BORDER TAX ISSUES

Sales & Use Tax 2014  This PowerPoint handout is used for training purposes in conjunction with the oral presentation given by Departmental training staff.

 It is not intended to be a stand-alone document.

 It is not an information guide, nor does it carry regulatory or statutory authority.

 All users of this presentation are responsible for keeping informed about changes in tax laws and regulations.

COURSE OBJECTIVES

 Requirements to register in SD and IA

 Major differences between South Dakota and Iowa tax laws

 How these differences may affect your business

 Practical tips to manage sales and use tax obligations for both states

 Resources STREAMLINED SALES TAX PROJECT

 Rate simplification

 Limit frequency of tax rate changes

 Simplify registration systems

 Uniform definitions

 Simplify filing and paying sales taxes

 Simplify exemption administration

 Uniform audit procedures, sourcing rules, and treatment of bad debts Full Member States: Arkansas Nebraska South Dakota Georgia Nevada Utah Indiana New Jersey Vermont Iowa North Carolina Washington Kansas North Dakota West Virginia Kentucky Ohio Wisconsin Michigan Oklahoma Wyoming Minnesota Rhode Island

Associate Member State: Tennessee

WHO NEEDS A TAX LICENSE?

SOUTH DAKOTA Iowa  Business with physical presence (Nexus) in SD  Business with physical  Sell, rent, lease tangible presence (Nexus) in IA personal property or transfer products electronically  Make taxable sales in IA  Sell any kind of service  Perform or receive payment  Purchase products or services for a realty improvement subject to use tax project in SD

 Purchase products or services

that may be subject to use

tax

A physical presence in South Dakota or Iowa  permanent  temporary

This includes any retailer that has an:  Office, distribution center, sales house  Sample room location  Warehouse or other place of business

Owned directly or by a subsidiary Permanent or Temporary Basis  Representatives/sales people

 Canvasser/solicitor

 Delivery with their own vehicles

 Provides taxable services

 Leasing products in a state

 Repair activity

 Construction site REGISTRATION DIFFERENCES

One business, multiple locations

SOUTH DAKOTA IOWA

 Permit for each business  Permit for each business location location in Iowa

 Statewide Permit may  May apply for a be granted consolidated permit and  File Consolidated file consolidated return Returns

REQUIREMENTS FOR STATEWIDE PERMIT

 Identical ownership

 Same Federal Identification Number (FEIN)

 Same Standard Industrial Classification (SIC) Number

 Same license type

 Records stored at one location

 Show sales for each location reported Sales and Use Tax applies to the sale of tangible personal property.

South Dakota Iowa Sales and Use Tax Exemption is the rule also applies to most for services – unless services. listed as taxable in Iowa Law. STATE SALES TAX RATES

South Dakota IOWA

4% General Rate 6% General Rate Applies to gross receipts Applies to all sales of the retail sales, lease, subject to sales or or rental of: use tax

 tangible personal property  products transferred electronically  services WHAT ARE GROSS RECEIPTS/SALES?

 All taxable and non-taxable sales

 Difference is in the Allowable Deductions/Exemptions

Sales tax is calculated on taxable sales. Sales tax is not included in Gross Receipts. GROSS RECEIPTS (line 1 on the return)

Includes: Does not include:

 Taxable and Nontaxable Sales  Sales tax collected

 Special Jurisdiction Sales  Trade-ins

 Barters  Late charge for overdue accounts  Delivery Charges (shipping, handling, crating, etc.)  Bad debt fees

 Reimbursable Expenses  Cash discounts (except for accountants and  Luxury tax attorneys)

 Lottery Receipts GROSS SALES & EXEMPTIONS

Gross Sales (line 1):

 All sales are reported on line 1

 Both taxable and exempt sales

Exemptions (line 4):

 All nontaxable sales reported on line 1 are reported as exemptions on line 4

 Additional schedule must be completed showing exempt sales by category

POINT OF TAXATION

Tangible Personal Property Receipt or Point of Purchase or Delivery Applies

Services Where service is performed or where potential first use of serviced item occurs Sales tax applies where the customer receives the product.

