Executive abstract: Iowa computer and computer peripheral sales tax exemption to finish
Recall that in 2022, Iowa Gov. Kim Reynolds signed laws eliminating the computer and computer peripheral sales tax exemption efficient Jan. 1, 2024. Since 1985, Iowa legislation has allowed the exemption for primarily any for-profit entity buying computer systems and peripherals (computer hardware) utilized in processing or storage of information or data by companies similar to insurance coverage firms, monetary establishments or business enterprises (i.e., not a occupation or occupation). Further description of the exemption in addition to subsequent steps for taxpayers buying or which have bought eligible gear follows under.
Exemption background
The nearly 40-year-old sales tax exemption has been distinctive among the many states as a result of it’s accessible to most for-profit companies and features a broad-range of eligible computer hardware purchases. In 2020, Iowa clarified that the exemption consists of ‘computer peripherals’ when straight utilized in manufacturing, analysis and growth, processing or storage of information for insurance coverage firms, monetary establishments or business enterprises, reprocessing of waste merchandise and air pollution management.
The Iowa Department of Revenue adopted the 2020 clarification with non-binding steerage offering definitions in addition to a non-exhaustive listing of things the division deemed to qualify as exempt or taxable. For instance, computer systems, flash drives, onerous drives, keyboards, mice, printers and webcams are thought of exempt beneath the steerage, whereas adapters, cables, alternative elements and uninterruptible energy provides stay taxable.
Takeaways
Computer hardware at the moment exempt will likely be topic to sales tax starting Jan. 1, 2024. Taxpayers ought to contemplate three methods because of the legislative change. First, taxpayers making such purchases or planning such purchases ought to make them earlier than year-end. Second, taxpayers ought to take the chance to evaluate their historic purchases for overpayments of sales tax on exempt gadgets. Some taxpayers could not have thought of the 2020 clarification of the exemption or have by no means thought of the taxability of computer hardware. In follow, taxpayers should present a correctly accomplished exemption certificates to their vendor to buy eligible exempt hardware with out sales tax – a course of step that will have contributed to not making the most of the profit. Third, taxpayers ought to contemplate that sure contract prices could improve because of the elimination of the exemption and plan for the modifications accordingly.
Additionally, distributors of computer hardware ought to acknowledge that, though a correctly accomplished exemption certificates could also be on file, the exemption will now not be accessible. It isn’t but recognized whether or not the present exemption certificates will change, however computer hardware distributors ought to typically be cautious if receiving such an exemption request after Jan. 1.
Importantly, producers utilizing computer hardware straight and primarily in processing will have the ability to proceed buying these gadgets exempt from sales and use tax. It is unknown if or when the division will present steerage on how producers ought to declare the exemption going ahead. Finally, taxpayers ought to observe that the exemption for software program and different digital items or providers was not repealed and stays unchanged.
Taxpayers with questions concerning the elimination of the computer hardware exemption ought to attain out to their Iowa sales and use tax specialists.
https://rsmus.com/insights/tax-alerts/2023/reminder-iowa-sales-tax-exemption-computer-hardware-ending-Dec-31-2023.html
