Iowa Admin. Code r. 701—205.6(423) — Sourcing rules for tangible personal property and specified digital products

All sales of tangible personal property and specified digital products by sellers obligated to collect sales and use tax, except those enumerated in Iowa Code section 423.16, shall be sourced using the destination sourcing requirements described in Iowa Code section 423.15. Products received by a purchaser at a seller’s business location shall be sourced to that business location. When the retailer has the address to which the retailer or a shipping company will deliver a product to the purchaser, Iowa Code section 423.15(1)“b” applies and the sale is sourced to the delivery address. The sale of a product delivered to a shipping company is not sourced to the location of the shipping company. The terms of a sale as F.O.B. (origin) are irrelevant for purposes of sourcing a sale. More information can be found in Iowa Code section 423.1(43)“b.” 205.6(1) General examples of sourcing of tangible personal property. The following examples illustrate the sourcing principles of Iowa Code section 423.15(1) as applied to sales, but not leases or rentals, of tangible personal property. Example 1: Item received at retail store of the seller. X purchases a product at a retail store in Waterloo, Iowa. X takes the product home from the retail store that day. The sale is sourced to the retail store in Waterloo, Iowa, because that is the business location where X receives the product. More information can be found in Iowa Code section 423.15(1)“a.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Waterloo. Example 2: Item received at warehouse of the seller. X purchases a product at a retail store in Waterloo, Iowa, but X has to pick up the product at a warehouse in Cedar Falls, Iowa. The sale is sourced to the warehouse in Cedar Falls because that is the business location where X receives the product. More information can be found in Iowa Code section 423.15(1)“a.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Cedar Falls. Example 3: Item received at alternate location. X purchases a product at a retail store in Waterloo, Iowa. While purchasing the product, X provides the retail store with X’s home address as the location where X would like to have the product delivered. The retail store’s delivery truck delivers the product to X’s home in Waverly, Iowa. The sale is sourced to X’s home in Waverly, Iowa, because that is the location where X receives the product and the location is known to the seller. More information can be found in Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Waverly. The outcome in this example is the same regardless of whether the retail store delivered the product with its own truck or by common carrier. Example 4: Sale by Iowa seller, product received by buyer in Iowa, but product delivered from outside of Iowa. X lives in Maxwell, Iowa. X purchases a product online from an Iowa seller with a retail location in Des Moines, Iowa. While purchasing the product, X provides the retail store with X’s home address as the location where X would like to have the product delivered. The seller sends the product to X via a common carrier from its shipping facility in Lincoln, Nebraska, and X receives the product at X’s home in Maxwell. The sale is sourced to Maxwell because the product is received at that location and that location is known to the seller. More information can be found in Iowa Code section 423.15(1)“b.” The outcome in this example is the same regardless of the fact that the product was delivered by a third party and regardless of the fact that the product was delivered from out of state. More information can be found in Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Maxwell. Example 5: Sale by remote seller, product delivered into Iowa. X lives in Maxwell, Iowa. X purchases a product online from a remote seller (a seller who has no physical presence in Iowa) located in Kansas City, Missouri, who is required to collect Iowa sales and local option taxes on Iowa sales pursuant to Iowa Code section 423.14A(3). While purchasing the product, X inputs X’s home address as the delivery address. The product is shipped via common carrier. The sale is sourced to Maxwell, Iowa, because the product is received at that location and that location is known to the seller. More information can be found in Iowa Code section 423.15(1)“b.” It is irrelevant that the product was delivered by a third-party common carrier. More information can be found in Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Maxwell. Revenue Example 6: Location of receipt by a purchaser’s donee. X lives in Omaha, Nebraska. X purchases a birthday gift for Y , who lives in Davenport, Iowa. X purchases the gift from a remote seller (a seller who has no physical presence in Iowa) located in Chicago, Illinois, who is required to collect Iowa sales and local option taxes on Iowa sales pursuant to Iowa Code section 423.14A(3). While purchasing the gift, X inputs Y’s Davenport, Iowa, address as the delivery address. The sale is sourced to Davenport, Iowa. Y is the purchaser’s donee. The gift is received by Y in Davenport, Iowa, and that location is known to the seller. More information can be found in Iowa Code section 423.15(1)“b.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Davenport. Example 7: Location of receipt unknown to the seller, but purchaser’s address available from seller’s business records. X purchases a product at a retail store in Waterloo, Iowa. X provides a billing address located in Fort Dodge, Iowa, with X’s payment information. X indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide the retailer a shipping address. Even though the retailer does not know the delivery address, the retailer’s business records indicate that the purchaser’s address is in Fort Dodge. Therefore, the sale is sourced to Fort Dodge. More information can be found in Iowa Code section 423.15(1)“c.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Fort Dodge. Example 8: Location of receipt unknown to the seller, but purchaser’s address only indicated on a payment instrument used in the transaction. X purchases a product at a retail store in Waterloo, Iowa. X pays with a check that lists a Fort Dodge, Iowa, address for X. X indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide a shipping address to the retail store. Even though the retail store does not have a shipping address or other address for X on file, the check lists an address for the purchaser in Fort Dodge. Therefore, the sale is sourced to Fort Dodge. More information can be found in Iowa Code section 423.15(1)“d.