This is an excerpt from a presentation I give to entrepreneurs about recordkeeping.
So far we’ve talked about bookkeeping and how to keep track of all of the transactions that take place within your business. Let’s shift to a discussion of sales tax now.
For a business in Iowa, the basic sales tax rate is 6%. Some locations in Iowa also assess an additional 1% “local option sales tax,” which makes the sales tax in that location 7%.
Sales tax is not an expense of your business. Instead, it’s a tax you collect from your customers and pass on to the state.
You charge your customer $1 for something they buy from you. The sales tax rate is 6%. You’ll collect $1.06 from your customer — $1 is yours, and the 6 cents belongs to the state.
Do You Need to Collect Sales Tax?
The very general rule is: if you sell a product, you probably need to collect sales tax, and if you’re providing a service, you may or may not need to collect sales tax.
In Iowa, the best resource is the Iowa Department of Revenue website. This page on the IDR website will answer most questions about what is and is not subject to sales tax.
Sending Sales Tax to the State
In Iowa, IDR prefers for everything to be done online. The first step is to apply for a sales tax permit. The state will mail information to you, which you use to set up an online account. Once set up, you submit your filings and payments using your online account.
Sales Tax Cautions
There are a few things I always caution people about with sales tax:
- As mentioned above, in Iowa, watch out for local-option sales taxes
- Beware of doing business in other states. If you have a business presence in another state, you might need to collect sales tax on transactions taking place in that state (and their rules might be different from Iowa’s rules as to what is and isn’t taxable)
- All states are aggressive at enforcing their sales tax laws. If you’re supposed to be collecting sales tax and are not doing so, it’s almost certain that they will find you
“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.”