HSB 670 (LSB 6107YC (5) 85)

HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS)

A BILL FOR

An Act relating to the sales tax exemption for the purchase of certain items used in certain manufacturing, research and development, data processing or storage, or recycling activities.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 423.3, subsection 47, paragraph a, unnumbered paragraph 1, Code 2014, is amended to read as follows:

   The sales price from the sale or rental of computers, machinery, and equipment, including replacement parts, supplies, and materials used to construct or self-construct computers, machinery, and equipment, replacement parts, and supplies, if such items are any of the following:
    Sec. 2.  Section 423.3, subsection 47, paragraph d, Code 2014, is amended by adding the following new subparagraphs:
   NEW SUBPARAGRAPH.  (7)  “Replacement part” means tangible personal property other than computers, machinery, equipment, or supplies, regardless of the cost or useful life of the tangible personal property, that meets all of the following conditions:
   (a)  The tangible personal property replaces a component of a computer, machinery, or equipment, which component is capable of being separated from the computer, machinery, or equipment.
   (b)  The tangible personal property performs the same or similar function as the component it replaced.
   (c)  The tangible personal property restores the computer, machinery, or equipment to an operational condition, or upgrades or improves the efficiency of the computer, machinery, or equipment.
   NEW SUBPARAGRAPH.  (8)  “Supplies” means tangible personal property, other than computers, machinery, equipment, or replacement parts, that meets one of the following conditions:
   (a)  The tangible personal property is to be connected to a computer, machinery, or equipment and requires regular replacement because the property is consumed or deteriorates during use, including but not limited to saw blades, drill bits, filters, and other similar items with a short useful life.
   (b)  The tangible personal property is used in conjunction with a computer, machinery, or equipment and is specially designed for use in manufacturing specific products and may be used interchangeably and intermittently on a particular computer, machine, or piece of equipment, including but not limited to jigs, dies, tools, and other similar items.
   (c)  The tangible personal property comes into physical contact with other tangible personal property used in processing and is used to assist with or maintain conditions necessary for processing, including but not limited to cutting fluids, oils, coolants, lubricants, and other similar items with a short useful life.
   (d)  The tangible personal property is directly and primarily used in an activity described in paragraph “a”, subparagraphs (1) through (6), including but not limited to prototype materials, testing materials, and application software.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to the sales tax exemption in Code section 423.3(47) for the purchase or rental of certain items used in manufacturing, research and development, data processing or storage, or recycling activities.
   Under current law, the exemption includes replacement parts. The bill amends the exemption to include materials used to construct or self-construct replacement parts. The bill defines “replacement part” for purposes of the exemption to mean tangible personal property other than computers, machinery, equipment, or supplies, regardless of the cost or useful life of the property, that replaces a component of a computer, machinery, or equipment, performs the same or similar function as that component, and restores or improves the computer, machinery, or equipment.
   The bill also amends the exemption to include supplies and materials used to construct or self-construct supplies. “Supplies” is defined in the bill as tangible personal property that is not a computer, machinery, equipment, or replacement part and that meets one of the following four conditions:
   1. The tangible personal property is to be connected to a computer, machinery, or equipment and requires regular replacement because it is consumed or deteriorates during use. Examples of items that meet this requirement include saw blades, drill bits, filters, and other similar items with a short useful life.
   2. The tangible personal property is used in conjunction with a computer, machinery, or equipment and is specially designed for use in manufacturing specific products and may be used interchangeably and intermittently on a particular computer, machine, or piece of equipment. Examples of items that meet this requirement include jigs, dies, tools, and other similar items.
   3. The tangible personal property comes into physical contact with other tangible personal property used in processing and is used to assist with or maintain conditions necessary for processing. Examples of items that meet this requirement include cutting fluids, oils, coolants, lubricants, and other similar items with a short useful life.
   4. The tangible property is directly and primarily used in an activity described in Code section 423.3(47)(a)(1)-(6). Examples of items that meet this requirement include prototype materials, testing materials, and application software.
   By operation of Code section 423.6, an item exempt from the imposition of the sales tax is also exempt from the use tax imposed in Code section 423.5.