CHAPTER 205
SOURCING OF TAXABLE SERVICES, TANGIBLE PERSONAL PROPERTY, AND SPECIFIED DIGITAL PRODUCTS
[Prior to 9/7/22, see Revenue Department[701] Ch 223]
701—205.1(423) Definitions.
“Agreement” means the streamlined sales and use tax agreement authorized by subchapter IV of Iowa Code chapter 423 to provide a mechanism for establishing and maintaining a cooperative, simplified system for the application and administration of sales and use tax.
“Department” means, for the purpose of this chapter, the Iowa department of revenue.
“First use of a service” occurs, for the purpose of this chapter, at the location at which the service is received.
“First use of a service performed on tangible personal property” means, for the purpose of this chapter, receiving, with the ability to use, whether or not actually used, the tangible personal property on which the taxable service was performed.
“Governing board” means the group comprised of representatives of the member states of the agreement and created by the agreement to be responsible for the agreement’s administration and operation.
“Receive” or “receipt,” with regard to sales of services, means making “first use of services” pursuant to this chapter. For purposes of receipt of services performed on tangible personal property under rule 701—223.3(423), the location (or locations) where the purchaser (or the purchaser’s donee) regains possession or can potentially make first use of the tangible personal property on which the seller performed the service is the location (or locations) of the receipt of the service. The location where the seller performs the service is not determinative of the location where the purchaser receives the service. The terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser; this is treated as though the retailer delivered to the purchaser the tangible personal property on which the service was performed. When a shipping company delivers tangible personal property on which the service was performed, the service is deemed “received” where the shipping company delivers the tangible personal property to the purchaser. For the purposes of sales of personal care services described in rule 701—223.4(423), the location (or locations) where the service is performed on the purchaser (or the purchaser’s donee) is the location where the purchaser receives the service.
“Retailer” means and includes every person engaged in the business of selling taxable services at retail. “Retailer” includes a seller obliged to collect sales or use tax.
“Seller” means a person making sales, leases or rentals of services.
[ARC 0310C, IAB 9/5/12, effective 10/10/12; ARC 6508C, IAB 9/7/22, effective 10/12/22]
701—205.2(423) General sourcing rules for taxable services. Except as otherwise provided in the agreement, retailers providing taxable services in Iowa shall source the sales of those services using the destination sourcing requirements described in Iowa Code section 423.15. In determining whether to apply the provisions of Iowa Code section 423.15 to the sale of a taxable service, it is necessary to determine the location where the result of the service is received, first used, or could potentially be first used, by the purchaser or the purchaser’s donee. The provisions of these rules do not affect the obligation of a purchaser or lessee to remit additional tax, if any, to another taxing jurisdiction based on the use of the service at another location.
	205.2(1) Determining the “result” of a service. Determining the location where the result of a service is received by a purchaser requires a fact-based inquiry on a case-by-case basis.
Example 1: Company Z is a photography business located in Mason City, Iowa. Company Z enters into an agreement with Customer Y, a resident of the state of Illinois, to take a photoshoot in Okoboji, Iowa. Company Z charges Customer Y $2,000 for the photoshoot itself and $1,000 for printed photos once they are finalized. Customer Y pays Company Z $3,000 in advance for the photoshoot and photographs. The photoshoot takes place as planned in Okoboji, and three weeks later Company Z sends Customer Y a package containing the photographs to Customer Y’s Illinois address.
The photoshoot is the result of Company Z’s service, which occurs in Okoboji, Iowa—the location where the performance of the photoshoot begins. Company Z must therefore charge Iowa sales tax and any applicable local option tax on the $2,000 charge for the photoshoot. The $1,000 charge for the photographs is a sale of tangible personal property and is sourced to Illinois—the location where the photographs are delivered. Company Z therefore does not need to charge Iowa sales tax on the $1,000 but may be responsible for collecting and remitting Illinois tax.
Example 2: Same facts as in Example 1, except that Company Z charges Customer Y a one-time, flat $3,000 charge without any itemization or breakdown of the cost. This $3,000 charge represents the sale of tangible personal property and is sourced to Illinois—the location where the photographs are delivered. Company Z therefore does not need to charge Iowa sales tax on the $3,000 but may be responsible for collecting and remitting Illinois tax.
	205.2(2) Subsequent use in Iowa. If an Iowa purchaser is determined to owe sales tax in another state based on first use, Iowa use tax may still apply. If, subsequent to the first use in another state, the product or result of a service is used in Iowa, Iowa use tax applies. (See Iowa Code section 423.5.)
	205.2(3) Measurement of use tax due. If tax has been imposed on the sales price of services performed on tangible personal property in another state at a rate that is less than the Iowa use tax rate, the purchaser will have to pay Iowa use tax at a rate measured by the difference between the Iowa use tax rate and the tax rate imposed in the state where the service was first used. (See Iowa Code section 423.22.) There is no local option use tax.
