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Legislative Changes Effective January 1, 2019Iowa expanded its taxable enumerated services to include Software as a Service (SaaS) and over fifty other new services including information services, storage services (both tangible and electronic), subscription services, and photography services.
On and after July 1, 2004, the rental of tangible personal property is treated as the sale of that property for the purposes of Iowa sales and use tax law because leases and rentals of tangible personal property are taxable retail sales of that property.
Services provided to the following entities are exempt from sales and use tax: Iowa private nonprofit educational institutions, the federal government, Iowa governmental subdivisions, Iowa government agencies, certain nonprofit care facilities, nonprofit museums, and nonprofit legal aid organizations.
In other words, Software-as-a-Service as a cloud-computing program that is only accessed remotely without delivery of a tangible media and does not include the user taking possession of the program is not subject to sales or use tax.
Only two states Tennessee and Vermont have specific statutes in place to address SaaS transactions and sales tax.
The gross receipts from the sale of a preventive maintenance contract is not subject to tax.
Sales tax applies to flourless granola bars, chewing gum, pet food, cigarettes, firearms and soda pop. But plain bulk sugar is exempt. Breakfast cereals, bottled water, cakes, cookies and ice cream, take-and-bake pizza, napkins, paper plates, milk and eggnog are also sales tax-free.
Some additional cloud-based services may include web hosting, but those services are generally considered infrastructure as a service (IaaS). Iowa law only imposes tax on software as a service (SaaS).
The following are considered sales of tangible personal property and are taxable: Engraving. Equipment and tangible personal property rental.
Ideally, all software purchases should be taxable to final users and exempt for business users. Instead, states tax some kinds of software and exempt others, based on whether it is customized or off-the-shelf and whether it is on CD or downloaded, all silly distinctions for tax purposes.