Sales Tax Issues for the Cosmetology Industry

Sales Tax Issues for the Cosmetology Industry

Sales Tax Issues for the Cosmetology Industry August 14, 2019 Terry ONeill, Taxpayer Services Specialist Disclaimer Please be advised that the information in this presentation contains informal opinions and are only applicable to the factual situations referenced and to the statutes in existence as of the date of this presentation. The Iowa Department of Revenue may take a contrary position in the future to what is stated today. Any oral or

written opinion by Department personnel not pursuant to a Petition for Declaratory Order under Iowa Administrative Code rule 701-7.24 is not binding on the Department. Are Cosmetology Services Subject to Iowa Sales Tax? YES Barber & beauty services are listed in the Iowa Code as being taxable. See Iowa Code 423.2(6)(g), IAC 701-26.9

What Specific Services are Taxable? Taxable barber and beauty/cosmetology services include: Hair cutting, styling and/or coloring Manicuring & pedicuring Nail Salons Applying facial & skin preparations Hair removal Wig care All other similar activities which tend to enhance the appearance of the individual Are Sales of Products Taxable?

YES Sales of tangible personal property are subject to sales tax. What Types of Products are Taxable? When sold to a customer over the counter at retail, sales tax should be charged on the following: Hair care products Hair accessories Nail polish Manicure/Pedicure Tools Jewelry

Should I Pay Sales Tax When I Buy Products? Generally, YES How the products are transferred to the customer determines whether tax is due when they are purchased by the cosmetologist. When Can Products be Purchased Tax Exempt? Products that are purchased for resale are exempt from

sales tax. The product must be for direct over the counter retail sale to customers An Iowa Sales Tax Exemption Certificate should be provided to your supplier When Cant Cosmetology Products be Purchased Tax Exempt? Products that are used in the performance of your service are taxable. This includes items such as shampoo and nail polish used on customers.

What if I Sell Some Products and Use Others? Purchase the products tax free for resale Collect tax on over the counter retail sales Report products taken out of resale inventory for use in the performance of your service on line 2, Goods Consumed of your sales tax return Enter your cost of the product on line 2, not the price for which you would sell the product at retail Do I Pay Sales Tax on Equipment & Supplies

YES Items purchased for use by the business are taxable. Examples of Taxable Equipment & Supplies

Bobby-pins Brushes & Combs Chairs Cleaning Items Clippers Cotton balls Curling irons Hair clips

Hair dryers Mannequins

Nail Supplies Plastic gloves Q-tips Razors Rollers Scissors Soap Sponges Towels Tweezers What Do I Need in Order to Charge,

Collect, and Remit Iowa Sales Tax? An Iowa Business Tax Registration must be completed to apply for an Iowa sales tax permit. How Can I Apply? The best option is to apply online at tax.iowa.gov Who Should Apply for a Sales Tax Permit? All owners of cosmetology businesses All persons performing work as an independent contractor at a business owned by another Who is Considered an

Independent Contractor? Iowa follows federal guidelines on the determination of independent contractor status for tax purposes. For Internal Revenue Service information, contact the IRS at 1-800-829-1040. If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Does a Cosmetology Company Have Employees? If a cosmetology company has employees, it must

withhold federal and state income taxes from the employees paychecks. This means the company must register to become a withholding agent with both the Internal Revenue Service and the Iowa Department of Revenue. Employees who make more than $200 per week and claim they are exempt from withholding must still complete a W-4. Example 1 Paul Pick, a barber, signed a lease agreement with Larry Lord, the owner of a barber shop, to use a chair in Larrys shop. Larry bears all the shop expenses,

including rent, utilities, advertising, linens, and other supplies. The agreement provides that 70 percent of the receipts from Pauls chair go to him and 30 percent go to Larry. All receipts are put in Larrys cash register. At the end of the week, he pays Paul the agreed percentage of the receipts. Example 1 (cont.) Shop hours are displayed on the shop door. Paul is expected to comply with them. He must take customers in turn, maintain clean