Example: An Iowa resident first uses the results of services performed on tangible personal property in another state and pays that state’s 5 percent sales tax to that state. The Iowa resident returns to Iowa to use the tangible personal property on which the service was performed. Iowa’s use tax rate on the services performed on the tangible personal property is 6 percent. The resident must remit to the department 1 percent use tax; no local option use tax is due. If, on the other hand, the other state’s sales tax rate is equal to or greater than Iowa’s use tax rate, the Iowa resident does not have to remit use tax to the department on the services performed on tangible personal property.
[ARC 0310C, IAB 9/5/12, effective 10/10/12; ARC 4324C, IAB 2/27/19, effective 4/3/19; ARC 4643C, IAB 8/28/19, effective 10/2/19; ARC 6508C, IAB 9/7/22, effective 10/12/22]
701—205.3(423) First use of services performed on tangible personal property.
	205.3(1) First use of services performed on tangible personal property defined. A service performed on tangible personal property is a service that changes some aspect of the property, such as its appearance or function. Services with respect to tangible personal property, but not necessarily performed on tangible personal property, such as inspection and appraisal, are not addressed in this rule. Except as otherwise provided in the agreement or the rules adopted by the governing board, a service performed on tangible personal property is first used at, and sourced to, the location where the customer receives, regains possession of, or can potentially make first use of, whether or not actually used, the tangible personal property on which the seller performed the service. In general, this is the location where the tangible personal property is returned to the purchaser or the purchaser’s donee.
	205.3(2) Sourcing of taxable services performed on tangible personal property as applied to local option sales and services tax. A local option sales and services tax shall be imposed on the same basis as the state sales and services tax. With respect to sourcing of taxable services performed on tangible personal property, the local option sales and services tax sourcing rules shall be the same as the destination sourcing requirements described in Iowa Code section 423.15 and as set forth in rules 701—223.1(423) and 701—223.2(423) and subrule 223.3(1). However, the location of the taxable service performed on tangible personal property shall be sourced to the taxing jurisdiction, rather than to the state, where the customer regains possession or can potentially make first use of the tangible personal property on which the seller performed the service. Iowa does not impose a local option use tax.
	205.3(3) Specific examples of taxable enumerated services. Specific examples of services performed on tangible personal property taxable in Iowa under Iowa Code section 423.2 include, but are not limited to:
	a. 	Alteration and garment repair;
	b. 	Vehicle repair and vehicle wash and wax;
	c. 	Boat repair;
	d. 	Carpentry;
	e. 	Roof, shingle and glass repair;
	f. 	Dry cleaning, pressing, dyeing, and laundering;
	g. 	Electrical and electronic repair and installation;
	h. 	Farm implement repair of all kinds;
	i. 	Furniture, rug, carpet, and upholstery repair and cleaning;
	j. 	Gun and camera repair;
	k. 	Household appliance, television, and radio repair;
	l. 	Jewelry and watch repair;
	m. 	Machine repair of all kinds, including office and business machine repair;
	n. 	Motor repair;
	o. 	Motorcycle, scooter, and bicycle repair;
	p. 	Pet grooming;
	q. 	Wood preparation;
	r. 	Sewing and stitching;
	s. 	Shoe repair and shoeshine; and
	t. 	Taxidermy services.
	205.3(4) Examples of sourcing rules for motor and machine repair. The following examples are intended to clarify when motor and machine repair services are deemed “received.”
Example A: Ms.	Brown of Muscatine, Iowa, takes her lawnmower to a repair shop in Moline, Illinois, to have its engine repaired. When the lawnmower is repaired, she picks it up at the Illinois repair shop and returns to Muscatine. The repair service is received at the repair shop location in Illinois since Ms.	Brown has the potential first use of the repaired item at that location. The repair transaction is sourced to Illinois. Ms.	Brown’s subsequent use of the repair services performed on the lawnmower obliges her to remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on lawnmower repair services. That is, Ms.	Brown must remit Iowa use tax at a rate measured by the difference between Iowa’s use tax rate and the tax rate imposed in Illinois on lawnmower repair services. If Illinois does not tax motor and machine repair, Ms.	Brown must remit use tax to the Department at a rate equal to Iowa’s entire use tax rate.
Example B: Same facts as in subrule 223.3(4), Example A, except that the Illinois repair shop delivers the repaired lawnmower to the owner’s residence in Iowa. In this case, the potential first use is at Ms.	Brown’s residence. Thus, Ms.	Brown receives the repair service at, and the repair service is sourced to, her residence in Iowa; Iowa sales tax is due.
Example C: Mr.	Cho, a homeowner in Iowa, contacts an appliance repair service provider located in Missouri to have a clothes dryer repaired. The repair service provider dispatches a technician to Mr.	Cho’s home in Iowa to make the needed repairs. Mr.	Cho received the repair service in Iowa because the potential first use of the repaired clothes dryer was in Iowa. This transaction is sourced to Iowa; Iowa sales tax is due.
