[2013 | Keywords: Iowa Legislation, Local Option Sales Tax, Sales Tax]
Q: What does delivery have to do with the taxability of a sale?
Where tangible personal property is delivered determines whether or not a sale is taxable. If delivery occurs within a local option jurisdiction, the local option sales tax may be due. If delivery does not occur in a local option jurisdiction, local option tax is not due.
Delivery usually occurs when the seller transfers physical possession of the property to the buyer. In most instances, this transfer takes place at the seller’s place of business. If the seller transfers the property to the buyer from the seller’s own vehicle, then delivery is considered to take place at the place of transfer. Finally, if the seller transfers the property to a common carrier or the U.S. Postal Service for subsequent transport to the buyer, the “delivery” of the property occurs at the customer’s location.
Q: How is the delivery or sale of tangible personal property affected by the use of FOB or a similar term when it is moved by a common carrier?
It does not affect the sourcing of a transaction, but an FOB designation will determine whether it is a sales tax or a use tax, and whether local option applies.
Q: If residents in a local option tax jurisdiction shop in a city that does not have a local option sales tax, does that mean that they avoid paying the local option tax?
Maybe. If a resident of a taxing jurisdiction takes physical possession of the item in a non-taxing jurisdiction, no local option tax can be imposed. However, if the Iowa seller delivers it by the seller’s vehicle or through a common carrier to the purchaser who lives in a local option tax jurisdiction, then the seller must collect the local option tax applicable in the buyer’s location.
Q: If Iowa sellers send items through the mail or by common carrier to the purchaser and the sellers do not have “nexus” in the purchaser’s location, must they charge the local option tax?
Yes. The seller will charge the local option tax applicable where the customer receives the item.
Q: What happens if the seller is located in a taxing jurisdiction and delivery of an item is made into a jurisdiction where no local option tax has been imposed?
Local option tax cannot be charged on a transaction where delivery occurs in a non-taxing jurisdiction.
Q: What happens when an item is purchased outside Iowa? Would local option sales tax be due?
- If the item is brought into Iowa by the purchaser: These transactions are subject to the state consumer’s use tax. Local option sales tax can only be imposed when state sales tax is applicable. Iowa does not impose a local option use tax.
- If the item is brought into Iowa by the seller in the seller’s own vehicle: Yes, if delivery occurs in a local option jurisdiction.
- If the item is sent into Iowa by a common carrier with an FOB Shipping Point designation or without an FOB designation, or through the U.S. Postal Service: If the out-of-state retailer is registered to collect Iowa tax, the state rate is charged. If the retailer is not registered, the customer owes consumer’s use tax. No local option tax is due in either case.
- If the item is sent into Iowa by a common carrier with an FOB Destination designation: If the out-of-state retailer is registered to collect Iowa tax, the state rate is charged as well as any local option tax imposed by the destination jurisdiction.