RATE OF SALES TAX:
6.00%
LOCAL & COUNTY MAXIMUM RATES:
1.00%
Table of Contents
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TaxJar ($17/month) assists businesses with ecommerce sites in calculating sales tax at the checkout.
What Are the Taxable Goods and Services?
The first step in sales tax compliance is determining if the items or services your firm offers are taxable in Iowa.
Traditional Products and Services
Physical property, such as furniture, household appliances, and automobiles, is subject to sales tax in Iowa.
Groceries, prescription medications, and fuel are all free from sales tax.
In Iowa, certain services are subject to sales tax. View the Iowa Department of Revenue website for a complete list of taxable services.
Digital Products and Services
A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.
Businesses in Iowa are not required to collect sales tax on the sale of digital products.
Iowa, on the other hand, has one exemption to this restriction. Businesses are required to collect sales tax on pre-written computer software offered online.
How to Register for Sales Tax in Iowa
If you have concluded that you must charge sales tax on part or all of the products and services that your company sells, the next step is to apply for a seller’s licence.
This enables your company to collect sales tax on behalf of the municipal and state governments.
You will need the following information to register:
Personal identifying information (SSN, address, etc.)
Identification information for a business (EIN, address, etc.)
Type of business entity (sole-proprietor, corporation, LLC, etc.)
When did you start selling in Iowa?
Product or service categories
A Resale Certificate might help you save money.
When acquiring items for resale, your firm does not have to pay sales tax if you obtain a resale certificate, also known as a reseller’s permit.
Sales Tax Collection
After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.
When computing sales tax, consider the following types of transactions:
Store Sales Shipping Within-State Sales Outside-State Sales
Retail Sales
For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location.
Here’s an illustration of how this situation may look:
Mary is the owner and manager of a bookshop in Ames, Iowa. Because books are taxable in Iowa, Mary charges her clients a 7% flat-rate sales tax on all transactions. This includes the 6.0% state sales tax as well as the 1.0% county sales tax.
Sales inside the state
The state of Iowa has a policy known as a destination-based sales tax. This implies that long-distance transactions inside Iowa are taxed based on the buyer’s address. This regulation applies to sales taxes levied by the state, county, and city.
Consider the following scenario:
Steve operates his own eBay electronics company from his home in Davenport, Iowa. A buyer from Garden Grove, Iowa discovers Steve’s eBay website and buys a $350 set of headphones. Steve uses the 6.0% state tax rate for Iowa plus the 1.0% Decatur county tax rate when computing the sales tax for this transaction. The entire cost is $374.50 ($24.50 sales tax) at a total sales tax rate of 7.0%.
Out-of-State Purchases
Iowa firms must only pay sales tax on out-of-state sales if they have a presence in other states.
Nexus indicates that the company has a physical presence in another state.
Common nexus types include:
A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.
Submit Your Sales Tax Return
You’re ready to submit your sales tax return now that you’ve obtained your Iowa seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.
How to File a Claim
Businesses in Iowa are required to file sales tax forms and make sales tax payments online.
How Frequently Should You File?
Annual filing: If your company receives less than $10 in sales tax each month, you should submit returns on an annual basis.
Quarterly filing: If your company receives between $10 and $500 in sales tax every month, you should choose to submit quarterly returns.
Monthly filing: If your company receives between $500 and $5,000 in sales tax every month, you must submit monthly returns.
Semi-monthly filing: If your company receives more than $5000 in sales tax each month, you must submit returns semi-monthly.
Deadlines for Filing
Unless it is a weekend or a federal holiday, all Iowa sales tax return deadlines occur on the last day of the month. The following are the filing deadlines for this year:
Penalties for Filing Late
If you do not submit your return by the due date and pay less than 90% of the tax owed, Iowa assesses a failure to promptly file penalty of 10% of the unpaid tax. If this penalty is imposed, the late payment penalty will not be imposed.
If the return was submitted but less than 90% of the tax was paid for, Iowa imposes a late payment penalty of 5% of the unpaid tax.
For any unpaid tax or penalty, the state levies a compounding interest rate of 5% per year or 0.4% each month or partial month.