Iowa Admin. Code r. 701—205.3(423) — First use of services performed on tangible personal property

205.3(1) First use of services performed on tangible personal property defined. A service performed on tangible personal property is a service that changes some aspect of the property, such as its appearance or function. Services with respect to tangible personal property, but not necessarily performed on tangible personal property, such as inspection and appraisal, are not addressed in this rule. Except as otherwise provided in the agreement or the rules adopted by the governing board, a service performed on tangible personal property is first used at, and sourced to, the location where the customer receives, regains possession of, or can potentially make first use of, whether or not actually used, the tangible personal property on which the seller performed the service. In general, this is the location where the tangible personal property is returned to the purchaser or the purchaser’s donee. 205.3(2) Sourcing of taxable services performed on tangible personal property as applied to local option sales and services tax. A local option sales and services tax shall be imposed on the same basis as the state sales and services tax. With respect to sourcing of taxable services performed on tangible personal property, the local option sales and services tax sourcing rules shall be the same as the destination sourcing requirements described in Iowa Code section 423.15 and as set forth in rules 701—205.1(423) and 701—205.2(423) and subrule 205.3(1). However, the location of the taxable service performed on tangible personal property shall be sourced to the taxing jurisdiction, rather than to the state, where the customer regains possession or can potentially make first use of the tangible personal property on which the seller performed the service. Iowa does not impose a local option use tax. 205.3(3) Specific examples of taxable enumerated services. Specific examples of services performed on tangible personal property taxable in Iowa under Iowa Code section 423.2 include, but are not limited to: a. Alteration and garment repair; b. Vehicle repair and vehicle wash and wax; c. Boat repair; d. Carpentry; e. Roof, shingle, and glass repair; Revenue[701]Ch 205, p.2 IAC 2/5/25 f. Dry cleaning, pressing, dyeing, and laundering; g. Electrical and electronic repair and installation; h. Farm implement repair of all kinds; i. Furniture, rug, carpet, and upholstery repair and cleaning; j. Gun and camera repair; k. Household appliance, television, and radio repair; l. Jewelry and watch repair; m. Machine repair of all kinds, including office and business machine repair; n. Motor repair; o. Motorcycle, scooter, and bicycle repair; p. Pet grooming; q. Wood preparation; r. Sewing and stitching; s. Shoe repair and shoeshine; and t. Taxidermy services. 205.3(4) Examples of sourcing rules for motor and machine repair. The following examples are intended to clarify when motor and machine repair services are deemed “received.” Example 1: Ms. Brown of Muscatine, Iowa, takes her lawnmower to a repair shop in Moline, Illinois, to have its engine repaired. When the lawnmower is repaired, she picks it up at the Illinois repair shop and returns to Muscatine. The repair service is received at the repair shop location in Illinois since Ms. Brown has the potential first use of the repaired item at that location. The repair transaction is sourced to Illinois. Ms. Brown’s subsequent use of the repair services performed on the lawnmower obliges her to remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on lawnmower repair services. That is, Ms. Brown must remit Iowa use tax at a rate measured by the difference between Iowa’s use tax rate and the tax rate imposed in Illinois on lawnmower repair services. If Illinois does not tax motor and machine repair, Ms. Brown must remit use tax to the Department at a rate equal to Iowa’s entire use tax rate. Example 2: Same facts as in subrule 205.3(4), Example 1, except that the Illinois repair shop delivers the repaired lawnmower to the owner’s residence in Iowa. In this case, the potential first use is at Ms. Brown’s residence. Thus, Ms. Brown receives the repair service at, and the repair service is sourced to, her residence in Iowa; Iowa sales tax is due. Example 3: Mr. Cho, a homeowner in Iowa, contacts an appliance repair service provider located in Missouri to have a clothes dryer repaired. The repair service provider dispatches a technician to Mr. Cho’s home in Iowa to make the needed repairs. Mr. Cho received the repair service in Iowa because