House Study Bill 707 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON HEIN) A BILL FOR An Act exempting from the sales and use tax certain sales of 1 computer peripherals, and rescinding related rules in the 2 Iowa administrative code. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 6345YC (2) 88 jm/jh

H.F. _____ Section 1. Section 423.1, Code 2020, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 10A. “Computer peripheral” means an 3 ancillary device connected to the computer digitally, by 4 cable, or by other medium, used to put information into or get 5 information out of a computer. 6 Sec. 2. Section 423.3, subsection 47, Code 2020, is amended 7 to read as follows: 8 47. a. The sales price from the sale or rental of 9 computers, computer peripherals, machinery, equipment, 10 replacement parts, supplies, and materials used to construct 11 or self-construct computers, computer peripherals, machinery, 12 equipment, replacement parts, and supplies, if such items are 13 any of the following: 14 (1) Directly and primarily used in processing by a 15 manufacturer. 16 (2) Directly and primarily used to maintain the integrity 17 of the product or to maintain unique environmental conditions 18 required for either the product or the computers, computer 19 peripherals, machinery, and equipment used in processing by a 20 manufacturer, including test equipment used to control quality 21 and specifications of the product. 22 (3) Directly and primarily used in research and development 23 of new products or processes of processing. 24 (4) Computers and computer peripherals used in processing 25 or storage of data or information by an insurance company, 26 financial institution, or commercial enterprise. 27 (5) Directly and primarily used in recycling or 28 reprocessing of waste products. 29 (6) Pollution-control equipment used by a manufacturer, 30 including but not limited to that required or certified by an 31 agency of this state or of the United States government. 32 b. The sales price from the sale of fuel used in creating 33 heat, power, steam, or for generating electrical current, or 34 from the sale of electricity, consumed by computers, computer 35 -1- LSB 6345YC (2) 88 jm/jh 1/ 7

H.F. _____ peripherals, machinery, or equipment used in an exempt manner 1 described in paragraph “a” , subparagraph (1), (2), (3), (5), or 2 (6). 3 c. The sales price from the sale or rental of the following 4 shall not be exempt from the tax imposed by this subchapter : 5 (1) Hand tools. 6 (2) Point-of-sale equipment , and computers , and computer 7 peripherals . 8 (3) The following within the scope of section 427A.1, 9 subsection 1 , paragraphs “h” and “i” : 10 (a) Computers. 11 (b) Computer peripherals. 12 (b) (c) Machinery. 13 (c) (d) Equipment, including pollution control equipment. 14 (d) (e) Replacement parts. 15 (e) (f) Supplies. 16 (f) (g) Materials used to construct or self-construct the 17 following: 18 (i) Computers. 19 (ii) Computer peripherals. 20 (ii) (iii) Machinery. 21 (iii) (iv) Equipment, including pollution control 22 equipment. 23 (iv) (v) Replacement parts. 24 (v) (vi) Supplies. 25 (4) Vehicles subject to registration, except vehicles 26 subject to registration which are directly and primarily used 27 in recycling or reprocessing of waste products. 28 d. As used in this subsection : 29 (1) “Commercial enterprise” means businesses and 30 manufacturers conducted for profit, for-profit and nonprofit 31 insurance companies, and for-profit and nonprofit financial 32 institutions, but excludes other nonprofits and professions and 33 occupations. 34 (2) “Financial institution” means as defined in section 35 -2- LSB 6345YC (2) 88 jm/jh 2/ 7

H.F. _____ 527.2 . 1 (3) “Insurance company” means an insurer organized or 2 operating under chapter 508 , 514 , 515 , 518 , 518A , 519 , or 3 520 , or authorized to do business in Iowa as an insurer or an 4 insurance producer under chapter 522B . 5 (4) (a) “Manufacturer” means a business that primarily 6 purchases, receives, or holds personal property of any 7 description for the purpose of adding to its value by a process 8 of manufacturing with a view to selling the property for gain 9 or profit. 10 (b) “Manufacturer” includes contract manufacturers. A 11 contract manufacturer is a manufacturer that otherwise falls 12 within the definition of manufacturer, except that a contract 13 manufacturer does not sell the tangible personal property 14 the contract manufacturer processes on behalf of other 15 manufacturers. 16 (c) “Manufacturer” does not include persons who are not 17 commonly understood as manufacturers, including but not 18 limited to persons primarily engaged in any of the following 19 activities: 20 (i) Construction contracting. 21 (ii) Repairing tangible personal property or real property. 22 (iii) Providing health care. 23 (iv) Farming, including cultivating agricultural products 24 and raising livestock. 25 (v) Transporting for hire. 26 (d) For purposes of this subparagraph: 27 (i) “Business” means those businesses conducted for 28 profit, but excludes professions and occupations and nonprofit 29 organizations. 30 (ii) “Manufacturing” means those activities commonly 31 understood within the ordinary meaning of the term, and shall 32 include: 33 (A) Refining. 34 (B) Purifying. 35 -3- LSB 6345YC (2) 88 jm/jh 3/ 7

