H.F. _____ Section 1. Section 423.3, subsections 2, 37, and 85, Code 1 2015, are amended to read as follows: 2 2. The sales price of sales for resale of tangible personal 3 property or taxable services, or for resale of tangible 4 personal property in connection with the furnishing of taxable 5 services except for sales, other than leases or rentals, which 6 are sales of machinery, equipment, attachments, and replacement 7 parts specifically enumerated in subsection 37 and used in the 8 manner described in subsection 37 or the purchase of tangible 9 personal property, the leasing or rental of which is exempted 10 from tax by subsection 49 . 11 37. The sales price of services on or connected with 12 new construction, reconstruction, alteration, expansion, 13 remodeling, or the services of a general building contractor, 14 architect, or engineer. The exemption in this subsection 15 also applies to the sales price on the lease or rental of 16 all machinery, equipment, and replacement parts directly and 17 primarily used by owners, contractors, subcontractors, and 18 builders for new construction, reconstruction, alteration, 19 expansion, or remodeling of real property or structures and of 20 all machinery, equipment, and replacement parts which improve 21 the performance, safety, operation, or efficiency of the 22 machinery, equipment, and replacement parts so used. 23 85. The sales price from the sale of the following items 24 to a contractor as defined in section 423D.1 : self-propelled 25 building equipment, pile drivers, motorized scaffolding, or 26 attachments customarily drawn or attached to self-propelled 27 building equipment, pile drivers, and motorized scaffolding, 28 including auxiliary attachments which improve the performance, 29 safety, operation, or efficiency of the equipment, and 30 replacement parts and are directly and primarily used by 31 contractors, subcontractors, and builders for new construction, 32 reconstruction, alterations, expansion, or remodeling of real 33 property or structures . 34 Sec. 2. Section 423D.1, subsection 1, paragraph b, Code 35 -1- LSB 1736YC (2) 86 mm/sc 1/ 5

H.F. _____ 2015, is amended by striking the paragraph and inserting in 1 lieu thereof the following: 2 b. “Contractor” includes a person primarily engaged in the 3 trade or business of acting as a contractor, subcontractor, or 4 builder of or on real property or structures owned by another 5 person. 6 Sec. 3. Section 423D.1, subsection 1, paragraph d, Code 7 2015, is amended to read as follows: 8 d. “Equipment” means self-propelled building equipment, 9 pile drivers, and motorized scaffolding, including auxiliary 10 attachments which improve the performance, safety, operation, 11 or efficiency of the equipment, and replacement parts and are 12 directly and primarily used by contractors, subcontractors, and 13 builders for new construction, reconstruction, alterations, 14 expansion, or remodeling of real property or structures . 15 Sec. 4. Section 423D.2, Code 2015, is amended by striking 16 the section and inserting in lieu thereof the following: 17 423D.2 Tax imposed. 18 1. A tax of five percent is imposed on the following: 19 a. The sales price of all equipment sold to a contractor in 20 the state of Iowa. 21 b. The purchase price of all equipment used by a contractor 22 in the state of Iowa. 23 2. This tax shall be collected and paid over to the 24 department by any retailer, retailer maintaining a place of 25 business in this state, or user who would be responsible for 26 the collection and payment of the tax if it were a sales or use 27 tax imposed under chapter 423. 28 Sec. 5. Section 423D.3, Code 2015, is amended by striking 29 the section and inserting in lieu thereof the following: 30 423D.3 Exemptions. 31 1. There is exempted from the provisions of this chapter 32 and from the computation of the amount of tax imposed by this 33 chapter the following: 34 a. The sales price of sales for resale of equipment to a 35 -2- LSB 1736YC (2) 86 mm/sc 2/ 5

