HF 601 (LSB 2274YH (2) 85)

HOUSE FILE 601

BY  ROGERS

A BILL FOR

An Act relating to state sales and use tax by modifying the refund of sales and use tax paid in fulfillment of construction contracts with designated entities to include certain lease-purchase contracts, providing a related sales and use tax exemption, and making penalties applicable.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 423.4, subsection 1, Code 2013, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  0a.
  For purposes of this subsection and section 423.3, subsection 80, a lease-purchase contract entered into with a political subdivision of the state, or a division, board, commission, agency, or instrumentality of the political subdivision, for completion of a project shall be considered a written contract with such governmental unit, and the property that is the subject of the lease-purchase contract shall be considered public property if all of the following conditions are met:
   (1)  The project is part of the lease-purchase contract.
   (2)  The lessor completes the project in fulfillment of and in accordance with the lease-purchase contract.
   (3)  The property becomes an integral part of the project under the lease-purchase contract.
   (4)  The property is occupied and operated by the governmental unit in accordance with the lease-purchase contract.
   (5)  The governmental unit has the option to purchase the property under the lease-purchase contract.
   (6)  The governmental unit, written contract, or project is not otherwise ineligible under this subsection.
EXPLANATION
   This bill amends the refund of sales and use tax paid for, and the sales and use tax exemption of, goods and services used in fulfillment of construction contracts with designated entities. Under current law, a political subdivision of the state, or a division, board, commission, agency, or instrumentality of the political subdivision qualifies as a designated entity entitled to the refund of sales and use tax paid in fulfillment of a written contract for the construction of a project that will become public property. The bill provides that a lease-purchase contract with one of these governmental units will qualify as a written contract with such governmental unit, and the property that is the subject of the lease-purchase contract will be considered public property, if the project is part of the lease-purchase contract, the lessor completes the project in fulfillment of and in accordance with the lease-purchase contract, the property becomes an integral part of the project under the lease-purchase contract, the property is occupied and operated by the governmental unit in accordance with the lease-purchase contract, the governmental unit has the option to purchase the property under the lease-purchase contract, and the governmental unit, written contract, or project is not otherwise ineligible for the sales and use tax refund.
   In order to receive the sales and use tax refund, contractors are required to file certain sales and use tax reports, and contractors filing false reports are guilty of a simple misdemeanor and liable for the payment of tax, penalties, and interest. A simple misdemeanor is punishable by confinement for no more than 30 days or a fine of at least $65 but not more than $625 or by both.
   The bill also provides that such lease-purchase contracts will qualify as contracts with a designated entity for purposes of Code section 423.3, subsection 80, so that building materials, supplies, and equipment purchased by a contractor, subcontractor, builder, or manufacturer will be exempt from sales tax if such items will be completely consumed in fulfillment of the contract.
   By operation of Code section 423.6, an item exempt from the imposition of the sales tax is also exempt from the use tax imposed in Code section 423.5.