premises, use clean towels and sterile equipment, and keep a clean personal appearance. Although Larry does not supervise Paul, Larry can dismiss him for acting in a manner that would cause the loss of patrons, or for any other reason. Larry does not direct or control Paul in the actual performance of his services, but he has the right to do so and to discharge him. Larrys income depends on a percentage of Pauls receipts. Thus, Larry retains the right to direct and control Paul to protect his investment and to be assured a sufficient profit from the shop. Paul has no investment in the shop, assumes no liability for its operation, and

furnishes nothing except his personal services. Paul is an employee of Larry and doesnt need to apply for a sales tax permit. Example 2 Charlie Blue, the owner of a barber shop, and Sally Gold have an agreement under which Sally, a professional manicurist, furnishes manicuring services to shop patrons during business hours. According to the agreement, Sally regulates her own hours,

furnishes her own equipment and supplies, and keeps the proceeds from her work. She does not use the shop cash register nor does she report her earnings to Charlie. She can perform her services personally or hire a substitute. Charlie cannot direct the way she performs her services. Either party to the agreement can end the arrangement at any time. Example 2 (cont.) Although Charlie has the right to dismiss her by ending the agreement, and although he furnishes her a place to work, he does not have the right to exercise over her work the degree of direction and control necessary to establish an employer-employee relationship. Therefore, Sally is an

independent contractor and must apply for her own sales tax permit. What Sales Tax Rate Do I Charge When I Sell Taxable Products & Services? The State of Iowa sales tax rate is 6%. Some areas also have a local option sales tax (LOST). What is Local Option Sales Tax (LOST)? An additional 1% sales tax that can be imposed by Iowa counties and cities.

LOST List and Sales Tax Look Up App The best option is to apply online at tax.iowa.gov What Sales are Subject to LOST? LOST is due when products are delivered in an area that imposes the additional 1% tax. LOST is also due when first use of cosmetology services occurs, or potentially could occur within a LOST jurisdiction. Important Rule

Tax cannot be absorbed by, nor paid by the retailer. Sales Tax can be Included in Total Sales Price if posted Consumers Use Tax A tax on the use of taxable goods or services in Iowa, when sales tax was not paid at the time of purchase. Typically due on untaxed purchases made in another state and shipped/brought to Iowa.

The rate is 6%. NOTE: If you paid consumers use tax in the past on items purchased from out-of-state sellers, you should check with those sellers to see if they now collect sales tax. If yes, you do not owe use tax for that purchase. If no, you still owe use tax for that purchase. How Do I Pay Consumers Use Tax? If businesses and individuals making taxable purchases on a regular basis and the seller is not collecting sales tax, they should apply for a consumers use tax permit.

Businesses with a sales tax permit can report purchases subject to consumers use tax on line 2, Goods Consumed, of the quarterly sales tax return. Discounts The word "discount" means "to buy at a reduction." Iowa sales tax applies to the reduced price paid by the customer. Example The price of a haircut and styling at a salon is $50. The salon reduces the price to $45. Customers will pay Iowa sales tax on $45.

Coupons Coupons issued by the producer of a product These are not discounts and cannot be used to reduce the taxable amount of the product. Example The manufacturer of a bottle of shampoo issues a $1 off coupon which can be redeemed at any store which sells the product. The shampoo costs $6.75. A customer pays $5.75 plus the $1 coupon. Tax is due on the $6.75 because the total gross receipts are $6.75. The coupon is not used as a discount in this situation. The store is reimbursed the $1 for the coupon by the manufacturer.

Coupons Coupons issued by the retailer These are treated as a discount. Example A salon offers a two-for-the-price-of-one coupon for its own brand of nail polish. Each bottle of polish normally sells for $7.50. The coupon can only be redeemed at this salon. A customer uses the coupon to buy two bottles of polish. The purchase price was $7.50 for both bottles. The tax is due on the $7.50 because this amount is the gross receipts, even though the value of the two bottles would normally be $15.00. The retailer has no avenue for reimbursement.

