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[2003; R-2013 | Keywords: Iowa Legislation, Sales Tax, Nexus] 

General Exemption (Iowa Code 423.3 (43)) 2003

The sales price from the sale of property or of services performed on property which the retailer transfers to a carrier for shipment to a point outside of Iowa, places in the United States mail or parcel post directed to a point outside of Iowa, or transports to a point outside of Iowa by means of the retailer’s own vehicles, and which is not thereafter returned to a point within Iowa, except solely in the course of interstate commerce or transportation. This exemption shall not apply if the purchaser, consumer, or their agent, other than a carrier, takes physical possession of the property in Iowa.

Example: A dealer mails or ships replacement parts to a customer who resides outside the state. The parts are exempt from Iowa sales tax, however, the customer needs to pay use tax applicable to their state.

Likewise, the sale of equipment/machinery, attachment, or replacement part to a farmer who reside outside the state where point of delivery/sale is made in Iowa is considered an Iowa sale and is eligible for the ag exemption. Farmers residing outside the state need to sign the Iowa exemption certificate and are required to pay use tax, if any, in the state that they reside.

What confuses this simple concept is when a dealer has “nexus” or a presence in another state. If a dealer has a presence in another state, they are required to collect the sales tax of that state.

The Midwest Border States Compact was developed to address this issue. This group of states is working together to eliminate unfair competition and increase compliance by informing consumers about use tax and seeking registration from out-of-state businesses. State governments are becoming more aggressive in searching out taxpayers that may owe outstanding tax liabilities. These states exchange information and cooperate in enforcement efforts.

If you have business presence for tax purposes (nexus), you are required by law to register. Examples of nexus activities include:

  1. having a representative, agent, or salesperson in the state for the purpose of selling or taking orders
  2. leasing tangible personal property or licensing rights for use within the state
  3. maintaining a business location within the state
  4. making delivery of goods with company-owned vehicles
  5. performing services or installation, construction, or repairs
  6. stocking inventory in a public warehouse or on consignment 

Example: You have a salesperson occasionally travel in another state and you sell an item to a customer in that state. By law you are required to collect the sales tax for that state.

States included in the Midwest Border States Compact: Illinois, Kansas, Minnesota, Missouri, Nebraska and South Dakota. Wisconsin is not in compact but has a similar nexus definition.

If you feel you have nexus in another state, contact the appropriate state tax agency for forms and instructions to help you comply with filing requirements. Registration alone does not subject you to liability for failure to collect past sales or use taxes. Liability depends on whether or not you had nexus with the state in question in the past and the laws and policies of each state.

Even if you do not have nexus, your registration will prevent the inconvenience of having your customers contacted directly by state tax authorities seeking to collect use tax. Consumers are responsible for remitting use tax on purchases bought from unlicensed out-of-state vendors. The states will bill them for unpaid use tax plus penalty and interest.