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Fort Dodge. Example 9: Location from which the item was shipped, if location of receipt is unknown to the seller and the seller has no other record or indication of buyer’s address. X orders a product at a retail store in Adel, Iowa. X pays in cash and indicates to the retail store that X will arrange for a third-party shipping company to pick up the product. X does not provide a shipping address or a billing address, and the retail store does not have an address on file for X. Because X paid in cash, X’s address is not indicated on a payment instrument. The retail store may source the sale to its location in Adel, Iowa. More information can be found in Iowa Code section 423.15(1)“e.” The retailer must therefore collect state sales tax and any local option sales tax imposed in the city of Adel. 205.6(2) General examples of sourcing of specified digital products. The following examples illustrate the sourcing principles of Iowa Code section 423.15(1) as applied to specified digital products. Example 1: Specified digital product purchased at seller’s business location. Y owns and operates a restaurant in Sioux City, Iowa. Y provides guests access to an on-site electronic device on which guests may purchase access to video games to play while they wait to receive their food. Guests’ access to the games ends once they pay their bill, and the charge for the access is included on the final bill. All sales of video games from Y’s on-site electronic devices are sourced to Sioux City, the location at which guests receive access to the video games. More information can be found in Iowa Code section 423.15(1)“a.” Y must therefore collect state sales tax and any local option sales tax imposed in the city of Sioux City. Example 2: Location of receipt by purchaser known to seller. X purchases and receives a specified digital product on X’s smart phone through an online application marketplace. The marketplace knows X is in Ames, Iowa, when X purchases and downloads the specified digital product. The sale is sourced to Ames because the product is received at that location (more information can be found in Iowa Code section 423.1(43)) and that location is known to the seller. More information can be found in Iowa Code section 423.15(1)“b.” If the marketplace meets the thresholds described in Iowa Code section 423.14A(3), the marketplace must collect state sales tax and any local option sales tax imposed in the city of Ames. Example 3: Location of receipt by purchaser unknown, but purchaser’s address is available from seller’s business records. X purchases a specified digital product from C’s website. Prior to purchasing the specified digital product, X creates a user account through C’s website and lists X’s home address in Jefferson, Iowa. When X purchases the specified digital product, C does not know where X received the Revenue[701]Ch 205, p.8 IAC 2/5/25 specified digital product. Even though C does not know where the specified digital product is received by X, C’s business records that are maintained in the ordinary course of business indicate that X’s address is in Jefferson, Iowa. More information can be found in Iowa Code section 423.15(1)“c.” If C meets the thresholds described in Iowa Code section 423.14A(3), C must collect state sales tax and any local option sales tax imposed in the city of Jefferson. Example 4: Location of receipt by purchaser unknown, but purchaser’s address only indicated on a payment instrument used in the transaction. X downloads a mobile video game application on X’s phone through an online application marketplace. X pays for the video game with X’s credit card. The marketplace saves the Ames, Iowa, home address associated with X’s credit card. However, the marketplace does not know X’s location when X downloads and purchases the video game. The marketplace may rely on the Ames address associated with X’s payment information to source the sale. More information can be found in Iowa Code section 423.15(1)“d.” If the marketplace meets the thresholds described in Iowa Code section 423.14A(3), the marketplace must collect state sales tax and any local option sales tax imposed in the city of Ames. 205.6(3) Examples of sourcing of leases and rentals of tangible personal property other than transportation equipment or products described in Iowa Code section 423.16. The following examples illustrate the sourcing principles of Iowa Code section 423.15(2) as applied to leases or rentals of tangible personal property, other than transportation equipment as defined in Iowa Code section 423.15(3). This rule does not cover products described in Iowa Code section 423.16. Example 1A: Lease that requires recurring periodic payments. X resides in Indianola, Iowa. X enters into a rental agreement with Y , a furniture rental company located in Des Moines, Iowa, for the rental of a couch. The agreement specifies that X will pay to Y a $50 down payment and $20 each month thereafter until the rental is terminated. In exchange for possession of the couch, X makes the required $50 down payment to Y at Y’s office in Des Moines, Iowa. X receives the couch at Y’s office in Des Moines, and X takes the couch to X’s home in Indianola, Iowa. While purchasing the couch, X provides Y with X’s Indianola address, which Y keeps on file. For the remainder of the rental period, X’s primary address remains the same. The first periodic payment—the down payment—is sourced the same as sales under Iowa Code section 423.15(1). More information can be found in Iowa Code section 423.15(2)“a.” In this case, the down payment was made and the product was received at the seller’s business location. Iowa Code section 423.15(1)“a” governs the sourcing of the down payment. More information can be found in subrule 205.5(1). Therefore, in this case, the down payment is sourced to Des Moines. Y must collect state sales tax and any local option sales tax imposed in the city of Des Moines on the down payment. Because X’s home address is on file with Y