 Picked up by the customer at retailer’s business: sales tax at location

 Delivered by store or delivery company: sales tax at delivery address

 Delivered, but retailer does not have access to delivery address: sales tax at customer’s address POINT OF TAXATION

Tangible Personal Property Point of Delivery

Services Where service is performed, or where potential first use of serviced item occurs This money is collected by the Department and returned to each jurisdiction for their use. SOUTH DAKOTA IOWA Municipal Tax Local Option Sales Tax (LOST)  Can tax up to 2%  Additional 1% sales tax that  Applies to all products and can be imposed by cities and services subject to state sales counties or use tax  Generally applies to same  Applies when product or sales subject to state sales service is used, stored, or tax consumed within a city that  Applies to taxable goods and imposes a tax services

MUNICIPAL TAX RATES Only Change Jan. 1st & July 1st

Refer to Municipal Tax Information Bulletin http://dor.sd.gov/Taxes/Business_Taxes/Publications/Municipal_Tax.aspx

 City Sales Tax Rates (one rate per city)

 Separate code for Municipal Gross Receipts Tax

If taxable at the state level, taxable at the city level MUNICIPAL GROSS RECEIPTS TAX (BED, BOARD & BOOZE TAX)

Optional 1% (in addition to general rate)municipal gross receipts tax on any or all of the following:

. Alcoholic beverages

. Eating establishments

. Lodging

. Ticket sales or admissions to places of amusement, athletic, and cultural events

TOURISM TAX

Applies to gross receipts of:

 Hotels and places of lodging

 Campgrounds

 Recreational equipment rental

 Recreational services

 Spectator events

 Visitor attractions

 Visitor-intensive businesses EXAMPLE OF GROSS RECEIPTS

 Customer purchases canned software

 Iowa seller travels to customer’s location in Sioux Falls to install the software Invoice Example Computer $ 5,000.00 Installation $ 1,500.00 Lodging/Meals $ 500.00 Sub Total $ 7,000.00 Sales Tax $______?

What tax is due, if any in South Dakota? On what amount?

$420 (6% -- 4% state + 2% city) on full amount $7,000.00

$7,000.00 $280.00

Sioux Falls 330-2 $7,000.00 2% $140.00

$140.00 $420.00

$420.00 How Do I Know if a Jurisdiction Has LOST?

See our website for LOST jurisdictions https://tax.iowa.gov When Do I Need to Collect LOST on Sales of Tangible Goods?

LOST applies when taxable goods are delivered in a jurisdiction imposing the tax. When Do I Need to Collect LOST on Sales of Taxable Services?

LOST applies when the first use of taxable services occurs, or potentially could occur, in a jurisdiction imposing the tax. Can LOST be Imposed When State Sales Tax Isn’t?

 No.  There is one exception: LOST can be imposed on residential energy where Sales Tax the state sales tax has been phased out, but where LOST still applies. What About Utilities?

Subject to LOST if billing address of the subscriber is located in a LOST jurisdiction:

 Gas  Electricity  Heat  Water  Communication  Pay-Television

Iowa State & Local Hotel/Motel Tax

State hotel/motel tax  5% on the rental of sleeping rooms for 31 consecutive days or less.

Local hotel/motel tax  May not exceed 7%.

 This is in addition to the state tax rate of 5%.

6% state sales tax and local option sales tax do not apply

Iowa Automobile Rental Tax

 Excise tax on the rental of passenger vehicles designed to carry nine or fewer passengers, that are rented for a period of 60 days or less.

 Not imposed on delivery trucks, motorcycles, and motorized bicycles.

 Tax Rate: 5%

 In addition to the state sales/use tax and local option tax, if any.

USE TAX

Tax on the use of taxable products or services when sales tax is not paid at time of purchase

 Applies to selling/purchase price (SD – includes freight or delivery charges)

 Exempt from sales tax, also exempt from use tax

SD: same rate as state and municipal sales tax

IA: 6% - LOST does not apply to use tax

Only owe sales or use tax – NOT BOTH USE TAX Normally incurred on:  Items taken from inventory for business or personal use

 Items purchased without sales tax

 Items purchased from out-of-state suppliers or mail order companies

 Rental charges on equipment brought in from another state

 Items removed from inventory for use in another state

 Purchase of promotional items Iowa Consumer’s Use Tax

Typically due when purchases are made from an out-of-state seller.

 Internet

 Mail order catalogs

 Magazine subscriptions

 800 numbers

 Untaxed purchases made in another state and shipped/brought to Iowa. RECIPROCITY

Credit is allowed for sales or use tax legally due and paid to another state against the sales or use tax due your state if the other state provides for like credit. RECIPROCITY EXAMPLE

A computer is purchased in Sioux Falls, SD.

