Sales Tax State Activity Update - July 2004

Iowa Changes Lease/Rental Law

In accordance with the SSTP agreement, HF 683 amends the law relating to purchases of tangible personal property for lease or rental. Under the prior law, tangible personal property purchased to be leased or rented for less than five months was subject to sales tax. Effective July 1, 2004, any item purchased with the intent to be leased or rented is exempt from sales tax as a purchase for resale. Lessors should provide an exemption certificate to the sellers and charge sales tax on the rental stream.

The Bill also amends the sourcing rule for leasing. Effective July 1, 2004, the sales tax on leased property is imposed in the jurisdiction where the property is located. If the property is moved to another jurisdiction, the source of taxation changes. Under the prior law, if property was first leased in Iowa, the sales tax was imposed on all subsequent lease payments, even if the property was removed from the state. In addition, use tax was imposed on property coming into the state even if it was first leased and tax was paid to another state. A tax credit was sometimes allowed.

The Bill is available at: http://www.state.ia.us/tax/educate/SLST.html

(HF 683, {Chapter 126 Streamlined Sales And Use Tax Rules - Definitions} Effective 07/01/04) 07/04

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