Iowa, Use Tax, and Streamlined Sales Tax
- Feb 6, 2013 | Gail Cole
The Review Unit of the Iowa Department of Revenue recently released documentation regarding a taxpayer's use tax protest. The case involves a taxpayer who purchased tangible personal property from a business in Kentucky and had it shipped to Iowa, his state of residence. The DOR sent him a bill for use tax on the purchases; the taxpayer paid the use tax but protested.
The fact that Iowa and Kentucky are Streamlined Sales and Use Tax states is relevant. They are both subject to Streamlined Sales Tax (SST) laws.
SST laws help "… determine which state has the right to tax a given transaction when more than one state is involved in the sale of tangible personal property or an enumerated service." The DOR quotes Iowa Code §423.15(1), "which sets forth the general 'sourcing' provisions for Iowa under SST:
1. Sales … shall be sourced as follows:
a. When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.
b. When the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by purchaser … occurs … .
c. When paragraphs 'a' and 'b' do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith. (Emphasis added by DOR)."
In the case in question, the Iowa DOR has determined that "the sales are 'sourced' to Iowa because the delivery address is located in Iowa." As such, "Iowa has the right to tax these transactions based upon its consumer use tax laws."
The taxpayer thought he paid Kentucky sales tax on the purchases but "cannot locate the original receipt for this transaction… ." Who among us has not misplaced a receipt? Luckily for IDOR, the Kentucky Department of Revenue does have a record of the sales; it shows that "there was no sales tax collected on the transactions in question."
Streamlined Sales and Use Tax was created to "simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance." One of the ways the agreement does this is through "[u]niform sourcing rules for all taxable transactions." Certainly, these sourcing rules helped clarify who was responsible for what taxes in the use tax protest examined here.
What is unclear is whether or not the Iowa taxpayer was aware of these sourcing rules. Iowa has taken steps recently to elucidate use tax obligations. Other states, such as California and Wyoming, have done the same.
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