Gift Cards/Certificates Gift cards/certificates are exempt from tax at the time they are purchased. Tax is due at the time the card/certificate is redeemed by the customer. Tips & Gratuities Monetary tips or gratuities included with the charge for cosmetology services are subject to tax. If service cannot be obtained without paying the gratuity or if the gratuity is inseparable from the service charge, tax is due on the full amount charged for the service.

Tips or gratuities paid voluntarily by the customer are not taxable. Subscribe to Updates Subscribing Topics Include:

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Email: [email protected] Social Media @IDRBusinesTax @IDRIncomeTax @IDRTaxPros Iowa Department of Revenue Thank you!

Sales Tax Issues for the Food Industry August 14, 2019 Terry ONeill, Taxpayer Services Specialist Disclaimer Please be advised that the information in this presentation contains informal opinions and are only applicable to the factual situations referenced and to the statutes in existence as of the date of this presentation. The Iowa Department of Revenue may take a contrary position in the future to what is stated today. Any oral or

written opinion by Department personnel not pursuant to a Petition for Declaratory Order under Iowa Administrative Code rule 701-7.24 is not binding on the Department. Is Food Exempt from Iowa Sales Tax? Sometimes The type of food purchased determines if it is taxable or exempt. What is Exempt? Most non-prepared food / groceries Eligible items purchased under the supplemental

nutrition assistance program (known as food stamps or SNAP). What is Taxable? Candy Certain beverages Prepared food / restaurants Exempt Food & Beverages Bread and flour products Bottled water Cereal and cereal products, unless taxable as candy in the form of a bar

Cocoa and cocoa products, unless taxable as candy Coffee and coffee substitutes Cooking ingredients Dietary substitutes and specialty foods Eggs and egg products Fish and fish products Food items eligible for purchase under the supplemental nutrition assistance program (known as food stamps or SNAP) Frozen foods

Fruits / fruit products / fruit juices containing more than 50% fruit or vegetable juice Ice (unless specifically labeled for non-food use) Meats and meat products Milk and milk products, including packaged ice cream products Margarine, butter, and shortening Spices, condiments, extracts, and artificial food coloring Snack foods (unless taxable as

candy) Sugar, sugar products / substitutes (unless taxable as candy) Tea Vegetables and vegetable products Taxable Food & Beverages Alcoholic beverages Candy, candy-coated items, and candy products Certain beverages, including those with 50% or less fruit or vegetable

juice Dietary supplements Chewing gum Pet foods Tonics Vitamins and minerals

Taxable Candy Candy, candy-coated items, and candy products include preparations normally considered to be candy Fruits, nuts, or other ingredients in combination with sugar, chocolate, honey, or other natural or artificial sweeteners in the form of bars, drops, or pieces Unsweetened or sweetened baking chocolate (bars/pieces/chips)

Caramel wraps, caramel or other candy-coated apples or other fruit Sweetened coconut Marshmallows Hard or soft candies including jelly beans, taffy, licorice, and mints Dried fruit leathers or other similar products prepared with natural or artificial sweeteners Ready-to-eat caramel corn, kettle corn, or other candy-coated popcorn

Granola bars Candy breath mints Mixes of candy pieces, dried fruits, nuts, and similar items when candy is more than an incidental ingredient in the product Candy primarily intended for decorating baked goods What is Exempt Because its Not Candy? (unless taxable as prepared food) Jams, jellies, preserves, or syrups

Frostings and other decorating ingredients Dried fruits Marshmallow cream Breakfast cereals Prepared fruit in a sugar or similar base Ice cream, popsicles, or other frozen desserts covered with chocolate or similar covering Unpopped caramel corn, kettle corn, or other candycoated popcorn

