House File 601 - Introduced HOUSE FILE 601 BY ROGERS A BILL FOR An Act relating to state sales and use tax by modifying 1 the refund of sales and use tax paid in fulfillment of 2 construction contracts with designated entities to include 3 certain lease-purchase contracts, providing a related sales 4 and use tax exemption, and making penalties applicable. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2274YH (2) 85 mm/sc

H.F. 601 Section 1. Section 423.4, subsection 1, Code 2013, is 1 amended by adding the following new paragraph: 2 NEW PARAGRAPH . 0a. For purposes of this subsection and 3 section 423.3, subsection 80, a lease-purchase contract entered 4 into with a political subdivision of the state, or a division, 5 board, commission, agency, or instrumentality of the political 6 subdivision, for completion of a project shall be considered a 7 written contract with such governmental unit, and the property 8 that is the subject of the lease-purchase contract shall be 9 considered public property if all of the following conditions 10 are met: 11 (1) The project is part of the lease-purchase contract. 12 (2) The lessor completes the project in fulfillment of and 13 in accordance with the lease-purchase contract. 14 (3) The property becomes an integral part of the project 15 under the lease-purchase contract. 16 (4) The property is occupied and operated by the 17 governmental unit in accordance with the lease-purchase 18 contract. 19 (5) The governmental unit has the option to purchase the 20 property under the lease-purchase contract. 21 (6) The governmental unit, written contract, or project is 22 not otherwise ineligible under this subsection. 23 EXPLANATION 24 This bill amends the refund of sales and use tax paid for, 25 and the sales and use tax exemption of, goods and services 26 used in fulfillment of construction contracts with designated 27 entities. Under current law, a political subdivision of 28 the state, or a division, board, commission, agency, or 29 instrumentality of the political subdivision qualifies as a 30 designated entity entitled to the refund of sales and use tax 31 paid in fulfillment of a written contract for the construction 32 of a project that will become public property. The bill 33 provides that a lease-purchase contract with one of these 34 governmental units will qualify as a written contract with such 35 -1- LSB 2274YH (2) 85 mm/sc 1/ 2

H.F. 601 governmental unit, and the property that is the subject of the 1 lease-purchase contract will be considered public property, if 2 the project is part of the lease-purchase contract, the lessor 3 completes the project in fulfillment of and in accordance with 4 the lease-purchase contract, the property becomes an integral 5 part of the project under the lease-purchase contract, the 6 property is occupied and operated by the governmental unit in 7 accordance with the lease-purchase contract, the governmental 8 unit has the option to purchase the property under the 9 lease-purchase contract, and the governmental unit, written 10 contract, or project is not otherwise ineligible for the sales 11 and use tax refund. 12 In order to receive the sales and use tax refund, contractors 13 are required to file certain sales and use tax reports, 14 and contractors filing false reports are guilty of a simple 15 misdemeanor and liable for the payment of tax, penalties, and 16 interest. A simple misdemeanor is punishable by confinement 17 for no more than 30 days or a fine of at least $65 but not more 18 than $625 or by both. 19 The bill also provides that such lease-purchase contracts 20 will qualify as contracts with a designated entity for 21 purposes of Code section 423.3, subsection 80, so that building 22 materials, supplies, and equipment purchased by a contractor, 23 subcontractor, builder, or manufacturer will be exempt 24 from sales tax if such items will be completely consumed in 25 fulfillment of the contract. 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 -2- LSB 2274YH (2) 85 mm/sc 2/ 2