Iowa applies a sales tax to most tangible goods and certain services sold within the state. State law provides numerous exemptions, which remove the tax obligation from particular items, services, or transactions. Understanding these exemptions helps consumers and businesses ensure they are paying or collecting the correct amount of tax.
Goods Not Subject to Iowa Sales Tax
Many tangible goods are exempt from Iowa’s sales tax, with exemptions targeting necessities and items used in key state industries. An exemption covers most food intended for home consumption, including grocery staples like bread, milk, fruits, and vegetables. However, this does not apply to items such as prepared hot foods, candy, and soft drinks, which remain taxable.1Iowa Administrative Code. Chapter 220, Rule 701-220.3 – Candy
Prescription drugs dispensed by a pharmacist and certain medical devices purchased for human use are exempt from sales tax.2Iowa Administrative Code. Chapter 220, Rule 701-220.5 – Prescription Drugs The law also exempts residential fuels, including natural gas, electricity, and propane used for heating or cooling homes.
The agricultural and industrial sectors benefit from exemptions designed to reduce operational costs. Inputs used in agricultural production, such as livestock feed, seed, fertilizers, and certain chemicals, are not taxed. Industrial machinery and equipment used directly in manufacturing or research and development are also exempt.
Services Exempt from Iowa Sales Tax
Iowa only taxes services specifically listed in state law, meaning many common services are exempt. Professional services, including those from medical, dental, legal, and accounting professionals, are not subject to sales tax.
Construction services on real property, such as the creation of new structures, are exempt from sales tax, unlike the repair of tangible personal property, which is taxable.3Iowa Administrative Code. Rule 701.219.13 Transportation services like public transit and freight delivery are not subject to sales tax. Shipping charges are also exempt when stated separately from the price of a taxable good.
Financial services provided by banks and investment firms are not taxable in Iowa. An exemption also applies to services performed on tangible personal property that is delivered into interstate commerce. This rule prevents Iowa from taxing services on goods that are leaving the state’s commercial channels.
Sales to Tax-Exempt Organizations
Certain organizations have tax-exempt status, allowing them to purchase normally taxable goods and services without paying sales tax. This exemption applies to governmental agencies, including federal, state, and local Iowa government bodies, for official use.
Sales tax exemptions are also available to certain nonprofit organizations. Private nonprofit educational institutions can make tax-free purchases for educational purposes. Nonprofit private museums and certain nonprofit religious and charitable organizations are also exempt on purchases used for their specific missions.
To receive the exemption, the organization must provide the seller with proper documentation at the time of purchase. The seller must keep this documentation on file to validate the tax-free sale.
Using Iowa Sales Tax Exemption Certificates
An Iowa sales tax exemption certificate, Form 31-014, is a document a buyer provides to a seller to verify a purchase is tax-exempt.4Iowa Department of Revenue. Iowa Sales Tax Exemption Certificate, 31-014 The buyer must complete the certificate accurately and give it to the seller. These forms are used for exemptions related to resale, agricultural production, and sales to nonprofit organizations.
A valid certificate must be filled out completely with the names and addresses of the buyer and seller, the buyer’s tax permit number if applicable, and a clear reason for the exemption. The buyer must also sign and date the certificate. Official forms are available on the Iowa Department of Revenue’s website.
A seller who accepts a completed exemption certificate in good faith is relieved of the liability to collect sales tax, but they must exercise reasonable care when accepting them. Sellers must keep these certificates available for inspection during a state tax audit to justify why tax was not collected.
Addressing Incorrect Sales Tax Charges
If you believe you were wrongly charged sales tax, first request a refund directly from the seller. Provide documentation that supports your claim, such as a completed exemption certificate or an explanation of why the purchase is exempt under Iowa law.
If the seller is unable or unwilling to provide a refund, you can file a claim directly with the Iowa Department of Revenue using Form IA 843, Claim for Refund.5Iowa Department of Revenue. IA 843 Claim for Refund The form requires details about the purchase, the tax amount paid, and the reason a refund is due.
Sellers also have responsibilities. If a seller incorrectly fails to charge sales tax on a taxable transaction, they can be held liable for remitting the tax to the state. This makes it important for businesses to understand tax laws and manage exemption certificates properly.