the potential first use of the repaired clothes dryer was in Iowa. This transaction is sourced to Iowa. Iowa sales tax is due. Example 4: A manufacturer in Iowa uses gauges in its production process to ensure that its product meets specifications. Periodically, the manufacturer ships the gauges to a test laboratory in Minnesota to verify that they are producing proper measurements. The test laboratory tests the gauges and adjusts the calibration on the gauges. The test laboratory ships the gauges back to the manufacturer’s location in Iowa. The manufacturer regained possession and had potential first use of the gauges in Iowa so the transaction is sourced to the location of the manufacturer in Iowa. Iowa sales tax is due. Example 5: Same facts as in subrule 205.3(4), Example 4, except that the manufacturer picks up the calibrated gauges from the test laboratory in Minnesota. The potential first use of the calibrated gauges (the result of the test laboratory services) is in Minnesota, and the transaction is sourced to the test laboratory’s location in Minnesota. The manufacturer must remit use tax to the department to the extent Iowa’s use tax rate exceeds Minnesota’s tax rate on test laboratory services. That is, the manufacturer is obliged to pay Iowa use tax at a rate measured by the difference between Iowa’s use tax rate and the tax rate imposed in Minnesota on test laboratory services. If Minnesota does not tax test laboratory services, the manufacturer must remit use tax to the department at a rate equal to Iowa’s entire use tax rate. Example 6: Same facts as in subrule 205.3(4), Example 4, except that the manufacturer hires a shipping company, such as a common or contract carrier, to pick up the tested and recalibrated gauges from the test Revenue laboratory and deliver them to the manufacturer’s location in Iowa. Since the terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser, the transaction is sourced to the manufacturer’s location in Iowa where the manufacturer regains possession and has potential first use of the gauges. Iowa sales tax is due. 205.3(5) Examples of sourcing rules for the painting of tangible personal property. The following examples are intended to clarify when the service of painting of tangible personal property is deemed “received.” Example 1: A law office in Iowa has antique bookcases it wishes to have painted. The bookcases are picked up by a painter and taken to and painted in the painter’s shop in Illinois. The painter then delivers the painted bookcases to the law office. The transaction is sourced to the location of the law office in Iowa. Iowa sales tax is due. If, instead, the law office sends one of its employees to the painter’s shop in Illinois to pick up the painted bookcases, the transaction is sourced to the painter’s location in Illinois where possession or potential first use occurs. The law office must remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on painting services. If Illinois does not tax painting services, the law office must remit use tax to the department at a rate equal to Iowa’s entire use tax rate. Example 2: A business in Davenport, Iowa, hires a painter from Rock Island, Illinois, to paint several file cabinets. The painter does the painting on site at the purchaser’s office location. Because the file cabinets remain at the same location and the purchaser’s potential first use of the cabinets is in Iowa, the transaction is sourced to the purchaser’s office location in Davenport. Iowa sales tax is due. 205.3(6) Example of sourcing rules for dry cleaning services. The following example is intended to clarify when dry cleaning services are deemed “received.” Example: Mr. Riley, a Council Bluffs, Iowa, resident, takes laundry to an Omaha, Nebraska, dry cleaner’s store. After his clothing is dry-cleaned, Mr. Riley returns to the dry cleaner in Omaha to pick up the clothing. The dry cleaner returns the clothes to Mr. Riley at the dry cleaner’s store. Mr. Riley regains possession of his dry-cleaned clothes at the store in Omaha, so the transaction is sourced to Nebraska. Mr. Riley must remit use tax to the department to the extent Iowa’s use tax rate exceeds Nebraska’s tax rate on dry-cleaning services. If Nebraska does not tax dry-cleaning services, then Mr. Riley must remit use tax to the department at a rate equal to Iowa’s entire use tax rate. 205.3(7) Example of sourcing rules for vehicle wash and wax services. The following example is intended to clarify when vehicle wash and wax services are deemed “received.” Example: Mr. Moyle lives in Sioux City, Iowa, but he drives his vehicle to