[ 2008; R-2013 | Keywords: Iowa Legislation, Sales Tax, Service]
A question came up after the sales tax breakout session at the annual meeting regarding interstate commerce and sales tax on equipment serviced at an Iowa dealership. The particular question was, do we charge Iowa sales tax if an Iowa dealer picks up equipment from a Missouri farmer, services it at the dealership and delivers it back to Missouri?
Answer: Since the customer takes possession of the serviced equipment in Missouri, Missouri sales tax rules apply.
Streamlined Sales Tax Project Sourcing Issues Papers states…
With services, receipt is defined as “making first use of the services.” While “use” is not defined within the sourcing provisions, use should be thought of as generally including all activities most states include in their current definitions, including the exercise of any right incidental to ownership, custody or possession. Therefore, if a car repaired at the seller’s shop is picked up at the shop by the purchaser, the sale is sourced to the shop; if the repaired car is delivered to the purchaser, the sale is sourced to where the purchaser receives the car.
So, for our question above, if the dealer delivers it, Missouri state law applies. If the farmer picked it up or drove it home from the dealership, Iowa law applies.
Also, note that the definition above applies to interstate commerce.
If it is an intrastate sale, the location in which the work is performed applies. If a Polk County dealer picks up a combine from a Warren County farmer and performs service work at their dealership and delivers it back to Warren County, Polk County tax applies.
Interstate Commerce Taxable:
- delivery to a buyer in Iowa or the buyer’s agent (other than a common carrier) in Iowa
Exempt under certain circumstances:
- services performed on property delivered into interstate commerce, and
- tangible personal property delivered into interstate commerce
Delivery into interstate commerce is made when the seller uses his or her own vehicles to deliver the goods out of Iowa or directly assigns goods to a common carrier for shipment out of Iowa.