for the remainder of the rental period, X’s address is the “primary property location” of the couch during those periods. More information can be found in Iowa Code section 423.15(2)“a.” Therefore, the subsequent monthly payments are sourced to X’s Indianola address that is contained in the records maintained by Y in the ordinary course of business. More information can be found in Iowa Code section 423.15(2)“a.” Y must collect state sales tax and any local option sales tax imposed in the city of Indianola on the monthly payments. Example 1B: Assume the same facts as Example 1A. In this example, however, X provides the $50 down payment, gives Y X’s home address in Indianola, Iowa, and arranges to have Y deliver the couch to X’s home in Indianola, Iowa. The $50 down payment constitutes the “first periodic payment” and is therefore sourced to Indianola in accordance with Iowa Code section 423.15(1)“b.” More information can be found in Iowa Code section 423.15(2)“a.” Because Y knows the location where the product will be received by the purchaser, Y must collect Iowa sales and any local option sales tax applicable in the city of Indianola on the down payment. More information can be found in subrule 205.6(1). The result is the same regardless of whether Y or a third-party shipping agent delivers the product and regardless of whether the product is shipped from outside of Iowa. More information can be found in subrule 205.6(1), Examples 3 and 4. All other facts and results from Example 1A remain the same. Example 1 C: Same facts as in Example 1A. In this example, however, partway through the rental period, X moves to Clinton, Iowa, for the remainder of the rental period. X informs Y of the change in Revenue address and that X is bringing the couch to Clinton as part of the move. Y updates Y’s business records to reflect X’s new address and the location of the couch. Every payment that occurs after X informed Y of X’s new address is sourced to Clinton, Iowa, because the “primary property location” as indicated by an address for the property provided by the lessee was updated to Clinton, Iowa. More information can be found in Iowa Code section 423.15(2)“a.” Example 1D: Same facts as Example 1A. X makes the first several monthly payments while residing in Indianola. However, partway through the rental period, X moves to Ames and brings the couch. X does not update Y about the new address and location of the couch. Y does not receive any record from X indicating X’s new address. Even though the couch is actually located in Ames, the “primary property location” indicated by an address for the property provided by X that is available to Y from records maintained in the ordinary course of business is the Indianola address. More information can be found in Iowa Code section 423.15(2)“a.” Therefore, Y is correct in sourcing each lease payment to Indianola. Example 2: Rental that does not require recurring periodic payments. B rents a woodchipper from C for a week in exchange for a single, up-front payment. C delivers the woodchipper to B at a location in Sioux Center, Iowa. The rental payment is sourced to Sioux Center, Iowa, because that is the location where B receives the woodchipper and the location is known to C, the seller. More information can be found in Iowa Code section 423.15(1)“b.” C must therefore collect state sales tax and any local option sales tax imposed in the city of Sioux Center. A rental that does not require recurring period payment is sourced the same as retail sales under Iowa Code section 423.15(1) and subrule 205.6(1). More information can be found in Iowa Code section 423.15(2)“b.” 205.6(4) Sales of items from vending machines. Sales from vending machines are sourced to the location of the individual vending machine at which the purchaser receives the item. 205.6(5) Sales of items by an itinerant merchant, peddler, or salesperson having a route. When an itinerant merchant, peddler, or mobile salesperson meets with a customer and solicits an order or completes a contract for sale and the customer receives the item at that location, the sale is sourced to that location pursuant to Iowa Code section 423.15(1)“b,” regardless of whether the location is the customer’s home, a business establishment, or elsewhere. This rule applies to all other sales by itinerant merchants, peddlers, and mobile salespersons in the same manner as they apply to any other seller. 205.6(6) Items purchased for resale but withdrawn from inventory. If a person purchases items for resale or processing but withdraws and uses any of those items from inventory or from a stock of materials held for processing, the gross receipts from the sales of the items withdrawn and used are sourced to the county in which they are withdrawn regardless of where the items were purchased for resale. Example: X owns and operates a home and furniture store located in Black Hawk County, Iowa. In Johnson County, Iowa, X purchases five rocking chairs. X provides the Johnson County retailer with sales tax exemption certificates stating that the rocking chairs are purchased for resale; the retailer accepts the certificates and does not charge Iowa sales tax on the sale of the rocking chairs. After returning to Black Hawk County, X decides to use one rocking chair in X’s home instead of selling it. Because the rocking chair was withdrawn from inventory in Black Hawk County, sales tax and the applicable local option tax in Black Hawk County are due. 205.6(7) Items withdrawn from inventory by a manufacturer. Where a manufacturer manufactures tangible personal property and uses the property it manufactures for any purpose except for resale or processing, such use by the manufacturer is subject to sales tax and sourced to the county in which the manufacturer first used the property. Taxable use includes using such property as building materials, supplies, or equipment in the performance of a construction contract. Tax is computed upon the cost to fabricate the property. More information can be found in rule 701—219.6(423). Example: X manufactures steel beams in Madison County, Iowa. X withdraws a beam from inventory to use on a construction project at its facility. X’s withdrawal of the beam for use in the construction project is sourced to Madison County, Iowa, and sales tax and the applicable local option tax are due.