Cakes and cookies Candy containing flour, unless the flour is added only to exclude its sale from tax Cotton candy, unless taxable as prepared food Crackers Marzipan Unsweetened coconut Taxable Beverages All alcoholic beverages Nonalcoholic beverages that

contain natural or artificial sweeteners, regardless of whether carbonated or noncarbonated, including but not limited to: Colas, ginger ale Near-beer, root beer Lemonade, orangeade All other drinks or punches with natural fruit or vegetable juice which contain 50 percent or less by volume natural fruit or

vegetable juice; a typical example is Hi-C Beverage mixes and ingredients intended to be made into taxable beverages Liquid or frozen Concentrated or unconcentrated Dehydrated, powdered, or granulated Sweetened or unsweetened Seasoned or unseasoned

concentrates intended to be made into beverages which contain 50% or less by volume natural fruit or vegetable juice Naturally or artificially sweetened water Exempt Beverages (unless taxable as prepared food) Bottled water, including effervescent and non-effervescent water, soda water, mineral water (unsweetened)

Bottled tea and coffee when unsweetened. Milk, milk substitutes, and beverages containing milk, milk products, or milk substitutes. Beverages that contain natural fruit or vegetable juice of more than 50% by volume (providing the containers label shows the percentage of natural fruit or vegetable juice)

Beverages in concentrate or mix form to be made into an exempt beverage, such as frozen apple juice or frozen orange juice Concentrates which when reconstituted are equivalent of more than 50% natural fruit or vegetable juices

Mixes intended to be mixed with milk or dairy products, such as Nestles Quik Specialty foods that are liquids or that are to be added to a liquid and that are intended to be a substitute in the diet of more commonly used food items are exempt, such as infant formulas What is Taxable as Prepared Food? Food sold in a heated state or heated by the seller, including food sold by a caterer

Two or more food ingredients mixed or combined by the seller for sale as a single item Food sold with eating utensils provided by the seller, including plates, knives, forks, spoons, glasses, cups, napkins, or straws. A plate does not include a container or packaging used to transport food. What Type of Businesses Usually Sell Prepared Food?

Restaurants Coffee shops Cafeterias Convenience stores Snack shops Concession stands Mobile vendors Examples of Prepared Food

A supermarket retailer cuts Bibb and romaine lettuce, mixes them together, and further mixes with a salad dressing, which is placed in a container and sold as a salad which is ready to eat. Sale of the salad is a taxable sale of prepared food. Examples of Prepared Food A supermarket retailer slices a roll of cotto salami and a roll of regular salami. The retailer takes the sliced salami, places it between two slices of bread, adds some condiments, surrounds the meat, bread, and condiments with plastic, and sells the result as a ready-to-eat sandwich. The sale of the sandwich is taxable.

What is Exempt Because it isnt Considered Prepared Food? Food that is only cut, repackaged, or pasteurized by the seller. Eggs, fish, meat, poultry, and foods containing these raw animal foods Requires cooking by the consumer as recommended by the United States Food and Drug Administration in Chapter 3, Part 401.11 of its Food Code, so as to prevent food-borne illnesses. What is Exempt Because it isnt Considered Prepared Food?

Bakery items sold by the seller that baked them. Includes but is not limited to breads, rolls, buns, biscuits, bagels, croissants, pastries, donuts, Danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas. Food sold in an unheated state as a single item Without eating utensils Priced by weight or volume. Examples that arent Considered Prepared Food A supermarket retailer cuts Bibb and romaine lettuce, mixes them together, and places them in a bag for sale.

This is food that is only cut and repackaged. Its sale is not the sale of prepared food; therefore, its sale is exempt from tax. Examples that arent Considered Prepared Food A supermarket retailer slices a roll of cotto salami and a roll of regular salami. The retailer places 10 slices of each in the same container and sells the combination as an Italian luncheon meat variety pack. This is, again, the sale of food which is only cut and repackaged. The sale of the salami is exempt from tax.

Sales from a Grocery Store Deli Sales of prepared foods from a grocery store deli are generally subject to sales tax. If several items are sold together as part of a meal and they are not separately itemized, The total amount charged for the meal is subject to sales tax. A meal might include a loose-meat sandwich, a bag of potato chips, and a soft drink for a single, combined price. The full amount of the sale is taxable. Sales from a Grocery Store Deli Many delis take surplus food and package it and place it in a cooler separate from the deli counter.

