What Is the Current Sales Tax Rate in Iowa?

Sales tax is a tax imposed on the sale of goods and services, collected by retailers and remitted to government bodies. These funds are a source of revenue, used to pay for public services such as infrastructure, education, and public safety. The specific application of the tax, including what is taxed and at what rate, is determined by state and local laws.

Statewide and Local Sales Tax Rates

The statewide sales tax rate in Iowa is 6%. This base rate applies to the selling price of taxable goods and services across the entire state. However, the total tax rate a consumer pays can be higher due to the Local Option Sales Tax (LOST). This is an additional 1% tax that cities or counties can implement if approved by voters.

Because of the LOST, the combined sales tax rate can be as high as 7% in many parts of Iowa. To determine the precise rate for a specific location, consumers and businesses can use the address-based lookup tool provided by the Iowa Department of Revenue.

Taxable Goods and Services

In Iowa, sales tax applies to the sale of all tangible personal property unless a specific exemption is provided. Common examples of taxable tangible goods include items like furniture, clothing, electronics, and prepared foods. The tax is calculated on the total sales price and must be collected by the seller from the buyer.

Unlike tangible goods, services in Iowa are only taxable if they are specifically listed in state law. Examples of taxable services include:

• Vehicle repair
• Dry cleaning and laundering
• Photography services
• Carpentry
• Lawn care and pest control
• Fees for commercial recreation like golf and country club memberships

Common Sales Tax Exemptions

Iowa law provides sales tax exemptions based on the type of product or buyer. For products, exempt items include:

• Unprepared food items, commonly referred to as groceries
• Prescription drugs and certain medical devices
• Items purchased for resale by a business
• Inputs used in agricultural production and manufacturing

Certain buyers are also exempt from paying sales tax on their purchases, including the United States government, Iowa state and local governments, and some nonprofit educational institutions. To claim an exemption, a qualifying organization must provide the seller with a valid exemption certificate at the time of purchase.

Understanding Iowa Use Tax

Use tax is a companion to the sales tax and applies to taxable goods and services purchased for use in Iowa when no Iowa sales tax was collected. The use tax rate is 6%, the same as the statewide sales tax, and there is no local option use tax. The purpose of the use tax is to ensure that all taxable items used in the state are taxed equally, regardless of where they were purchased.

A common scenario is when an Iowa resident buys a product from an out-of-state seller, such as an online retailer, that does not collect Iowa sales tax. For instance, if you purchase furniture online from a company that does not charge you sales tax, you as the purchaser are responsible for remitting the use tax directly to the Iowa Department of Revenue. Individuals can report and pay use tax on their annual state income tax return.