H.F. _____ contractor who is also a retailer. 1 b. The sales price on the lease or rental of equipment to a 2 contractor for primary use in construction. 3 2. There is exempted from the computation of the amount 4 of tax imposed on the use of equipment in section 423D.2, 5 subsection 1, paragraph “b” , equipment the sales price from 6 the sale of which is required to be included in the measure of 7 the tax imposed on the sale of equipment in section 423D.2, 8 subsection 1, paragraph “a” , if the tax has been paid to the 9 department or the retailer. 10 Sec. 6. NEW SECTION . 423D.3A Taxation in another state. 11 If any person who causes equipment to be brought into this 12 state or who uses equipment in this state has already paid 13 a tax in another state in respect to the sale or use of the 14 equipment, or an occupation tax in respect to the equipment, 15 in an amount less than the tax imposed by this chapter, the 16 provisions of this chapter shall apply, but only at a rate 17 measured by the difference between the rate fixed by this 18 chapter and the rate by which the previous tax on the sale or 19 use, or the occupation tax, was computed. A tax is not due in 20 this state on the equipment if the tax imposed and paid in the 21 other state is equal to or more than the tax imposed by this 22 chapter. 23 EXPLANATION 24 The inclusion of this explanation does not constitute agreement with 25 the explanation’s substance by the members of the general assembly. 26 This bill relates to the sales and use tax, and equipment 27 tax imposed on certain machinery, equipment, attachments, and 28 replacement parts used in construction. 29 BACKGROUND. The furnishing of services connected to 30 construction are generally exempt from the sales and use tax. 31 Instead, owners, contractors, subcontractors, and builders are 32 treated as consumers or users for purposes of the sales and 33 use tax and pay tax on the building materials, supplies, and 34 equipment they purchase and use in furnishing construction 35 -3- LSB 1736YC (2) 86 mm/sc 3/ 5

H.F. _____ services, except under certain circumstances, two of which are 1 addressed in the bill. 2 SALES AND USE TAX ON CONSTRUCTION EQUIPMENT. Under 3 current law in Code section 423.3(37), the lease or rental 4 of machinery, equipment, and replacement parts (construction 5 equipment) directly and primarily used in specified 6 construction services by an owner, contractor, subcontractor, 7 or builder is exempt from the sales and use tax. The bill 8 strikes the requirement that the construction equipment be used 9 directly in the construction service in order to qualify for 10 the exemption. 11 Also under current law in Code section 423.3(2), the sale 12 of tangible personal property for subsequent resale, lease, or 13 rental is exempt from the sales and use tax (sale-for-resale 14 exemption). However, the sale of construction equipment for 15 a subsequent lease or rental that will qualify for the tax 16 exemption in Code section 423.3(37), as described above, does 17 not qualify for the sale-for-resale exemption. The bill 18 strikes this provision. The sale for subsequent lease or 19 rental of construction equipment primarily used in a specified 20 construction service by owners, contractors, subcontractors, 21 and builders will now be exempt from the sales and use tax. 22 EXCISE TAX ON HEAVY CONSTRUCTION EQUIPMENT. Under current 23 law in Code section 423.3(85), the sale of self-propelled 24 building equipment, pile drivers, motorized scaffolding, and 25 attachments (heavy construction equipment) that are directly 26 and primarily used by a contractor, subcontractor, or builder 27 in specified construction services are exempt from the sales 28 and use tax. Instead, this heavy construction equipment is 29 subject to an excise tax of 5 percent under Code chapter 423D 30 (equipment tax) imposed on all equipment sold or used in Iowa. 31 The bill amends the sales and use tax exemption in Code 32 section 423.3(85) to remove the requirement that the heavy 33 construction equipment be directly and primarily used by 34 a contractor, subcontractor, or builder in the specified 35 -4- LSB 1736YC (2) 86 mm/sc 4/ 5

H.F. _____ construction service to qualify for the exemption. A sale of 1 heavy construction equipment will now qualify for the sales and 2 use tax exemption in Code section 423.3(85) if it is sold to a 3 contractor, as defined under the equipment tax and as amended 4 in the bill. 5 The bill makes several changes to the equipment tax in Code 6 chapter 423D. The definition of “contractor” is amended to 7 mean a person primarily engaged in the trade or business of 8 acting as a contractor, subcontractor, or builder of or on real 9 property or structures owned by another person. The definition 10 of “equipment” is amended to remove the requirement that it be 11 directly and primarily used by a contractor, subcontractor, 12 or builder in specified construction services in order to be 13 subject to the equipment tax. 14 The bill imposes the equipment tax on all equipment sold 15 or used by a contractor in Iowa. The bill exempts from the 16 equipment tax the sale for resale of equipment to a contractor 17 who is also a retailer, and the lease or rental of equipment to 18 a contractor for primary use in construction. The bill also 19 exempts the use of equipment from the tax if the equipment 20 tax has already been paid by the contractor on the purchase 21 of that equipment. Finally, the bill provides a credit equal 22 to the amount of similar tax paid in another state by the 23 same taxpayer relating to equipment subject to the equipment 24 tax in Iowa. However, the credit cannot exceed the amount of 25 equipment tax due in Iowa on the equipment. 26 -5- LSB 1736YC (2) 86 mm/sc 5/ 5