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[2008; R-2013 | Keywords: Iowa Legislation, Sales Tax, Rental]

I was recently asked if sales tax should be charged on a tele-handler rented to contractor used in the construction of a building. The dealer wanted something in writing and this is what I found.

Building Equipment

The term “building equipment” means any vehicle, machine, tool, implement or other device used by a contractor in erecting structures for others, or reconstructing, altering, expanding or remodeling property of others that does not become a physical component part of the property upon which work is performed and is not necessarily consumed in the performance of such work.

The contractor must pay sales tax on any building equipment that is purchased by them but may rent building equipment exempt from sales tax.

Rental of the following are exempt when used in new construction, reconstruction, alteration, expansion, or remodeling:

  • self-propelled building equipment (does not include vehicles subject to registration)
  • self-constructed cranes
  • pile drivers
  • structural concrete forms
  • regular and motorized scaffolding
  • generators
  • attachments customarily drawn or attached to the above
  • auxiliary attachments which improve the performance, safety, operation or efficiency of the equipment and replacement parts
  • tools, including hand tools
  • compressors
  • drill presses
  • forms other than structural concrete forms
  • lathes
  • trailers for storage or a business office
  • portable toilets

Certain building equipment is exempt from local option taxes when purchased by a contractor or builder but is not exempt from sales tax. This was discussed in a previous article.

Reference: Iowa Contractors Guide – www.state.ia.us/tax/educate/78527.html

Q: (New construction) If a rental payment is tax exempt and there is a rent-to-purchase option that is executed, is the rental payment deducted off the original sales price to determine the new taxable base?

A: Yes. The department of revenue ruled that the amount of rent paid before the option to purchase was exercised and was to be excluded from the taxable sum resulting from the exercise of the option. It was also ruled that rental payments were not taxable because they were not part of the taxable gross receipts from the sale of the equipment. It is recommended that a copy of the rental agreement be attached to the purchase order to verify that a rental actually occurred before the purchase.