Generally, this type of food sale is exempt because the product is packaged as a single item, is sold without utensils and in an unheated state, and is priced by weight or volume Examples include: cole slaw, baked beans, potato salad, etc. However, meals prepared by the retailer and stored in a cooler are subject to sales tax They are not priced by weight or volume. Typical examples include a meatloaf sandwich or a Chinese meal. Tips & Gratuities Monetary tips or gratuities included with the charge for

food service are subject to tax. If service cannot be obtained without paying the gratuity or if the gratuity is inseparable from the service charge, tax is due on the full amount charged for the service. Tips or gratuities paid voluntarily by the customer are not taxable. Subscribe to Updates Subscribing Topics Include:

Newsroom Tax Information eFile & Pay Due Date Reminders Electronic Filing Economic, Fiscal, and Statistical Information

Contact Us Taxpayer Services: Phone: 800-367-3388 or 515-281-3114 Email: [email protected] Social Media @IDRBusinesTax @IDRIncomeTax @IDRTaxPros Iowa Department

of Revenue Purpose of this Presentation This presentation is intended for general educational purposes only. Anyone involved in an audit or protest must contact the Department representative they are working with on that issue. Thank you! Sales Tax Issues for the Construction Industry

August 14, 2019 Paul Breitbach, Executive Officer Disclaimer Please be advised that the information in this presentation contains informal opinions and are only applicable to the factual situations referenced and to the statutes in existence as of the date of this presentation. The Iowa Department of Revenue may take a contrary position in the future to what is stated today. Any oral or written opinion by Department personnel not pursuant to a Petition for Declaratory Order under Iowa Administrative

Code rule 701-7.24 is not binding on the Department. What is a Construction Contract? An agreement to provide labor and materials to build a structure General contractor, subcontractor, or builder An individual, corporation, partnership, or other entity Four Types 1. 2. 3. 4.

Contractor Contractor - Retailer Repair Company Manufacturer - Contractor The type is important for determining tax obligations Contractor Consumer of building materials and supplies Sales tax responsibility: pays sales tax on the purchase New construction, reconstruction, expansion, alteration, and remodeling

Pay tax on materials when purchased Does not collect any tax from customers All other situations: Pay tax on materials when purchased Collect tax on labor and materials from customers On sales tax return, take credit for tax paid on materials if itemized on invoice to the customer Contractor Retailer Generally have a storefront supplies & materials, frequent retail sales to the public may sell to other contractors build residential or commercial structures

Must obtain a Sales Tax Permit to collect and remit tax including retail sales, taxable repairs, materials used in a construction contracts Contractor Retailers Sales or Use Tax Responsibilities Buys Tax Free For supplies and materials to be resold To provide supplier with a valid sales tax exemption certificate Pays Sales or Use Tax Sales tax to suppliers for supplies and materials not placed in inventory

Use tax to the Department if inventory is removed for use by the business Collects Sales Tax from Customers For materials, supplies, and equipment sold without installation When performing repairs or installations, charge sales tax on labor and materials Doesnt Collect or Remit Sales or Use Tax Performing a construction contract Materials withdrawn from inventory for use in construction projects performed outside Iowa

Repair Companies Does Repairs an existing structure that has been damaged Rarely or Never Sells supplies and materials Build residential or commercial structures Sales Tax responsibilities: Itemizes materials and labor separately on the bill No sales tax on purchases of building materials & supplies

when purchases are for resale if the supplier is given a valid sales tax exemption certificate if tax is collected on the total bill from the customer Doesnt itemize materials and labor: when tax is paid on the materials when purchased when collecting tax on the total bill

Manufacturer Contractors Sell to contractors or other consumers Collects tax on the gross receipts, unless the consumer gives a valid exemption certificate Make retail sales Must hold an Iowa sales tax or use tax permit May sell or use their products in construction contracts Manufacturer Contractors Sales Tax Responsibilities Primarily manufacturers:

Tax is computed on fabricated costs materials, labor, power, transportation to the plant, other plant expenses such as overhead, but it does not include installation on the job site Primarily contractors: Tax is computed on the cost of raw materials New construction Does not collect sales tax from the final customer Taxable repair service

