Questions about sales tax commonly arise from people new to self-employment. Here’s a very basic overview of sales tax in Iowa.
The general rule on sales tax in Iowa is:
- If you sell products, you probably need to collect sales tax.
- If you provide a service, you probably don’t need to collect sales tax.
Of course, there are exceptions to these rules. Some product sales are exempt from sales tax. And some services are subject to sales tax. The Iowa Department of Revenue website is the best resource for determining if you need to collect sales tax on your product or service.
If You Need to Collect Sales Tax: The Basics
Sales tax is not a company expense. Instead, it’s a tax you collect from your customers and send to the state.
The basic sales tax rate in Iowa is 6%.
So if you sell something for $1, you’ll collect $1.06 from the customer. The $1 is yours and the $0.06 is the state’s.
Submitting Sales Tax to the State
Iowa has an online system for sales tax deposits. The state no longer accepts paper filings.
The process seems daunting to many people I talk to who are thinking about starting a business, but it’s actually straightforward.
You start by registering for a sales tax permit from the state. They’ll send you a permit number. Also included in that mailing will be your Business eFile Number (BEN). You’ll need the BEN in order to set up your online account, which you use to file your sales tax permits and submit your sales tax collections.
How often you file and pay depends on how much sales tax you’re collecting:
- Less than $120 of sales tax collections per year: file and pay once a year
- $120 – $6,000 of sales tax collections per year: file and pay quarterly
- $6,000 – $60,000 of sales tax collections per year: file and pay monthly
- $60,000+ of sales tax collections per year: file and pay twice a month
Put another way, using a 6% sales tax rate, you can have sales of up to $100,000 per year and be a quarterly filer. Once you reach $100,000 of sales, you’d become a monthly filer, and at $1,000,000 of sales you’d file twice a month.
Beware of Local-Option Sales Tax
Some localities in Iowa assess a local sales tax of 1% as well (thus making the total sales tax 7%). You can get more information about local-option sales taxes on this page on the Iowa Department of Revenue website.
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“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”