Sales tax is a tax imposed on the retail sale of goods and services in Iowa. The general state sales tax rate in Iowa is 6%, making it one of the higher sales tax rates in the U.S. In addition to the state sales tax, cities and counties in Iowa may impose local option sales taxes up to 1%, bringing the total possible sales tax rate to 7% in some areas.
Understanding how sales tax works in Iowa is important for both businesses and consumers. This comprehensive guide provides key information about Iowa sales tax, including the tax rate, what’s taxable and exempt, how to calculate sales tax, special taxes, filing requirements, and more.
Iowa Sales Tax Calculator
To calculate Iowa sales tax on a purchase, you simply multiply the taxable purchase price by the combined state and local tax rate for that area. You can also use online Iowa Sales Tax Calculator to Calculate Iowa Sales Tax.
Iowa Sales Tax Calculator
For example, if you purchase a $100 item in Des Moines (sales tax rate 7%), you would calculate:
- Taxable purchase price: $100
- Combined tax rate: 7% (0.07)
- Sales tax due: $100 x 0.07 = $7
The total cost including sales tax would be $100 + $7 = $107.
Most retailers in Iowa will collect the proper sales tax at the point of sale. But if you need to calculate it yourself, refer to the Department of Revenue’s sales tax calculator. Just enter the taxable purchase amount, location, and date to determine the sales tax owed.
Iowa Sales Tax Rate
The statewide sales tax rate in Iowa is 6%. This includes:
- 5% state sales tax
- 1% local option sales tax
On top of the 6% base rate, counties and cities in Iowa can impose local option sales taxes up to 1%. Local sales tax rates vary widely across the state, ranging from 0% to 1%.
To find the total sales tax rate for a specific location in Iowa, you need to add the state tax rate (6%) plus any applicable local option sales taxes. Sales tax jurisdictions in Iowa are assigned five-digit codes which indicate the county and city responsible for collecting sales tax in that area.
The Iowa Department of Revenue provides a sales tax lookup tool where you can enter any Iowa address or five-digit code and determine the precise sales tax rate for that location. Sales tax rates can change frequently in Iowa, so it’s important to always verify the latest rates.
What is Taxable in Iowa?
Iowa broadly taxes retail sales of tangible personal property and certain services. Some major categories of products and services taxed in Iowa include:
- Physical goods and merchandise
- Restaurant meals and prepared food
- Hotel rooms and accommodations
- Admission tickets to entertainment/recreational events
- Utility services like gas, electric, water, and sewer
- Online products and digital goods
- Automotive repairs and services
- Telecommunications services
- Cleaning and laundry services
- Pet grooming and boarding
Notable exemptions to Iowa sales tax include:
- Most groceries and prescription drugs
- Medical services
- Legal, accounting, engineering, and real estate services
- Educational services
There are also numerous industry-specific exemptions for agriculture, manufacturing, and other sectors. The Iowa sales tax fact sheet compiled by the Department of Revenue contains a detailed list of common taxable and exempt items.
Sales Tax Exemptions in Iowa
Certain buyers and products may qualify for exemption from Iowa sales tax:
Tax Exempt Buyers
- Federal and Iowa government agencies
- Public and private schools
- Nonprofit charitable, religious, and educational organizations
- Qualified manufacturing, processing, and research firms
These entities can apply to the Department of Revenue for a sales tax exemption certificate. The certificate allows them to purchase qualifying items tax-free by providing the certificate to sellers at the point of sale.
Exempt Products
- Most groceries, including meat, produce, bread, cereal, and more
- Prescription drugs and medical devices
- Gasoline, diesel fuel, and biodiesel
- Farm equipment, machinery, and replacement parts
- Manufacturing and processing equipment
For a full list, see the Iowa Department of Revenue’s guide on exempt sales.
Specialty Taxes in Iowa
In addition to the general sales tax, Iowa imposes selective sales taxes on certain products and services:
- Hotel/motel tax: 5% state tax on rooms and accommodations. Local taxes may also apply.
- Car rental tax: 5% state tax on short-term vehicle rentals.
- Vehicle sales tax: 5% state tax on automotive sales, in lieu of sales tax.
- Tobacco tax: $1.36 per pack of cigarettes. Tax rates vary for other tobacco products.
- Alcoholic beverage tax: Various excise taxes on beer, wine, and liquor.
These taxes are imposed at the point of sale and are collected by the retailer. Consumers cannot claim exemption from Iowa’s specialty sales taxes.
Iowa Sales Tax Filing and Remittance
Businesses that sell taxable goods or services in Iowa must register for a sales tax permit, collect sales tax from customers, file returns, and remit the tax revenue to the state.
Registration
Retailers must register online for a sales tax permit prior to making any taxable sales. There is no fee to obtain a sales tax permit.
Collecting Tax
Once registered, sellers must charge Iowa sales tax on all taxable sales and obtain a valid exemption certificate for any tax-exempt sales. Sales tax collection starts immediately upon registration.