Example D: A manufacturer in Iowa uses gauges in its production process to ensure that its product meets specifications. Periodically, the manufacturer ships the gauges to a test laboratory in Minnesota to verify that they are producing proper measurements. The test laboratory tests the gauges and adjusts the calibration on the gauges. The test laboratory ships the gauges back to the manufacturer’s location in Iowa. The manufacturer regained possession and had potential first use of the gauges in Iowa so the transaction is sourced to the location of the manufacturer in Iowa; Iowa sales tax is due.
Example E: Same facts as in subrule 223.3(4), Example D, except that the manufacturer picks up the calibrated gauges from the test laboratory in Minnesota. The potential first use of the calibrated gauges (the result of the test laboratory services) is in Minnesota, and the transaction is sourced to the test laboratory’s location in Minnesota. The manufacturer must remit use tax to the department to the extent Iowa’s use tax rate exceeds Minnesota’s tax rate on test laboratory services. That is, the manufacturer is obliged to pay Iowa use tax at a rate measured by the difference between Iowa’s use tax rate and the tax rate imposed in Minnesota on test laboratory services. If Minnesota does not tax test laboratory services, the manufacturer must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
Example F: Same facts as in subrule 223.3(4), Example D, except that the manufacturer hires a shipping company, such as a common or contract carrier, to pick up the tested and recalibrated gauges from the test laboratory and deliver them to the manufacturer’s location in Iowa. Since the terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser, the transaction is sourced to the manufacturer’s location in Iowa where the manufacturer regains possession and has potential first use of the gauges. Iowa sales tax is due.
	205.3(5) Examples of sourcing rules for the painting of tangible personal property. The following examples are intended to clarify when the service of painting of tangible personal property is deemed “received.”
Example A: A law office in Iowa has antique bookcases it wishes to have painted. The bookcases are picked up by a painter and taken to and painted in the painter’s shop in Illinois. The painter then delivers the painted bookcases to the law office. The transaction is sourced to the location of the law office in Iowa; Iowa sales tax is due. If, instead, the law office sends one of its employees to the painter’s shop in Illinois to pick up the painted bookcases, the transaction is sourced to the painter’s location in Illinois where possession or potential first use occurs. The law office must remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on painting services. If Illinois does not tax painting services, the law office must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
Example B: A business in Davenport, Iowa, hires a painter from Rock Island, Illinois, to paint several file cabinets. The painter does the painting on site at the purchaser’s office location. Because the file cabinets remain at the same location and the purchaser’s potential first use of the cabinets is in Iowa, the transaction is sourced to the purchaser’s office location in Davenport. Iowa sales tax is due.
	205.3(6) Example of sourcing rules for dry cleaning services. The following example is intended to clarify when dry cleaning services are deemed “received.”
Example: Mr.	Riley, a Council Bluffs, Iowa, resident, takes laundry to an Omaha, Nebraska, dry cleaner’s store. After his clothing is dry-cleaned, Mr.	Riley returns to the dry cleaner in Omaha to pick up the clothing. The dry cleaner returns the clothes to Mr.	Riley at the dry cleaner’s store. Mr.	Riley regains possession of his dry-cleaned clothes at the store in Omaha, so the transaction is sourced to Nebraska. Mr.	Riley must remit use tax to the department to the extent Iowa’s use tax rate exceeds Nebraska’s tax rate on dry-cleaning services. If Nebraska does not tax dry-cleaning services, then Mr.	Riley must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
	205.3(7) Example of sourcing rules for vehicle wash and wax services. The following example is intended to clarify when vehicle wash and wax services are deemed “received.”
Example: Mr.	Moyle lives in Sioux City, Iowa, but he drives his vehicle to a car wash in Dakota Dunes, South Dakota, for a vehicle wash and wax service. The car wash operator washes and waxes the vehicle in Dakota Dunes. When the car wash operator completes the vehicle wash and wax service, Mr.	Moyle pays the car wash operator and drives back to Sioux City, Iowa. Since the owner regains possession of the car at the car wash, the transaction is sourced to South Dakota. Mr.	Moyle must remit use tax to the department to the extent that Iowa’s use tax rate exceeds South Dakota’s tax rate on vehicle wash and wax services. If South Dakota does not tax vehicle wash and wax services, then Mr.	Moyle must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
	205.3(8) Examples of sourcing rules for animal grooming services. The following examples are intended to clarify when animal grooming services are deemed “received.”
Example A: Ms.	Decker of Lake Mills, Iowa, hires a mobile pet washing and grooming service based in Albert Lea, Minnesota, to come to her home and bathe and groom her dog Sascha. The grooming service is performed on Sascha at Ms.	Decker’s home in Lake Mills. Therefore, the pet washing service transaction is sourced to Ms.	Decker’s home in Iowa. Iowa sales tax is due.
