On Jan. 15, 2021, the Iowa Department of Revenue launched guidance regarding the gross sales and use tax exemption for computer hardware purchases.
Recall that in 2020, Iowa enacted a tax invoice that expanded the gross sales tax exemptions to incorporate ‘computer peripherals’ when instantly utilized in manufacturing, analysis and improvement, processing or storage of knowledge for insurance coverage corporations, monetary establishments or industrial enterprises, reprocessing of waste merchandise and air pollution management. Computer peripherals are outlined as an ancillary system related to a computer digitally, by cable, or by different medium, used to place data into or get data out of a computer. The time period ‘computer’ was beforehand within the exemption when instantly utilized in the identical method. A ‘computer’ is outlined an digital system that accepts data in digital or comparable kind and manipulates the data for a end result based mostly on a sequence of directions.
The new guidance gives a non-exhaustive checklist of taxable and exempt computer hardware objects, in addition to an acknowledgement by the division that refund claims shall be accepted if taxpayers have bought a qualifying exempt merchandise.
Impact on Iowa companies
Iowa taxpayers could also be overpaying gross sales tax on computer hardware purchases which are exempt in Iowa. The new guidance impacts companies in all industries, aside from nonprofit corporations and sure skilled companies and occupations. It is really useful Iowa companies overview invoices for purchases of computer systems and computer peripherals to make sure gross sales tax is precisely charged.
A reverse gross sales and use tax audit (RSUTA) includes a overview of state and native gross sales and use tax funds with the target of figuring out potential gross sales and use tax refunds. Better know-how and connectedness has improved the velocity and effectivity wherein an audit might be accomplished. The overview typically consists of an evaluation of filed returns supporting knowledge, and different documentation akin to invoices and descriptions of purchases.
A reverse gross sales and use tax audit could result in short-term money refunds and long-term tax financial savings as corporations are higher positioned to determine gross sales and use tax exemptions and exclusions after the overview. There are additionally long run tax advantages via optimization of tax processes, improved ongoing compliance and long-term financial savings.
Additionally, a radical overview of relevant exemptions and exemption certificates compliance ought to be thought of in order that gross sales tax just isn’t overpaid. Iowa companies which are unsure whether or not they’re impacted by the current Iowa Department of Revenue guidance or have questions ought to converse to their tax advisers.
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