4% state and 2% municipal tax was paid to the SD retailer at the time of the purchase.

The computer is brought to Sioux City, IA, for use in an office.

. Iowa gives credit only for STATE tax paid.

. How much Iowa tax is due?

6% (IA tax) – 4% (SD state tax) = 2% IA tax due

RECIPROCITY EXAMPLE

A computer is purchased in Sioux City, IA.

6% state and 1% local sales tax was paid to the retailer at the time of purchase.

The computer is brought to Vermillion, SD, for use in an office.

. Use tax due in SD = 6% (4% state, 2% municipal) . Less tax paid in IA = 7% . Balance due SD = 0% SERVICES

South Dakota Iowa Most services taxed Services exempt unless listed in Iowa law

Exempt Services List of taxable services on  Financial Services website  Medical Services  Social Services www.tax.iowa.gov  Travel Agent Services  Advertising Services COMMON TAXABLE SERVICES

 Appliance/Machine Repair  Barber/Beauty/Cosmetology  Carpentry  Electrical Repair/Installation  Janitorial/Cleaning/Building Maintenance  Lawncare/Landscaping/Tree Trimming & Removal  Painting/Papering/Interior Decorating  Pet Grooming  Photography (sale of tangible personal property)  Plumbing  Vehicle Repair

Tax Due when first use of taxable service occurs or potentially could occur SERVICES – SPECIFIC RULES

Photographer: Where pictures are received

Accountant: Where reports are received

Realtor: Where the land is located

*Architect: Where plans are received

*Engineer: Where plans are received

*Surveyor: Where property is located

*SDCL 10-45-12.2: Services are exempt if project located outside South Dakota TELECOMMUNICATION SERVICES Intrastate/Interstate 4% Tax on Gross Receipts

 Land Lines  Calls which originate or terminate in South Dakota  Billing or charge to an address in South Dakota

 Cellular Lines  If the primary use of the service is in South Dakota  Not based on where the call originates or terminates 911 EMERGENCY SURCHARGE

911 Emergency Surcharge . $1.25 per service user line – providers collect and remit

911 Prepaid Wireless Emergency Surcharge . 2% of gross retail sale of prepaid wireless services – retailers and providers that sell prepaid wireless service, prepaid wireless airtime cards, and prepaid wireless plans and minutes  Must register with DOR  Surcharge is reported and remitted to DOR electronically using  Providers and sellers may keep administrative fee of 2% or $25, whichever is greater, not to exceed surcharge collected each month (only if fee filed and paid timely electronically Iowa E911 SURCHARGE

Imposed on prepaid telecommunication service

 Prepaid wireless telephone minute cards;

 Prepaid phones that include minute plans; or

 Prepaid wireless service in any other form

 Surcharge rate = 51 cents per retail transaction

 49 cents reported and paid with the sales/use return

 Retailer allowed to keep 2 cents

EXEMPTIONS

Exemptions occur for the same general reasons:

 Specifically exempt by law

 Uses of tangible personal property or services

 Certain entities are allowed to purchase tpp and services exempt from sales or use tax Sales Tax EXEMPT USES

 Resale

 Materials used or consumed in making a product

 Certain items used in agricultural production

 Out-of-state deliveries EXEMPTIONS FOR SERVICES

 Services performed on or connected with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure

 Services performed for an employer

 Services purchased for resale

 Services that recondition or repair tangible personal property when that property is normally sold in the regular course of the retailer’s business

EXEMPT ENTITIES

 Local, State, and Federal government

 Nonprofit charitable hospitals

 Accredited educational institutions

 Relief agencies EXEMPT ENTITIES INCLUDE

 Local, State, and Federal government

 Iowa private nonprofit educational institutions

 Nonprofit hospitals & hospices

 Nonprofit private museums

 Private nonprofit art centers

MANUFACTURERS – PURCHASES FOR RESALE

NON-TAXABLE TAXABLE  Component Parts  Operating Expenses  Labels  Sandpaper  Welding Wire or Rods  Oxygen/Acetylene  Pallets (Manufacturing)  Electricity  Containers  Prototypes  Raw Materials  Molds  Component Services  Consumable Services  Prescription Safety Glasses  Repair  Safety Glasses EXEMPTIONS FOR MANUFACTURERS

 Machinery, Equipment, & Computers are exempt if used directly and primarily in processing by a manufacturer