Example B: Mr.	Marx who resides in Bettendorf, Iowa, takes his cat Fluffy to a Milan, Illinois, grooming shop. The cat groomer cuts and washes Fluffy’s fur. Once Fluffy is groomed, Mr.	Marx returns to the grooming shop, pays for the service, and drives Fluffy home to Bettendorf. Since Mr.	Marx picks up Fluffy at the shop in Illinois, the first use of the grooming services is in Illinois, and the transaction is sourced to Illinois. Mr.	Marx must remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on animal grooming services. If Illinois does not tax animal grooming services, then Mr.	Marx must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
	205.3(9) Example of local option sales and service tax sourcing rules for camera repair services. The following example is intended to clarify when camera repair services are deemed “received.”
Example: Mr.	Pagano, a photographer in Promise City, Iowa, contacts Bob’s Camera Shop, which is located in Appanoose County, Iowa, to arrange for one of his cameras to be repaired. Promise City has imposed local option sales and service tax. Bob’s Camera Shop dispatches a repairperson to Mr.	Pagano’s studio in Promise City to repair the camera. Mr.	Pagano receives the repair service in Promise City since he can potentially make first use of his repaired camera at that location. The repair service is sourced to Promise City even though the camera shop is located in Appanoose County. Local option sales and service tax imposed by Promise City and Iowa sales tax are due on the sales price of the camera repair service.
	205.3(10) Examples of local option sales and service tax sourcing rules for bicycle repair services. The following examples are intended to clarify when bicycle repair services are deemed “received.”
Example A: Mr.	Edwards, a resident of Slater, Iowa, contacts Bike-o-rama Repair Shop in Ankeny, Iowa, to arrange for his bicycle to be repaired. Slater has imposed local option sales and service tax; Ankeny has not. Mr.	Edwards delivers his bicycle to Bike-o-rama and leaves it there to be repaired. Because he is a preferred customer, Bike-o-rama has one of its employees deliver Mr.	Edwards’ bicycle to his home in Slater when the bicycle repair service is completed. Mr.	Edwards’ potential first use of his bicycle is in Slater; therefore, the transaction is sourced to Slater. Local option sales and service tax is due even though Bike-o-rama is located in Ankeny where there is no local option sales and service tax. Iowa sales tax is also due.
Example B: Same facts as in subrule 223.3(10), Example A, but Mr.	Edwards picks up his repaired bicycle at Bike-o-rama in Ankeny. Because Mr.	Edwards regains possession and can make potential first use of the repaired bicycle in Ankeny, the repair transaction is sourced to Ankeny, and no local option sales and service tax is due on the sales price of the repair. Iowa sales tax is due.
Example C: Same facts as in subrule 223.3(10), Example A, but Bike-o-rama is located in Willow Glen, California, and Bike-o-rama ships Mr.	Edwards’ bike to his home in Slater, Iowa. Since the terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser, the transaction is sourced to Slater. Slater’s local option sales and service tax is due even though Bike-o-rama is located in Willow Glen, California. Iowa sales tax is also due.
[ARC 0310C, IAB 9/5/12, effective 10/10/12; ARC 4324C, IAB 2/27/19, effective 4/3/19; ARC 6508C, IAB 9/7/22, effective 10/12/22]
701—205.4(423) Sourcing rules for personal care services.
	205.4(1) Definition. “Personal care services” means services that are performed on the physical human body. Examples of personal care services governed by this rule include, but are not limited to:
	a. 	Barber and beauty services;
	b. 	Massage, excluding services provided by massage therapists licensed under Iowa Code chapter 152C;
	c. 	Reflexology;
	d. 	Reducing salons; and
	e. 	Tanning beds and salons.
	205.4(2) Sourcing of personal care services. Except as otherwise provided in the agreement or the rules adopted by the governing board, a purchaser receives a personal care service within the meaning of rule 701—200.1(423) at the location where the services are performed, which is the same location where the services are received by the purchaser (or the purchaser’s donee). The services will be received by the purchaser (or the purchaser’s donee) either at the seller’s location, pursuant to Iowa Code section 423.15(1)“a,” or at the purchaser’s (or the purchaser’s donee) location, pursuant to Iowa Code section 423.15(1)“b.”
	205.4(3) Examples of sourcing of personal care services. The following examples are intended to clarify sourcing rules for personal care services.
Example A: Mr.	Fernandez, a resident of Illinois, goes to a barber shop to have his hair cut. The barber is located within Iowa. The barber is providing personal care services, and the sale of these services must be sourced to the location where the services are received (place of first use). Mr.	Fernandez makes first use of the services in Iowa where his hair is cut. The sale is sourced to Iowa; Iowa sales tax is due.
Example B: Ms.	Jackson, a resident of Council Bluffs, Iowa, goes to a tanning salon in Omaha, Nebraska, and pays for use of a tanning bed. The tanning salon is providing personal care services, and the sale of these services must be sourced to the location of the tanning salon since this is where the services are received (place of first use). Since the tanning salon is located in Nebraska, the sale is sourced to Nebraska. If Nebraska taxes tanning salon services and that rate is lower than Iowa’s use tax rate, Ms.	Jackson is obliged to pay Iowa use tax to the department at a rate measured by the difference between Iowa’s use tax rate and the tax rate imposed on tanning salon services in Nebraska. If Nebraska does not tax tanning salon services, then Ms.	Jackson must remit use tax to the department at a rate equal to Iowa’s entire use tax rate.
