701—206.3(423) Transactions not taxable as bundled transactions. Generally, the entire sales price from a bundled transaction is subject to sales tax. However, the transactions described in this rule are not taxable as bundled transactions:
	206.3(1) Sales involving mixed tangible personal property and services. The retail sale of tangible personal property or specified digital product and a service, if the tangible personal property or specified digital product is essential to the use of the service, and provided exclusively in connection with the service, and if the true object of the transaction is the service.
Example: Seller A charges customer B for computer programming services where customer B is also given a backup disk and instruction manual. The true object of the transaction is the provision of the programming services. Seller A is selling nontaxable services and is not making a sale of a bundled transaction. Iowa sales tax is not due on the programmer’s charge for services; sales tax is due on seller A’s purchases of tangible personal property used to fulfill the service.
	206.3(2) Sales involving services. The retail sale of services, if one of the services is essential to the use or receipt of a second service, and provided exclusively in connection with the second service, and if the true object of the transaction is the second service. If the transaction is not a bundled transaction as a result of this exclusion, then the true object of the transaction will be the retail sale of the second service and should be taxed accordingly.
	206.3(3) True object test. The true object of a transaction is the main product that is the subject of the transaction. Determining the true object of a transaction is a fact-based inquiry and shall be made on a case-by-case basis. Factors that may be considered in determining the true object of a transaction include, but are not limited to, the nature of the seller’s business and purchaser’s reason for making the purchase.
	206.3(4) Sales involving “de minimis” taxable products. A transaction that includes taxable and nontaxable products and the seller’s purchase price or sales price of the taxable products is de minimis. “De minimis” means the seller’s purchase price or sales price of the taxable products is 10 percent or less of the total purchase price or sales price of the bundled products. A seller shall use either the seller’s purchase price or seller’s sales price of the products to determine if the taxable products are de minimis. A seller may not use a combination of the seller’s purchase price and seller’s sales price of the products to determine if the taxable products are de minimis.
Example 1: Seller H sells a coupon book that includes a packet of stickers for one nonitemized price of $75. The packet of stickers is not provided free of charge. Seller H purchased the stickers, a taxable product, for $2 per packet, which does not exceed 10 percent of the total purchase price of the coupon book and stickers. Seller H’s sale of the coupon book and stickers is not a bundled transaction, and the sales price of $75 is not subject to tax.
Example 2: Technology Company F (company F) sells access to a day-long live webinar about the latest trends occurring in the technology industry for one nonitemized price of $200. The webinar, which does not allow people viewing the presentation to submit questions, is not subject to Iowa sales tax. The customer also receives a smartwatch that is included in the payment of the webinar but is not provided free of charge. Company F’s sales price of the smartwatch is $50, which exceeds 10 percent of the total sales price of the fee. The watch is subject to sales tax by the customer. Because company F’s purchase price of the watch is not de minimis, the $200 transaction is a bundled transaction and is subject to tax.
	206.3(5) Sales involving taxable and exempt food or medical products. The retail sale of exempt tangible personal property and taxable tangible personal property where all of the following apply:
	a. 	The transaction includes food and food ingredients, drugs, durable medical equipment, mobility enhancing equipment, prosthetic devices, or medical supplies; and
	b. 	The seller’s purchase price or sales price of the taxable tangible personal property is 50 percent or less of the total purchase price or sales price of the bundled tangible personal property. Sellers may not use a combination of the purchase price and sales price of the tangible personal property when making the 50 percent determination for a transaction.
Example: Seller F offers its customers a package containing two prepared hot dogs and five frozen hot dogs. The sales price for the two prepared hot dogs is $5, and the sales price of the five frozen hot dogs is $10. The package is sold for one nonitemized price of $15. The sales price of the package is not taxable because the sales price of the taxable items (the two prepared hot dogs) is 50 percent or less of the total sales price of the package.
[ARC 5605C, IAB 5/5/21, effective 6/9/21; ARC 6508C, IAB 9/7/22, effective 10/12/22]