May withdraw materials from inventory tax free Tax is collected from the final customer on the labor and materials Construction contracts outside of Iowa No Iowa sales or use tax is due on the materials used What About Tools, Equipment, Supplies & Materials? Tax is due on items that do not become part of the realty being constructed Examples include:

Barricades Building equipment

Compressors Cranes Drill presses Dynamite Electric generators Equipment parts (replacements) Forms Fuel Hand tools

Lathes Lodging Machinery Pile Drivers Scaffolds Stakes Utilities

Vehicles (graders, lifts, excavators) Warning Lights Tax is Due on Building Materials & Supplies

Asphalt

Bricks Builders hardware Caulking material Cement Central air conditioning Cleaning compounds Conduit Doors Ducts Electric wires, connectors, & switches Fencing materials Floor coverings (not carpeting)

Flooring Glass Gravel Insulation Lathe

Lead Lighting fixtures Lime Linoleum Lubricants Lumber Macadam Masonry foundation anchors Millwork Modular & mobile homes Mortar Oil Paint

Paper Piping, valves, & fittings Plaster Plumbing supplies Polyethylene covers Power poles, towers, & lines

Putty Reinforcing Mesh Rock salt Roofing Rope Sand Sheet metal Steel Stone Stucco Tile Wall coping

Wallboard Water conditioners Weather stripping Window screens Windows Wire netting and screen Wood preserver Grain Bin Exemption Effective July 1, 2019, the sales price from the sale of a grain bin, including material or replacement parts used to construct or repair a grain bin, is exempt from sales tax. See Sec. 22

of HF 779 Grain bin is defined as property that is vented and covered with corrugated metal or similar material, and that is primarily used to hold loose grain for drying or storage Through informal conversations with stakeholders and legislators, the Department has read this to mean anything permanently attached to a grain bin is exempt The Department is working on administrative rules to provide additional clarity Machinery

Sales Tax Responsibilities Instead of sales/use tax (and LOST), a 5% state excise tax applies to purchases of the following specific construction machinery and equipment: Self-propelled building equipment, pile drivers, motorized scaffolding Auxiliary attachments which improve the performance, safety, operation, or efficiency of the equipment Replacement parts for the equipment Machinery Sales Tax Responsibilities Iowa sales tax and applicable LOST are required when

machinery is used directly and primarily by contractors, subcontractors, and builders for new construction, reconstruction, alterations, expansion,or remodeling of real property or structures If rented for this purpose, rental payments are exempt from tax Taxable Labor Only enumerated services are taxable. Examples of enumerated taxable services related to construction contracts include: Demolition Pipe fitting and plumbing Electrical and electronic

Roof, shingle, and glass repair repair and installation Sign construction and Excavating and grading installation House or building moving Welding Landscaping, lawn care, Well drilling tree trimming and removal Painting, papering, interior decorating Carpentry repair and installation (Effective July 1, 2019)

Taxable Labor Labor is taxable when taxable services are performed to repair tangible personal property or real property Labor is not taxable when services are performed on or connected with: Alteration Expansion

New construction Reconstruction Remodeling of buildings or structures Taxable Labor Additional Circumstances Timing close/near to construction Exempt: excavate as part of construction project Taxable: grade for seed a year after construction

Physical Relationship Exempt: machinery installed during machinery building construction Magnitude of Service Exempt: Replace an entire roof (construction) Taxable: Replace a few shingles (repair) Replacing Items

Exempt: Replace working furnace for energy efficient furnace (reconstruction or remodeling) Taxable: Replace broken furnace (repair) Both construction and repair Itemize statement for taxable repair labor and exempt construction Differences Between Repair & New Construction Repair Mend, restore, maintain, replace, or service - restores an

existing structure that has been damaged When in doubt, treat as a taxable repair (can apply for a refund of tax paid) Examples: Broken or defective glass or windows Individual or damaged roof shingles Original wiring in a house or building Defective garage door or garage door opener, kitchen cabinets, tub,

shower, or faucet, water heater, furnace, or central air conditioning compressor Differences Between Repair & New Construction New Construction, Reconstruction, Alteration, Expansion or Remodeling Labor is exempt from sales tax for real property and structures only (not tangible personal property) You pay tax to the supplier for materials You do not charge tax to the customer for labor or materials Examples:

New Construction: Altering existing structures: building or adding a garage or deck, replacing a roof, Installing a mobile home on a foundation Reconstruction: Rebuilding a structure damaged by flood, fire, or other uncontrollable disaster or casualty Reconstruction or Remodeling: Replacing an entire water heater, water softener, furnace, or central air conditioning unit that is not defective Alteration: Adding a new room by building interior walls

Alteration or Remodeling: Replacing kitchen cabinets that are not defective Expansion: Building a new wing to an existing building Designated Exempt Entities Only the Following

Private nonprofit educational institution in Iowa Nonprofit private museum in Iowa Tax-certifying or tax-levying body or governmental subdivision of Iowa including the state board of regents, state department of human services, state department of transportation Habitat for humanity Rural water districts organized under Iowa Code chapter 357A Municipally-owned solid waste facility which sells all or part of its processed waste as fuel to a municipally- owned public utility All divisions, boards, commissions, agencies, or instrumentalities of state, federal, county, or municipal government which do not have

earnings going to the benefit of an equity investor or stockholder Note: Nonprofit hospitals are not designated exempt entities. Exemption Certificates Designated exempt entities May issue special exemption certificates to contractors and subcontractors Exemption Certificates allow: Purchase of materials free from sales tax Use of building materials from inventory without tax

See Department website for more detailed information How it Works Designated exempt entities: Register contracts with Department of Revenue Includes information on contractors and subcontractors, uses online application Provide each contractor/subcontractor with an exemption certificate/authorization letter developed exclusively for this purpose

The letters are printed directly from the online application Contractors and subcontractors give a copy of the certificate to their material suppliers Allows purchase building materials for the contract free from sales tax Suppliers should retain this certificate in their records for at least three years Benefits for Exempt Entities

Contracts dont include Iowa sales tax, which lower the bids They do not need to obtain Contractors Statements after the project is completed They do not need to apply to the Iowa Department of Revenue for a refund of Iowa sales tax More Information Online: tax.iowa.gov/iowa-contractors-guide Taxpayer Services: Phone: 800-367-3388 or 515-281-3114 Email: [email protected]

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Iowa Department of Revenue Purpose of this Presentation This presentation is intended for general educational purposes only. Anyone involved in an audit or protest must contact the Department representative they are working with on that issue. Thank you! Landscaping & Lawn Care

August 14, 2019 Paul Breitbach, Executive Officer Disclaimer Please be advised that the information in this presentation contains informal opinions and are only applicable to the factual situations referenced and to the statutes in existence as of the date of this presentation. The Iowa Department of Revenue may take a contrary position in the future to what is stated today. Any oral or written opinion by

Department personnel not pursuant to a Petition for Declaratory Order under Iowa Administrative Code rule 701-7.24 is not Overview Landscaping, lawn care, and tree trimming and removal services are subject to Iowa sales and use tax. Persons providing such services must obtain a sales tax permit and remit sales tax to the Department of Revenue. Landscaping

What is Landscaping? Landscaping means arranging or modifying the natural condition of a given parcel or tract of land to make the land suitable for public or private use or enjoyment. However, a service that is required to be performed by a landscape architect who is registered under Iowa Code section 544B.2 is not subject to tax if the service is actually performed by a registered landscape architect and the charge for the service is separately stated on the invoice and separately billed to the

customer. Landscaping Materials The gross receipts from landscaping materials that are used in providing landscaping services and which are sold to final consumers are subject to sales tax. Final consumers means the owner of the land to which the landscaping materials are applied, or a general building contractor when the landscaping contractor contracts with the general building contractor.