Example C: Ms.	Zastrow, a resident of Iowa, contacts a massage therapist (who is not licensed under Iowa Code chapter 152C) located in Nebraska for a therapeutic massage. Ms.	Zastrow requests that the therapist perform the massage at Ms.	Zastrow’s residence in Iowa. The therapist travels to Ms.	Zastrow’s residence and performs the massage. The therapist is providing personal care services, and the sale of these services must be sourced to the location where the services are received (place of first use). Ms.	Zastrow makes first use of the services in Iowa where the massage is performed. The sale is sourced to Iowa, and therefore Iowa sales tax is due.
[ARC 0310C, IAB 9/5/12, effective 10/10/12; ARC 6508C, IAB 9/7/22, effective 10/12/22]
701—205.5(423) Sourcing of tickets or admissions to places of amusement, fairs, and athletic events. Sales of tickets or admissions to places of amusement, fairs, and athletic events are sourced in the same manner as services, using the destination sourcing requirements described in Iowa Code section 423.15 and as set forth in rule 701—223.2(423). Generally, the sale of a service is sourced to the location where the purchaser makes first use of the service. In the case of an event that the purchaser attends at a physical location, first use would occur at the location of the event.
Example: X makes retail sales of tickets to music concerts in Iowa. X is a retailer maintaining a place of business in this state under Iowa Code section 423.1(48) and therefore is required to collect Iowa sales tax and local option sales tax on retail sales of these tickets. See Iowa Code section 423.2(3). Y is a resident of Marshalltown, Iowa. Y purchases two tickets to attend a concert in Ames, Iowa. The sale is sourced to Ames, the location of the event. The result is the same regardless of how or where Y’s tickets are delivered. X must charge Iowa sales tax and any local option sales tax that applies to sales sourced to Ames, Iowa.
	205.5(1) Sales of admissions to virtual events. First use of a ticket of admission to a virtual event occurs at the location where the attendee first participates in or accesses the event, if known to the seller. If this location is unknown, the sale is sourced pursuant to Iowa Code section 423.15(1).
Example: X is hosting a virtual video game tournament. X is a retailer maintaining a place of business in this state under Iowa Code section 423.1(48). Y purchases admission to participate in the virtual video game tournament from a residence in Council Bluffs, Iowa. Y’s access to the tournament begins immediately upon purchase, and Y’s location is known to X. Therefore, X must source the admission to Council Bluffs, Iowa. X must charge Iowa sales tax and any local option sales tax that applies to sales sourced to Council Bluffs, Iowa.
	205.5(2) Sales of admissions that can be used at multiple locations. Admissions that may be used at multiple locations should be sourced to the location where the admission is purchased if the purchaser picks it up in person and it can be used at that location. If the service cannot be used at that location or the sale is made online, the sale should be sourced using the provisions of Iowa Code section 423.15 and these rules that apply when the location of first use is unknown.
Example 1: X is a movie theater located in West Des Moines, Iowa. X sells movie passes that can be used at its location and other locations across Iowa. Y purchases a movie pass at X’s location in West Des Moines. Y’s purchase is sourced to West Des Moines. X must collect Iowa sales tax and any local option sales tax that applies to sales sourced to West Des Moines, Iowa.
Example 2: X is a health club with locations across Iowa. X has a website where memberships can be purchased. Memberships can be used at any of X’s locations. Y purchases a membership through X’s website. Y is required to provide an address when the membership purchase information is filled out. Y provides an address in Clive, Iowa. Therefore the sale is sourced to Clive. See Iowa Code section 423.15(1)“c.” X must therefore collect Iowa sales tax and any local option sales tax imposed in the city of Clive.
[ARC 4324C, IAB 2/27/19, effective 4/3/19; ARC 6508C, IAB 9/7/22, effective 10/12/22]
701—205.6(423) Sourcing rules for tangible personal property and specified digital products. All sales of tangible personal property and specified digital products by sellers obligated to collect sales and use tax, except those enumerated in Iowa Code section 423.16, shall be sourced using the destination sourcing requirements described in Iowa Code section 423.15. Products received by a purchaser at a seller’s business location shall be sourced to that business location. When the retailer has the address to which the retailer or a shipping company will deliver a product to the purchaser, Iowa Code section 423.15(1)“b” applies and the sale is sourced to the delivery address. The sale of a product delivered to a shipping company is not sourced to the location of the shipping company. The terms of a sale as F.O.B. (origin) are irrelevant for purposes of sourcing a sale. See Iowa Code section 423.1(43)“b” and In the Matter of Clipper Windpower, LLC, Iowa Dep’t of Revenue Declaratory Order No. 2016-300-2-0058 (Sept. 8, 2017).