 Includes qualifying replacement parts . Consumable supplies are taxable

 Applies to sales, leases, or rentals

 Fuel/energy used in qualifying machinery & equipment

Always Exempt

Sales Into Interstate Commerce

 Freight  Handling  Shipping  Transportation  Trip Charges DELIVERY CHARGES

 Transportation, shipping, postage, handling, crating, and packing

 Subject to state sales tax and applicable municipal taxes when delivered to a customer

If a product is not taxable, the delivery and handling charges are not taxable. DELIVERY OUT-OF-STATE

Example: Furniture store in South Dakota sells living room furniture to be delivered to residence in Iowa

 Furniture store will not charge SD tax to the recipient

 Invoice or shipping papers indicating point of receipt outside of South Dakota support why SD sales tax not collected

AGRICULTURAL EXEMPTIONS

Farm machinery, attachment units, irrigation equipment – new and used – used exclusively for agricultural purposes: Taxed at 4%, no municipal tax

 Parts or repairs on farm machinery or attachment units, including irrigation equipment  Maintenance items and maintenance services when used on farm machinery or irrigation equipment  Seed sold in quantities of 25 lbs or more  Commercial fertilizers sold in quantities of 500 lbs or more  Pesticides  Motor fuel  Electricity used to power irrigation pumps AGRICULTURAL EXEMPTIONS

Generally, items must be used directly & primarily in agricultural production to be exempt from sales tax

 Self-propelled implements

 Implements customarily drawn or attached to a self-propelled implement

 Includes qualifying replacement parts

 Livestock feed, medicine, & bedding

 Chemicals/fertilizers

 Agricultural drainage tile

 Fuel/energy used in agricultural production

Exemption Certificates Used to make exempt purchases Fillable online at https://tax.iowa.gov

58 COLLECTION ALLOWANCE (JANUARY 2014)

Compensation for the expense of collecting and paying the tax:

1) Only if filing and paying sales and use tax returns electronically 2) Must file and pay in a timely manner 3) 1.5% of tax amount due, not to exceed $70 per return period 4) Not allowed if retailer uses a Certified Service Provider (CSP) and CSP receives a collection allowance 5) Not allowed if outstanding returns or balances due on any tax due the Department 6) Does not apply to Contractors’ Excise Tax (CET) returns or Use Tax reported on CET returns FILING AND PAYING RETURNS

http://sd.gov/epath

Questions or assistance: 1-800-829-9188 (Option 1) or email to [email protected] Benefits  Available 24/7  One EPath account for same  Multiple payment options owner licenses (with same FEIN)  Allows additional user access to  System does all calculations all or specific accounts  Amend returns online  Automatically save for later access  Review file and pay history and editing before sending  View pending payments and make  Change password, security changes to payment up to date questions and email addresses payment scheduled at any time  Use bank account for one-time payment or save account information for future payments HOW TO APPLY FOR A PERMIT

Complete the Business Tax Registration online at https://tax.iowa.gov There is no fee.

HOW OFTEN & WHEN TO FILE

Filing frequency is based on how much tax you expect to collect.

Indicate this amount on your application when you register for your permit. HOW TO FILE

Tax returns are filed electronically through the Department’s online service eFile & Pay KEY REMINDERS

 Statute of Limitations is 3 years

 Tax permits do not need to be posted

 Iowa has no “exempt numbers”

 Permits are not a license to buy exempt

https://tax.iowa.gov For additional information on sales and use tax or questions concerning taxes:

 Call toll-free: 1-800-829-9188

 E-Mail: [email protected]

 Visit our website: dor.sd.gov

 Visit or call your local Department of Revenue office

 Click on the Publications Tab under the Business Tax Tab on our website for Tax Facts and other information: http://dor.sd.gov/Taxes/Business_Taxes/ Check out our videos on YouTube at http://www.youtube.com/user/southdakotador.

Like us on Facebook. Visit our Facebook page at https://www.facebook.com/SDRevenue.

Follow us on Twitter at https://twitter.com/SDRevenue.

Follow our blog at http://sdrevenue.blogspot.com/. For additional information on sales and use tax or questions concerning taxes:

 Call us: 8:00 a.m. – 4:15 p.m. (CT) 515-281-3114 or 800-367-3388

 E-Mail: [email protected]

Visit our website: https://tax.iowa.gov Search for: Iowa Sales and Use Tax Guide

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