Iowa Department of Revenue Releases Updated Sales Tax Guidance

Dec 14, 2020

Reposted from Iowa Department of Revenue. Visit Iowa Department of Revenue for the complete guidance.

2020 has been a challenging year for nearly everyone, especially for small businesses. In response to the COVID-19 pandemic, many retailers have established or strengthened their online presence to make sales to their customers or perhaps reach new ones. While retailers with physical locations in Iowa are likely aware they should obtain an Iowa sales tax permit and collect on sales of taxable products and services, some retailers may not be aware that online sales are also taxable or that sales made online to customers outside of Iowa may require collection of sales tax in another state.

Law Changes

In 2018, Iowa enacted legislation modernizing and expanding the types of businesses required to collect Iowa sales tax. This law change took effect on January 1, 2019. In Iowa, marketplace facilitators and remote sellers must collect sales tax on sales into Iowa if their gross revenue from sales into Iowa is $100,000 or more in a current or preceding calendar year.

Local Option Sales Tax

Retailers are responsible for collecting a total of 7 percent for sales tax on taxable sales made at their physical locations in most of Iowa: 6 percent for statewide sales tax, and 1 percent for locally-imposed “local option sales tax,” or LOST. Almost all local jurisdictions, meaning municipalities and counties, in the state impose LOST. For sales made by a retailer online, the retailer is responsible for collecting LOST, if applicable, and reporting LOST collected on the retailer’s Iowa sales tax return. This means retailers need to know the proper location to which the sale should be “sourced.” For most online sales, the delivery address will determine where the sale is sourced and the tax due.

Marketplace Sales

Some retailers utilize a third-party vendor, often a mobile app, to facilitate sales online. If that third party qualifies as a “marketplace facilitator” under Iowa’s definition and exceeds the threshold, the third party should be collecting and remitting sales tax on sales in Iowa. If the marketplace facilitator does not collect sales tax in Iowa for whatever reason, the retailer and marketplace facilitator can both be held responsible for collecting and remitting the tax. Retailers should confirm their marketplace facilitators are properly collecting and remitting tax on the retailers’ sales in Iowa (and elsewhere).

Remote Sales

Iowa retailers making sales online directly to customers are responsible for collecting and remitting tax for all taxable sales to Iowa customers and on taxable sales to customers in other states, if the retailer meets or exceeds the thresholds in those states. Retailers who have expanded their online sales presence due to the challenging circumstances should make sure they are in compliance with the sales tax requirements in Iowa and all other states.

Streamlined Sales Tax

\See Iowa Department of Revenue for more information.

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