	205.6(1) General examples of sourcing of tangible personal property. The following examples illustrate the sourcing principles of Iowa Code section 423.15(1) as applied to sales, but not leases or rentals, of tangible personal property.
Example 1: Item received at retail store of the seller. X purchases a product at a retail store in Waterloo, Iowa. X takes the product home from the retail store that day. The sale is sourced to the retail store in Waterloo, Iowa, because that is the business location where X receives the product. See Iowa Code section 423.15(1)“a.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Waterloo.
Example 2: Item received at warehouse of the seller. X purchases a product at a retail store in Waterloo, Iowa, but X has to pick up the product at a warehouse in Cedar Falls, Iowa. The sale is sourced to the warehouse in Cedar Falls because that is the business location where X receives the product. See Iowa Code section 423.15(1)“a.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Cedar Falls.
Example 3: Item received at alternate location. X purchases a product at a retail store in Waterloo, Iowa. While purchasing the product, X provides the retail store with X’s home address as the location where X would like to have the product delivered. The retail store’s delivery truck delivers the product to X’s home in Waverly, Iowa. The sale is sourced to X’s home in Waverly, Iowa, because that is the location where X receives the product and the location is known to the seller. See Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Waverly. The outcome in this example is the same regardless of whether the retail store delivered the product with its own truck or by common carrier.
Example 4: Sale by Iowa seller, product received by buyer in Iowa, but product delivered from outside of Iowa. X lives in Maxwell, Iowa. X purchases a product online from an Iowa seller with a retail location in Des Moines, Iowa. While purchasing the product, X provides the retail store with X’s home address as the location where X would like to have the product delivered. The seller sends the product to X via a common carrier from its shipping facility in Lincoln, Nebraska, and X receives the product at X’s home in Maxwell. The sale is sourced to Maxwell because the product is received at that location and that location is known to the seller. See Iowa Code section 423.15(1)“b.” The outcome in this example is the same regardless of the fact that the product was delivered by a third party and regardless of the fact that the product was delivered from out of state. See Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Maxwell.
Example 5: Sale by remote seller, product delivered into Iowa. X lives in Maxwell, Iowa. X purchases a product online from a remote seller (a seller who has no physical presence in Iowa) located in Kansas City, Missouri, who is required to collect Iowa sales and local option taxes on Iowa sales pursuant to Iowa Code section 423.14A(3). While purchasing the product, X inputs X’s home address as the delivery address. The product is shipped via common carrier. The sale is sourced to Maxwell, Iowa, because the product is received at that location and that location is known to the seller. See Iowa Code section 423.15(1)“b.” It is irrelevant that the product was delivered by a third-party common carrier. See Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Maxwell.
Example 6: Location of receipt by a purchaser’s donee. X lives in Omaha, Nebraska. X purchases a birthday gift for Y, who lives in Davenport, Iowa. X purchases the gift from a remote seller (a seller who has no physical presence in Iowa) located in Chicago, Illinois, who is required to collect Iowa sales and local option taxes on Iowa sales pursuant to Iowa Code section 423.14A(3). While purchasing the gift, X inputs Y’s Davenport, Iowa, address as the delivery address. The sale is sourced to Davenport, Iowa. Y is the purchaser’s donee. The gift is received by Y in Davenport, Iowa, and that location is known to the seller. See Iowa Code section 423.15(1)“b.” The retailer must therefore collect states sales tax and any local option sales tax imposed in the city of Davenport.
Example 7: Location of receipt unknown to the seller, but purchaser’s address available from seller’s business records. X purchases a product at a retail store in Waterloo, Iowa. X provides a billing address located in Fort Dodge, Iowa, with X’s payment information. X indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide the retailer a shipping address. Even though the retailer does not know the delivery address, the retailer’s business records indicate that the purchaser’s address is in Fort Dodge. Therefore, the sale is sourced to Fort Dodge. See Iowa Code section 423.15(1)“c.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Fort Dodge.
Example 8: Location of receipt unknown to the seller, but purchaser’s address only indicated on a payment instrument used in the transaction. X purchases a product at a retail store in Waterloo, Iowa. X pays with a check that lists a Fort Dodge, Iowa, address for X. X indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide a shipping address to the retail store. Even though the retail store does not have a shipping address or other address for X on file, the check lists an address for the purchaser in Fort Dodge. Therefore, the sale is sourced to Fort Dodge. See Iowa Code section 423.15(1)“d.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Fort Dodge.
Example 9: Location from which the item was shipped, if location of receipt is unknown to the seller and the seller has no other record or indication of buyer’s address. X orders a product at a retail store in Adel, Iowa. X pays in cash and indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide a shipping address or a billing address, and the retail store does not have an address on file for X. Because X paid in cash, X’s address is not indicated on a payment instrument. The retail store may source the sale to its location in Adel, Iowa. See Iowa Code section 423.15(1)“e.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Adel.
