Senate File 2336 - Introduced SENATE FILE 2336 BY FEENSTRA , ANDERSON , BERTRAND , SCHNEIDER , CHELGREN , BOETTGER , CHAPMAN , GREINER , SMITH , GUTH , JOHNSON , SEGEBART , ZAUN , GARRETT , BREITBACH , KAPUCIAN , ZUMBACH , BEHN , DIX , WHITVER , ROZENBOOM , and SINCLAIR A BILL FOR An Act relating to the sales tax exemption for the purchase 1 of certain items used in certain manufacturing, research 2 and development, data processing or storage, or recycling 3 activities. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5652XS (2) 85 mm/nh

S.F. 2336 Section 1. Section 423.3, subsection 47, paragraph a, 1 unnumbered paragraph 1, Code 2014, is amended to read as 2 follows: 3 The sales price from the sale or rental of computers, 4 machinery, and equipment, including replacement parts , 5 supplies , and materials used to construct or self-construct 6 computers, machinery, and equipment , replacement parts, and 7 supplies, if such items are any of the following: 8 Sec. 2. Section 423.3, subsection 47, paragraph d, Code 9 2014, is amended by adding the following new subparagraphs: 10 NEW SUBPARAGRAPH . (7) “Replacement part” means tangible 11 personal property other than computers, machinery, equipment, 12 or supplies, regardless of the cost or useful life of the 13 tangible personal property, that meets all of the following 14 conditions: 15 (a) The tangible personal property replaces a component of 16 a computer, machinery, or equipment, which component is capable 17 of being separated from the computer, machinery, or equipment. 18 (b) The tangible personal property performs the same or 19 similar function as the component it replaced. 20 (c) The tangible personal property restores the computer, 21 machinery, or equipment to an operational condition, or 22 upgrades or improves the efficiency of the computer, machinery, 23 or equipment. 24 NEW SUBPARAGRAPH . (8) “Supplies” means tangible personal 25 property, other than computers, machinery, equipment, or 26 replacement parts, that meets one of the following conditions: 27 (a) The tangible personal property is to be connected 28 to a computer, machinery, or equipment and requires regular 29 replacement because the property is consumed or deteriorates 30 during use, including but not limited to saw blades, drill 31 bits, filters, and other similar items with a short useful 32 life. 33 (b) The tangible personal property is used in conjunction 34 with a computer, machinery, or equipment and is specially 35 -1- LSB 5652XS (2) 85 mm/nh 1/ 3

S.F. 2336 designed for use in manufacturing specific products and may 1 be used interchangeably and intermittently on a particular 2 computer, machine, or piece of equipment, including but not 3 limited to jigs, dies, tools, and other similar items. 4 (c) The tangible personal property comes into physical 5 contact with other tangible personal property used in 6 processing and is used to assist with or maintain conditions 7 necessary for processing, including but not limited to cutting 8 fluids, oils, coolants, lubricants, and other similar items 9 with a short useful life. 10 (d) The tangible personal property is directly and 11 primarily used in an activity described in paragraph “a” , 12 subparagraphs (1) through (6), including but not limited 13 to prototype materials, testing materials, and application 14 software. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to the sales tax exemption in Code section 19 423.3(47) for the purchase or rental of certain items used in 20 manufacturing, research and development, data processing or 21 storage, or recycling activities. 22 Under current law, the exemption includes replacement 23 parts. The bill amends the exemption to include materials 24 used to construct or self-construct replacement parts. The 25 bill defines “replacement part” for purposes of the exemption 26 to mean tangible personal property other than computers, 27 machinery, equipment, or supplies, regardless of the cost or 28 useful life of the property, that replaces a component of a 29 computer, machinery, or equipment, performs the same or similar 30 function as that component, and restores or improves the 31 computer, machinery, or equipment. 32 The bill also amends the exemption to include supplies 33 and materials used to construct or self-construct supplies. 34 “Supplies” is defined in the bill as tangible personal property 35 -2- LSB 5652XS (2) 85 mm/nh 2/ 3

S.F. 2336 that is not a computer, machinery, equipment, or replacement 1 part and that meets one of the following four conditions: 2 1. The tangible personal property is to be connected to 3 a computer, machinery, or equipment and requires regular 4 replacement because it is consumed or deteriorates during 5 use. Examples of items that meet this requirement include saw 6 blades, drill bits, filters, and other similar items with a 7 short useful life. 8 2. The tangible personal property is used in conjunction 9 with a computer, machinery, or equipment and is specially 10 designed for use in manufacturing specific products and may 11 be used interchangeably and intermittently on a particular 12 computer, machine, or piece of equipment. Examples of items 13 that meet this requirement include jigs, dies, tools, and other 14 similar items. 15 3. The tangible personal property comes into physical 16 contact with other tangible personal property used in 17 processing and is used to assist with or maintain conditions 18 necessary for processing. Examples of items that meet this 19 requirement include cutting fluids, oils, coolants, lubricants, 20 and other similar items with a short useful life. 21 4. The tangible property is directly and primarily used 22 in an activity described in Code section 423.3(47)(a)(1)-(6). 23 Examples of items that meet this requirement include prototype 24 materials, testing materials, and application software. 25 By operation of Code section 423.6, an item exempt from the 26 imposition of the sales tax is also exempt from the use tax 27 imposed in Code section 423.5. 28 -3- LSB 5652XS (2) 85 mm/nh 3/ 3