Iowa Sales Tax Demystified
Iowa Sales Tax is a bit complicated. So I will break it down by invoice type.
- Parts Invoices: These are straight forward. Parts are taxable at the total tax rate of the State Tax Rate + your County Tax Rate. Shipping of these parts is NOT taxable. And of course, if the customer qualifies, these invoices can be Tax Exempt.
- Service Invoices: These invoices are simple as well. Labor is taxable on ALL Service Invoices at the State + County rate total. Parts are as well EXCEPT:
- IF the unit being worked on is for Farm Use then the parts are tax exempt.
- IF the unit being worked on is for Construction Use then the parts are taxed at the Construction Excise Tax
- NOTE: Any charges for Freight, Shipping, Delivery, EPA Charge or Shop Materials are NOT taxable.
- Major Unit Sale Invoices: There are 3 sets of tax rules employed in Iowa for Major Unit Sales (MUS). The set of rules applied to a unit depends on how it will be used: Farm, Construction, or Personal. So, lets take these one at a time:
- Farm Use Units: These units are tax exempt in the State of Iowa.
- Construction Use Units: These units themselves get taxed at the Construction Excise Tax rate (currently 5%). But, any Accessories on the invoice get taxed at the State + County total tax rate.
- Personal Use Units:
- IF these units will be registered then the One Time Registration Fee (aka Use Tax) (currently 5%) gets applied in place of the State + County tax rate total. AND (and this is VERY important), IF there is a Customer Rebate in play then that Rebate reduces the Taxable Amount for that unit.
- IF these units will NOT be registered then they simply use the State + County tax rate total and if there are any Customer Rebates in play they do NOT affect the Taxable Amount.
- NOTE: Any charges for Freight, Shipping, or Delivery are NOT taxable.
- Tire Tax: In Iowa there is a $1 Tire Tax per new tire sold.
To set the Vehicle Use on a MUS Invoice follow these steps:
- Edit the unit by clicking on the pencil in the orange sold unit header to open up the unit details.
- Locate the Vehicle Use droplist (it will be at the bottom left of the unit description section).
- Set the Vehicle Use to the proper setting (Business = Construction)
Update: Apparently Tax Exempt customers are not TRULY tax “Exempt”. Labor is still a taxable item. Lizzy now has a new tax for you to use for these types of invoices – Iowa Exempt. To use this new tax on an invoice you will need to do the following:
1) Make sure the customer is NOT marked as Tax Exempt (When Lizzy see’s this she treats them as a TRUE tax exempt customer).
2) Be sure and add the new Iowa Exempt tax to your taxes (Settings -> General -> Tax Rates) and set the Tax Rate to the total combined rate for your locale. Also be sure and update your Sales Tax Report to pickup on this new tax (Settings -> General -> Tax Reports)
3) Add the tax to any applicable invoices and Lizzy will calculate tax on any Labor on the invoice. You can remove any other taxes if you wish but it is not necessary as they will be ignored anyway.