	205.6(2) General examples of sourcing of specified digital products. The following examples illustrate the sourcing principles of Iowa Code section 423.15(1) as applied to specified digital products.
Example 1: Specified digital product purchased at seller’s business location. Y owns and operates a restaurant in Sioux City, Iowa. Y provides guests access to an on-site electronic device on which guests may purchase access to video games to play while they wait to receive their food. Guests’ access to the games ends once they pay their bill, and the charge for the access is included on the final bill. All sales of video games from Y’s on-site electronic devices are sourced to Sioux City, the location at which guests receive access to the video games. See Iowa Code section 423.15(1)“a.” Y must therefore collect state sales tax and any local option sales tax imposed in the city of Sioux City.
Example 2: Location of receipt by purchaser known to seller. X purchases and receives a specified digital product on X’s smart phone through an online application marketplace. The marketplace knows X is in Ames, Iowa, when X purchases and downloads the specified digital product. The sale is sourced to Ames because the product is received at that location (see Iowa Code section 423.1(43)) and that location is known to the seller. See Iowa Code section 423.15(1)“b.” If the marketplace meets the thresholds described in Iowa Code section 423.14A(3), the marketplace must collect state sales tax and any local option sales tax imposed in the city of Ames.
Example 3: Location of receipt by purchaser unknown, but purchaser’s address is available from seller’s business records. X purchases a specified digital product from C’s website. Prior to purchasing the specified digital product, X creates a user account through C’s website and lists X’s home address in Jefferson, Iowa. When X purchases the specified digital product, C does not know where X received the specified digital product. Even though C does not know where the specified digital product is received by X, C’s business records that are maintained in the ordinary course of business indicate that X’s address is in Jefferson, Iowa. See Iowa Code section 423.15(1)“c.” If C meets the thresholds described in Iowa Code section 423.14A(3), C must collect state sales tax and any local option sales tax imposed in the city of Jefferson.
Example 4: Location of receipt by purchaser unknown, but purchaser’s address only indicated on a payment instrument used in the transaction. X downloads a mobile video game application on X’s phone through an online application marketplace. X pays for the video game with X’s credit card. The marketplace saves the Ames, Iowa, home address associated with X’s credit card. However, the marketplace does not know X’s location when X downloads and purchases the video game. The marketplace may rely on the Ames address associated with X’s payment information to source the sale. See Iowa Code section 423.15(1)“d.” If the marketplace meets the thresholds described in Iowa Code section 423.14A(3), the marketplace must collect state sales tax and any local option sales tax imposed in the city of Ames.
	205.6(3) Examples of sourcing of leases and rentals of tangible personal property other than transportation equipment or products described in Iowa Code section 423.16. The following examples illustrate the sourcing principles of Iowa Code section 423.15(2) as applied to leases or rentals of tangible personal property, other than transportation equipment as defined in Iowa Code section 423.15(3). This rule does not cover products described in Iowa Code section 423.16.
Example 1A: Lease that requires recurring periodic payments. X resides in Indianola, Iowa. X enters into a rental agreement with Y, a furniture rental company located in Des Moines, for the rental of a couch. The agreement specifies that X will pay to Y a $50 down payment and $20 each month thereafter until the rental is terminated.
In exchange for possession of the couch, X makes the required $50 down payment to Y at Y’s office in Des Moines, Iowa. X receives the couch at Y’s office in Des Moines, and X takes the couch to X’s home in Indianola, Iowa. While purchasing the couch, X provides Y with X’s Indianola address, which Y keeps on file. For the remainder of the rental period, X’s primary address remains the same.
The first periodic payment—the down payment—is sourced the same as sales under Iowa Code section 423.15(1). See Iowa Code section 423.15(2)“a.” In this case, the down payment was made and the product was received at the seller’s business location. Iowa Code section 423.15(1)“a” governs the sourcing of the down payment. See subrule 223.5(1). Therefore in this case, the down payment is sourced to Des Moines. Y must collect state sales tax and any local option sales tax imposed in the city of Des Moines on the down payment.
Because X’s home address is on file with Y for the remainder of the rental period, X’s address is the “primary property location” of the couch during those periods. See Iowa Code section 423.15(2)“a.” Therefore, the subsequent monthly payments are sourced to X’s Indianola address that is contained in the records maintained by Y in the ordinary course of business. See Iowa Code section 423.15(2)“a.” Y must collect state sales tax and any local option sales tax imposed in the city of Indianola on the monthly payments.
Example 1B: Assume the same facts as Example 1A. In this example, however, X provides the $50 down payment, gives Y X’s home address in Indianola, Iowa, and arranges to have Y deliver the couch to X’s home in Indianola, Iowa. The $50 down payment constitutes the “first periodic payment” and is therefore sourced to Indianola in accordance with Iowa Code section 423.15(1)“b.” See Iowa Code section 423.15(2)“a.” Because Y knows the location where the product will be received by the purchaser, Y must collect Iowa sales and any local option sales tax applicable in the city of Indianola on the down payment. See subrule 223.6(1). The result is the same regardless of whether Y or a third-party shipping agent delivers the product and regardless of whether the product is shipped from outside of Iowa. See subrule 223.6(1), Examples 3 and 4.
