out to True Partners Consulting. Our professionals can assist you with determining where your business has a state tax filing responsibility and discuss options for achieving compliance.
Authored by Katie Callison and David Chiu