To Tax or Not to Tax Shredding Services in Iowa
- Sales Tax News
- Oct 9, 2012 | Gail Cole
The policy letter responds to an inquiry from an Iowa business that wondered why one company providing shredding services does not charge sales tax on its service, while another company providing shredding services does.
Iowa Code 432.2(7) states that "[a] tax of six percent is imposed upon the sales price from the sales, furnishing, or service of solid waste collection and disposal service." "Solid waste" refers to discarded waste material from nonresidential commercial operations. In other words, the act of collecting the papers to be shredded is taxable. Yet shredding services, or the act of shredding the papers collected, are not subject to sales tax.
If a company itemizes the charges of collecting papers and shredding papers, the first is subject to sales tax and the second is not.
However, Iowa Code 432.2(8) stipulates that a "tax of six percent is imposed on the sales price from sales of bundled transactions." "Bundled transaction" here refers to "the retail sale of two or more distinct and identifiable products … which are sold for one nonitemized price."
Therefore, if charges for the distinct products of collecting papers to be shredded and shredding them are not itemized, "the services are a bundled transaction and sales tax must be charged on the entire sales price." (Policy Letter 12300041)
This is why the same service is taxed in one instance and not taxed in another instance. It's all in the way the charges are billed.