All other facts and results from Example 1A remain the same.
Example 1C: Same facts as in Example 1A. In this example, however, partway through the rental period, X moves to Clinton, Iowa, for the remainder of the rental period. X informs Y of the change in address and that X is bringing the couch to Clinton as part of the move. Y updates Y’s business records to reflect X’s new address and the location of the couch.
Every payment that occurs after X informed Y of X’s new address is sourced to Clinton, Iowa, because the “primary property location” as indicated by an address for the property provided by the lessee was updated to Clinton, Iowa. See Iowa Code section 423.15(2)“a.”
Example 1D: Same facts as Example 1A. X makes the first several monthly payments while residing in Indianola. However, partway through the rental period, X moves to Ames and brings the couch. X does not update Y about the new address and location of the couch. Y does not receive any record from X indicating X’s new address.
Even though the couch is actually located in Ames, the “primary property location” indicated by an address for the property provided by X that is available to Y from records maintained in the ordinary course of business is the Indianola address. See Iowa Code section 423.15(2)“a.” Therefore, Y is correct in sourcing each lease payment to Indianola.
Example 2: Rental that does not require recurring periodic payments. B rents a woodchipper from C for a week in exchange for a single, up-front payment. C delivers the woodchipper to B at a location in Sioux Center, Iowa. The rental payment is sourced to Sioux Center, Iowa, because that is the location where B receives the woodchipper and the location is known to C, the seller. See Iowa Code section 423.15(1)“b.” C must therefore collect state sales tax and any local option sales tax imposed in the city of Sioux Center. A rental that does not require recurring period payment is sourced the same as retail sales under Iowa Code section 423.15(1) and subrule 223.6(1). See Iowa Code section 423.15(2)“b.”
	205.6(4) Sales of items from vending machines. Sales from vending machines are sourced to the location of the individual vending machine at which the purchaser receives the item.
	205.6(5) Sales of items by an itinerant merchant, peddler, or salesperson having a route. When an itinerant merchant, peddler, or mobile salesperson meets with a customer and solicits an order or completes a contract for sale and the customer receives the item at that location, the sale is sourced to that location pursuant to Iowa Code section 423.15(1)“b,” regardless of whether the location is the customer’s home, a business establishment, or elsewhere. This rule applies to all other sales by itinerant merchants, peddlers, and mobile salespersons in the same manner as they apply to any other seller.
	205.6(6) Items purchased for resale but withdrawn from inventory. If a person purchases items for resale or processing but withdraws and uses any of those items from inventory or from a stock of materials held for processing, the gross receipts from the sales of the items withdrawn and used are sourced to the county in which they are withdrawn regardless of where the items were purchased for resale.
Example: X owns and operates a home and furniture store located in Black Hawk County, Iowa. In Johnson County, Iowa, X purchases five rocking chairs. X provides the Johnson County retailer with sales tax exemption certificates stating that the rocking chairs are purchased for resale; the retailer accepts the certificates and does not charge Iowa sales tax on the sale of the rocking chairs. After returning to Black Hawk County, X decides to use one rocking chair in X’s home instead of selling it. Because the rocking chair was withdrawn from inventory in Black Hawk County, sales tax and the applicable local option tax in Black Hawk County are due.
	205.6(7) Items withdrawn from inventory by a manufacturer. Where a manufacturer manufactures tangible personal property and uses the property it manufactures for any purpose except for resale or processing, such use by the manufacturer is subject to sales tax and sourced to the county in which the manufacturer first used the property. Taxable use includes using such property as building materials, supplies, or equipment in the performance of a construction contract. Tax is computed upon the cost to fabricate the property. See rule 701—219.6(423) for more information.
Example: X manufactures steel beams in Madison County, Iowa. X withdraws a beam from inventory to use on a construction project at its facility. X’s withdrawal of the beam for use in the construction project is sourced to Madison County, Iowa, and sales tax and the applicable local option tax are due.
[ARC 4324C, IAB 2/27/19, effective 4/3/19; ARC 6508C, IAB 9/7/22, effective 10/12/22]
These rules are intended to implement Iowa Code sections 423.2, 423.15, and 423B.5.
[Filed ARC 0310C (Notice ARC 0199C, IAB 7/11/12), IAB 9/5/12, effective 10/10/12]
[Filed ARC 4324C (Notice ARC 4200C, IAB 1/2/19), IAB 2/27/19, effective 4/3/19]
[Filed ARC 4643C (Notice ARC 4523C, IAB 7/3/19), IAB 8/28/19, effective 10/2/19]
[Filed ARC 6508C (Notice ARC 6400C, IAB 7/13/22), IAB 9/7/22, effective 10/12/22]