H.F. _____ (C) Combining of different materials. 1 (D) Packing of meats. 2 (E) Activities subsequent to the extractive process of 3 quarrying or mining, such as crushing, washing, sizing, or 4 blending of aggregate materials. 5 (iii) “Manufacturing” does not include activities occurring 6 on premises primarily used to make retail sales. 7 (5) “Processing” means a series of operations in which 8 materials are manufactured, refined, purified, created, 9 combined, or transformed by a manufacturer, ultimately 10 into tangible personal property. Processing encompasses 11 all activities commencing with the receipt or producing of 12 raw materials by the manufacturer and ending at the point 13 products are delivered for shipment or transferred from the 14 manufacturer. Processing includes but is not limited to 15 refinement or purification of materials; treatment of materials 16 to change their form, context, or condition; maintenance 17 of the quality or integrity of materials, components, or 18 products; maintenance of environmental conditions necessary for 19 materials, components, or products; quality control activities; 20 and construction of packaging and shipping devices, placement 21 into shipping containers or any type of shipping devices or 22 medium, and the movement of materials, components, or products 23 until shipment from the processor. 24 (6) “Receipt or producing of raw materials” means activities 25 performed upon tangible personal property only. With respect 26 to raw materials produced from or upon real estate, the receipt 27 or producing of raw materials is deemed to occur immediately 28 following the severance of the raw materials from the real 29 estate. 30 (7) “Replacement part” means tangible personal property 31 other than computers, computer peripherals, machinery, 32 equipment, or supplies, regardless of the cost or useful life 33 of the tangible personal property, that meets all of the 34 following conditions: 35 -4- LSB 6345YC (2) 88 jm/jh 4/ 7

H.F. _____ (a) The tangible personal property replaces a component of 1 a computer, computer peripheral, machinery, or equipment, which 2 component is capable of being separated from the computer, 3 computer peripheral, machinery, or equipment. 4 (b) The tangible personal property performs the same or 5 similar function as the component it replaced. 6 (c) The tangible personal property restores the computer, 7 computer peripheral, machinery, or equipment to an operational 8 condition, or upgrades or improves the efficiency of the 9 computer, computer peripheral, machinery, or equipment. 10 (8) “Supplies” means tangible personal property, other 11 than computers, computer peripherals, machinery, equipment, or 12 replacement parts, that meets one of the following conditions: 13 (a) The tangible personal property is to be connected to 14 a computer, computer peripheral, machinery, or equipment and 15 requires regular replacement because the property is consumed 16 or deteriorates during use, including but not limited to saw 17 blades, drill bits, filters, and other similar items with a 18 short useful life. 19 (b) The tangible personal property is used in conjunction 20 with a computer, computer peripheral, machinery, or equipment 21 and is specially designed for use in manufacturing specific 22 products and may be used interchangeably and intermittently on 23 a particular computer, computer peripheral, machine, or piece 24 of equipment, including but not limited to jigs, dies, tools, 25 and other similar items. 26 (c) The tangible personal property comes into physical 27 contact with other tangible personal property used in 28 processing and is used to assist with or maintain conditions 29 necessary for processing, including but not limited to cutting 30 fluids, oils, coolants, lubricants, and other similar items 31 with a short useful life. 32 (d) The tangible personal property is directly and 33 primarily used in an activity described in paragraph “a” , 34 subparagraphs (1) through (6), including but not limited to 35 -5- LSB 6345YC (2) 88 jm/jh 5/ 7

H.F. _____ prototype materials and testing materials. 1 Sec. 3. RESCISSION OF ADMINISTRATIVE RULES. 2 1. The following Iowa administrative rules are rescinded as 3 of July 1, 2020: 4 a. 701 Iowa administrative code, rule 18.34, subrule 1, 5 paragraph “b”, subparagraph (1). 6 b. 701 Iowa administrative code, rule 18.45, subrule 1, 7 definition of “computer”. 8 c. 701 Iowa administrative code, rule 18.58, subrule 1, 9 definition of “computer”. 10 d. 701 Iowa administrative code, rule 230.14, subrule 2, 11 paragraph “a”. 12 2. As soon as practicable after July 1, 2020, the Iowa 13 administrative code editor shall remove the language of the 14 Iowa administrative rules referenced in subsection 1 of this 15 section from the Iowa administrative code. 16 EXPLANATION 17 The inclusion of this explanation does not constitute agreement with 18 the explanation’s substance by the members of the general assembly. 19 This bill exempts from the sales and use tax certain sales of 20 computer peripherals. The bill exempts computer peripherals 21 in the same manner as computers are exempted from the sales 22 and use tax, and excludes from the exemption certain computer 23 peripheral sales in the same manner as computers are excluded 24 from the exemption. 25 The bill defines “computer peripheral” to mean an ancillary 26 device connected to the computer digitally, by cable, or by 27 other medium, used to put information into or get information 28 out of a computer. 29 The bill also makes changes to Code section 423.3(47) to 30 enhance the readability of the subsection. 31 By operation of Code section 423.6, an item exempt from the 32 imposition of the sales tax is also exempt from the use tax 33 imposed in Code section 423.5. 34 The bill also rescinds rules of the department of 35 -6- LSB 6345YC (2) 88 jm/jh 6/ 7

H.F. _____ revenue relating to the definition of computer in the Iowa 1 administrative Code. 2 -7- LSB 6345YC (2) 88 jm/jh 7/ 7