Reporting & Remittance
Sales tax returns and payments are due on either a monthly or semi-monthly basis depending on the seller’s sales volume. Returns and tax payments are submitted electronically through the eFile & Pay system.
- Monthly filers: returns/payments due by the 20th of the following month
- Semi-monthly filers: returns payments due by the 15th (for 1st-15th period) and end of the month (for 16th-end of month period)
In addition to filing regular returns, retailers must also file an annual sales tax reconciliation return. This summarizes the total tax collected/remitted throughout the year.
Records
Businesses are required to keep accurate sales records and books for at least three years. These records must be provided if the seller is audited by the Department of Revenue.
Iowa Use Tax
Iowa imposes a 6% use tax that corresponds with the sales tax. Use tax applies to purchases made out-of-state or online where Iowa sales tax was not collected.
Common examples include:
- Orders from out-of-state online retailers
- Mail order/phone order purchases from out-of-state companies
- Buying items tax-free in another state and using them in Iowa
If sales tax was not paid originally, the buyer owes 6% Iowa use tax on these transactions. Use tax prevents buyers from avoiding Iowa tax by making out-of-state purchases.
Use tax is typically reported and paid on the buyer’s Iowa income tax return. However, businesses must report use tax on their sales tax returns if the out-of-state purchases are for business use.
Local Option Sales Taxes in Iowa
Iowa cities, counties, and schools districts are authorized to impose local option sales taxes on top of the statewide 6% tax. These local sales taxes can be levied up to 1% for a maximum combined rate of 7% in areas with the full 1% local tax.
As of early 2023, around 320 cities in Iowa have enacted a 1% local sales tax. All 99 counties also impose a 1% local tax. Many school districts also lever local sales taxes.
Local option sales taxes are collected on the same base of taxable sales as the statewide tax. Returns are filed with the Iowa Department of Revenue, which administers local taxes. Revenue is redistributed back to the city/county/school district that imposed the tax.
Local option sales taxes require voter approval. Sales tax elections are held annually on the first Tuesday following the first Monday in November. Local governments must pass an ordinance or resolution to put a proposed tax on the ballot. If approved by voters, local option sales taxes take effect either January 1 or July 1 following the election.
Sales Tax Administration in Iowa
Iowa sales and use tax is administered by the Iowa Department of Revenue. The Department oversees registration, collections, audits, and enforcement.
Key responsibilities include:
- Maintaining sales tax rules and regulations
- Registering companies for Iowa sales tax permits
- Processing sales/use tax returns and payments
- Auditing businesses to ensure proper compliance
- Providing taxpayer services and assistance
- Issuing tax guidance and rulings
The Department of Revenue’s Director is appointed by the Governor of Iowa. The agency is overseen by the State Board of Tax Review.
Taxpayer resources provided by the Department include:
- FAQs on Iowa sales and use tax
- Taxpayer service staff to respond to questions
- Online sales tax lookup tool for rates by location
- Online seminars and workshops
- Print and online guides covering Iowa tax rules
The Department takes enforcement action against non-compliant retailers in Iowa. This can include tax assessments, audits, license revocation, and substantial penalty and interest charges for those who fail to collect/remit Iowa sales tax appropriately.
Sales Tax Updates in Iowa
Iowa’s sales tax laws, regulations, and rates are subject to change through legislative or voter action. Here are some recent and upcoming changes:
- The statewide sales tax rate increased from 5% to 6% on July 1, 2008.
- A sales tax exemption for manufacturing consumables was enacted in 2016.
- Online sales tax collection requirements expanded in 2019 following the South Dakota v. Wayfair Supreme Court decision.
- Cedar Rapids approved a 1% local option tax that took effect January 1, 2023.
- Numerous Iowa cities and counties have sales tax measures on the November 2023 ballot.
Taxpayers and businesses should monitor the Iowa Department of Revenue website and sign up for email newsletters to get the latest Iowa sales and use tax updates.
Iowa Sales Tax Resources
- Iowa Department of Revenue website – Official site covering Iowa taxes
- Sales/Use Tax FAQs – Frequently asked questions
- Sales Tax Permits – Information on registering for a permit
- Taxable/Exempt Sales – Details on what’s taxed and exempt
- Sales Tax Forms – Tax returns and other forms
- Use Tax – Details on Iowa use tax
- Local Option Taxes – Information on city/county sales taxes
Conclusion
Sales tax compliance is crucial for Iowa businesses and consumers. This guide provides an overview of key sales tax rules, rates, exemptions, and reporting requirements in Iowa. Use it as a resource to understand your obligations and properly adhere to Iowa sales and use tax laws. Be sure to consult the Iowa Department of Revenue website for up-to-date information and guidance. With the right knowledge, you can avoid costly sales and use tax mistakes and remain compliant in Iowa.