a car wash in Dakota Dunes, South Dakota, for a vehicle wash and wax service. The car wash operator washes and waxes the vehicle in Dakota Dunes. When the car wash operator completes the vehicle wash and wax service, Mr. Moyle pays the car wash operator and drives back to Sioux City, Iowa. Since the owner regains possession of the car at the car wash, the transaction is sourced to South Dakota. Mr. Moyle must remit use tax to the department to the extent that Iowa’s use tax rate exceeds South Dakota’s tax rate on vehicle wash and wax services. If South Dakota does not tax vehicle wash and wax services, then Mr. Moyle must remit use tax to the department at a rate equal to Iowa’s entire use tax rate. 205.3(8) Examples of sourcing rules for animal grooming services. The following examples are intended to clarify when animal grooming services are deemed “received.” Example 1: Ms. Decker of Lake Mills, Iowa, hires a mobile pet washing and grooming service based in Albert Lea, Minnesota, to come to her home and bathe and groom her dog Sascha. The grooming service is performed on Sascha at Ms. Decker’s home in Lake Mills. Therefore, the pet washing service transaction is sourced to Ms. Decker’s home in Iowa. Iowa sales tax is due. Example 2: Mr. Marx, who resides in Bettendorf, Iowa, takes his cat Fluffy to a Milan, Illinois, grooming shop. The cat groomer cuts and washes Fluffy’s fur. Once Fluffy is groomed, Mr. Marx returns to the grooming shop, pays for the service, and drives Fluffy home to Bettendorf. Since Mr. Marx picks up Fluffy at the shop in Illinois, the first use of the grooming services is in Illinois and the transaction is sourced to Illinois. Mr. Marx must remit use tax to the department to the extent Iowa’s use tax rate exceeds Illinois’s tax rate on animal grooming services. If Illinois does not tax animal grooming services, then Mr. Marx must remit use tax to the department at a rate equal to Iowa’s entire use tax rate. Revenue[701]Ch 205, p.4 IAC 2/5/25 205.3(9) Example of local option sales and service tax sourcing rules for camera repair services. The following example is intended to clarify when camera repair services are deemed “received.” Example: Mr. Pagano, a photographer in Promise City, Iowa, contacts Bob’s Camera Shop, which is located in Appanoose County, Iowa, to arrange for one of his cameras to be repaired. Promise City has imposed local option sales and service tax. Bob’s Camera Shop dispatches a repairperson to Mr. Pagano’s studio in Promise City to repair the camera. Mr. Pagano receives the repair service in Promise City since he can potentially make first use of his repaired camera at that location. The repair service is sourced to Promise City even though the camera shop is located in Appanoose County. Local option sales and service tax imposed by Promise City and Iowa sales tax are due on the sales price of the camera repair service. 205.3(10) Examples of local option sales and service tax sourcing rules for bicycle repair services. The following examples are intended to clarify when bicycle repair services are deemed “received.” Example 1: Mr. Edwards, a resident of Slater, Iowa, contacts Bike-o-rama Repair Shop in Ankeny, Iowa, to arrange for his bicycle to be repaired. Slater has imposed local option sales and service tax; Ankeny has not. Mr. Edwards delivers his bicycle to Bike-o-rama and leaves it there to be repaired. Because he is a preferred customer, Bike-o-rama has one of its employees deliver Mr. Edwards’ bicycle to his home in Slater when the bicycle repair service is completed. Mr. Edwards’ potential first use of his bicycle is in Slater; therefore, the transaction is sourced to Slater. Local option sales and service tax imposed by Slater is due even though Bike-o-rama is located in Ankeny. Iowa sales tax is also due. Example 2: Same facts as in subrule 205.3(10), Example 1, but Mr. Edwards picks up his repaired bicycle at Bike-o-rama in Ankeny. Because Mr. Edwards regains possession and can make potential first use of the repaired bicycle in Ankeny, the repair transaction is sourced to Ankeny and Bike-o-rama must collect state sales tax and any local option sales tax imposed by Ankeny. Example 3: Same facts as in subrule 205.3(10), Example 1, but Bike-o-rama is located in Willow Glen, California, and Bike-o-rama ships Mr. Edwards’ bike to his home in Slater, Iowa. Since the terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser, the transaction is sourced to Slater. Slater’s local option sales and service tax is due even though Bike-o-rama is located in Willow Glen, California. Iowa sales tax is also due.