House Study Bill 174 - Introduced 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 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 1168YC (3) 86 mm/nh

H.F. _____ Section 1. Section 423.3, subsection 47, paragraph a, 1 unnumbered paragraph 1, Code 2015, 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 2015, 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 in order to 20 restore the computer, machinery, or equipment to an operational 21 condition, or upgrade or improve the efficiency of the 22 computer, machinery, or equipment. 23 NEW SUBPARAGRAPH . (8) “Supplies” means tangible personal 24 property that meets one of the following conditions, other 25 than computers, machinery, equipment, or replacement parts, 26 and other than tangible personal property used in an activity 27 described in paragraph “a” , subparagraph (4): 28 (a) The tangible personal property is to be connected 29 to a computer, machinery, or equipment and requires regular 30 replacement because the property is consumed or deteriorates 31 during use, including but not limited to saw blades, drill 32 bits, filters, and other similar items with a short useful 33 life. 34 (b) The tangible personal property is used in conjunction 35 -1- LSB 1168YC (3) 86 mm/nh 1/ 3

H.F. _____ with a computer, machinery, or equipment and is specially 1 designed for use in manufacturing specific products and may 2 be used interchangeably and intermittently on a particular 3 computer, machine, or piece of equipment, including but not 4 limited to jigs, dies, tools, and other similar items. 5 (c) The tangible personal property comes into physical 6 contact with other computers, machinery, equipment, or items 7 qualifying under subparagraph division (a) or (b) of this 8 subparagraph (8), and is used to assist with or maintain 9 conditions necessary for the use of those items, including but 10 not limited to cutting fluids, oils, coolants, lubricants, and 11 other similar items with a short useful life. 12 (d) The tangible personal property is directly and 13 primarily used in an activity described in paragraph “a” , 14 subparagraph (1), (2), (3), (5), or (6), including but not 15 limited to prototype materials and testing materials. 16 EXPLANATION 17 The inclusion of this explanation does not constitute agreement with 18 the explanation’s substance by the members of the general assembly. 19 This bill relates to the sales tax exemption in Code section 20 423.3(47) for the purchase or rental of certain items used in 21 manufacturing, research and development, data processing or 22 storage, or recycling activities. 23 Under current law, the exemption includes replacement 24 parts. The bill amends the exemption to include materials 25 used to construct or self-construct replacement parts. The 26 bill defines “replacement part” for purposes of the exemption 27 to mean tangible personal property other than computers, 28 machinery, equipment, or supplies, regardless of the cost or 29 useful life of the property, that replaces a component of a 30 computer, machinery, or equipment, and performs the same or 31 similar function as that component in order to restore or 32 improve the computer, machinery, or equipment. 33 The bill also amends the exemption to include supplies 34 and materials used to construct or self-construct supplies. 35 -2- LSB 1168YC (3) 86 mm/nh 2/ 3

H.F. _____ “Supplies” is defined in the bill as tangible personal property 1 that is not a computer, machinery, equipment, or replacement 2 part and that is not tangible personal property used in data 3 storage or processing, and that meets one of the following four 4 conditions: 5 1. The tangible personal property is to be connected to 6 a computer, machinery, or equipment and requires regular 7 replacement because it is consumed or deteriorates during use. 8 The bill lists saw blades, drill bits, filters, and other 9 similar items with a short useful life as examples. 10 2. The tangible personal property is used in conjunction 11 with a computer, machinery, or equipment and is specially 12 designed for use in manufacturing specific products and may 13 be used interchangeably and intermittently on a particular 14 computer, machine, or piece of equipment. The bill lists jigs, 15 dies, tools, and other similar items as examples. 16 3. The tangible personal property comes into physical 17 contact with other computers, machinery, equipment, or supplies 18 listed in paragraph 1 or 2 above, and is used to assist with or 19 maintain conditions necessary for use of those items. The bill 20 lists cutting fluids, oils, coolants, lubricants, and other 21 similar items with a short useful life as examples. 22 4. The tangible property is directly and primarily used in 23 an activity described in Code section 423.3(47)(a)(1), (2), 24 (3), (5), or (6). The bill lists prototype materials and 25 testing materials as examples. 26 By operation of Code section 423.6, an item exempt from the 27 imposition of the sales tax is also exempt from the use tax 28 imposed in Code section 423.5. 29 -3- LSB 1168YC (3) 86 mm/nh 3/ 3