What Is Iowa Sales Tax and How Does It Work?
Understand Iowa's sales and use tax. Get clear insights into how these consumption taxes apply to everyday purchases.
Iowa sales tax is a consumption tax levied on the sale of goods and certain services within the state. Sellers are responsible for collecting this tax from buyers at the point of sale and then remitting it to the Iowa Department of Revenue.
Iowa Sales Tax Rate
The statewide sales tax rate in Iowa is 6%. Many cities and counties in Iowa have also implemented an additional Local Option Sales Tax (LOST). This local tax is typically 1%, which is added to the state rate. Therefore, depending on the specific location of a transaction, the combined sales tax rate can be 7% in areas with a LOST. While the state rate is uniform, the presence of a LOST means that the total sales tax charged can vary by jurisdiction within Iowa.
What is Taxed
Iowa sales tax generally applies to the sale of tangible personal property. Common examples of taxable items are clothing, electronics, furniture, and vehicles. Digital products, such as software, e-books, and streaming services, are also subject to Iowa sales tax. In addition to goods, many services are also taxable in Iowa. These include repair, cleaning, alteration, or improvement services for tangible personal property. Other taxable services include laundry and dry cleaning, lawn care, pest control, and admissions to entertainment events. Hotel and motel lodging, along with vehicle rentals, are also subject to sales tax.
Common Exemptions
Iowa law provides several exemptions from sales tax for certain goods and services. A notable exemption applies to most food and food ingredients purchased for home consumption. This generally includes staple groceries like milk, bread, eggs, and fresh produce. However, prepared foods and drinks sold with eating utensils are typically taxable. Prescription drugs are exempt from Iowa sales tax. This exemption also extends to certain medical devices, oxygen, and insulin. Additionally, sales tax exemptions are provided for agricultural supplies and equipment used in farming operations, as well as manufacturing machinery.
Understanding Iowa Use Tax
Iowa use tax is a complementary tax to sales tax, applied when sales tax was not collected on a purchase. This tax applies to items or services purchased outside Iowa for use within the state. The use tax rate is the same as the state sales tax rate, which is 6%. Use tax commonly applies to online purchases from out-of-state retailers or catalog purchases where the seller did not collect Iowa sales tax. It is the buyer’s responsibility to report and pay this tax directly to the Iowa Department of Revenue.