Landscaping materials includes sod, dirt, trees, shrubbery, bulbs, sand, rocks, woodchips, and other similar materials. Landscaping Materials When the retailer of sod, dirt, trees, shrubbery, bulbs, sand, rock, woodchips, and other similar landscaping materials installs these items as a part of a contract for landscaping or improving land for a lump sum, the entire gross receipts are subject to tax. Any retailers charges for landscaping are

taxable. However, a retailers charges for nontaxable services are not taxable if contracted for Examples of Landscaping Materials A sodding contractor agrees to furnish and install 20 yards of sod for a lump sum. The sodding contractor must charge the customer sales tax on the lump sum. Company A enters into a contract for the landscaping of an existing office building. Company A agrees to furnish shrubs, white rock, and woodchips. Company A also

contracts to install all of the landscaping materials for an hourly fee. Company As hourly fee is taxable. Landscapers as Construction Contractors Landscapers as Construction Contractors Any portion of a landscaping service that includes labor and materials to erect a structure is considered construction contracting, not landscaping service, and is

generally exempt from sales tax. Structures include such items as retaining walls, lawn lighting systems, lawn irrigation systems, pools, walkways, and any other permanently attached item to realty or real estate. Landscapers as Construction Contractors To be exempt from sales tax, the invoice must state the charges for construction contracting separate from landscaping charges.

By statute, a landscaper is considered the consumer of any construction materials used in the performance of construction contracting and must therefore pay sales taxes and applicable local option taxes on all construction materials they purchase. Lawn Care What is Lawn Care? Lawn care refers to services specifically related to the care and maintenance of lawns.

This includes mowing, trimming, watering, fertilizing, reseeding, resodding, and killing of insects, moles, other vermin, weeds, or fungi that may be threatening a lawn. Lawn means an open space between woods or ground (as around a house or in a garden or park) that is covered with grass and is generally kept mowed or required to be kept mowed. Tree Trimming & Removal

What is Tree Trimming and Removal? Tree trimming and tree removal means the removal of any portion of a tree in whole or in part, including branches, trunks, and stumps. Tree includes any woody perennial plant, including shrubs with main stems or trunks made of wood. The sale of any wood derived from a tree trimming or removal service, such as for sale as firewood, constitutes the sale of tangible personal property.

When providing tree trimming or removal services and retaining byproduct from the service for later Billing Customers & Remitting Taxes Billing Your Customers The total charge for lawn care services is subject to Iowa sales tax. It does not matter if the bill is itemized or a lump-sum charge. Billing Examples How to itemize invoices

to customers when landscapers and lawn care service providers resell products that were purchased for resale. Note that the invoice must show the amount and the cost and the type of product. Billing Examples Invoices that do not itemize the chemicals,

fertilizer, etc. that were used. Although tax was paid on those items at the time of purchase, tax must be collected on the entire bill. Paying Tax to A Landscaping Supplier A landscaping company is not required to purchase products for resale as previously explained. If a landscaping company pays sales tax to

its supplier for supplies, it must still charge its customer sales tax on the entire amount of the services the landscaping company provides. Reporting and Remitting the Sales Tax Businesses must remit the sales tax to the Department in the filing period in which the service was performed. For example, if the service was performed in the second quarter (April - June) but the customer paid in July, the second-quarter return must be

used to report the sale and remit the tax due. You cannot wait and use the third-quarter return. Does a Landscaper Have Employees? If a landscaping company has employees, it must withhold federal and state income taxes from the employees paychecks. This means the company must register to become a withholding agent with both the Internal Revenue Service and the Iowa Department of Revenue. Employees who make more than $200 per

week and claim they are exempt from withholding must still complete a W-4. Subscribe to Updates Subscribing Topics Include:

Newsroom Tax Information eFile & Pay Due Date Reminders Electronic Filing Economic, Fiscal, and Statistical Information Contact Us Taxpayer Services: Phone: 800-367-3388 or 515-281-3114 Email: [email protected]

Social Media @IDRBusinesTax @IDRIncomeTax @IDRTaxPros Iowa Department of Revenue Purpose of this Presentation This presentation is intended for general educational purposes only.

Anyone involved in an audit or protest must contact the Department representative they are working with on that issue. Thank you!

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