Local Option Sales Tax (LOST)

Yes. The seller will charge the local option tax applicable where the customer receives the item.

Adjustments are possible. For example, local option taxes can be refunded to governmental units if imposed on materials associated with construction projects. Erroneous collections can occur which are also subject to refund. Amended sales tax returns will also be filed. Refunds will most likely be identified after distributions for a given tax period have been made; therefore, account adjustments will be necessary.

When a local option tax is repealed, the local option tax monies, penalties, or interest received or refunded within 180 days after the repeal date are distributed; more than 180 days after repeal, funds are deposited into or withdrawn from the state general fund.

No. Vehicles subject to registration are subject to a 5 percent one-time registration fee rather than a state sales tax. However, the receipts from the rental of cars and trucks can be subject to local option tax. Also, sales of parts and repair services are subject to tax.

Motor fuel and special fuel are subject to local option tax when sales tax applies if delivery occurs in a taxing jurisdiction. Fuel subject to motor fuel tax is not subject to sales tax at the time of purchase.

The location of each individual vending machine determines whether or not the local option sales tax applies. If it is in a local option jurisdiction, the tax applies.

No. A local option sales tax cannot be imposed on any property or service not subject to state sales tax. Importantly, however, in any jurisdiction that imposes a local option sales tax, there is also a 1% local excise tax on certain residential energy services that are not subject to state sales tax.

Yes. To repeal the tax, an election may be called and held in the same manner and under the same conditions as the election which approved the tax. However, only qualified voters of the areas of the county where the tax has been imposed can vote. The tax cannot be repealed before it has been in effect for one year.

The county board of supervisors can, upon its own motion, repeal the local option tax in any unincorporated area of the county where the tax is imposed. For any municipality, the county board of supervisors must, upon receipt of a motion of the governing body of the municipality, repeal the local option tax within that municipality. The tax can be repealed within a municipality which is contiguous to other municipalities.

The rate of a local option must be one whole percent.

The criteria for placing a proposition on the ballot to change how the revenue is used are the same as previously explained. However, only qualified voters of the area of the county where the tax has been imposed can vote.

A change in the use of local option tax revenues for the purpose of funding an urban renewal project can be done by ordinance of the city council of an eligible municipality.

No. Only franchise fees and users fees for natural gas and electric energy trigger the exemption.

No tax permit other than the state sales tax permit is required or available. Local option tax is remitted to the State of Iowa along with the state sales tax; retailers make no payment directly to a locality.

No. Local option tax is due on all taxable services when the first use of the service occurs, or potentially could occur, in the taxing jurisdiction regardless of where the contract was entered into.

No. Sometimes services are contracted before the local option sales tax becomes effective. The tax still applies when the first use of the service occurs or potentially could occur.

The issue must be resolved by the county board of supervisors.

Local sales and services tax moneys received by a county or city may be expended for any lawful purpose. However, in certain qualified counties, at least fifty percent of the local option tax revenue must be used for property tax relief if the local sales and services tax was approved at election on or after January 1, 2019.

Local option taxes are remitted whenever state sales tax is remitted. Retailers show a breakdown of local option taxable sales and tax by county on returns. Paper checks/payments and returns are not mailed; filing is through GovConnectIowa. (Note that the amount of local option tax collected is not used to determine how frequently a retailer should file.)

Delivery of gas and water occurs and the services of electricity, heat, communication, and pay television are rendered, furnished, or performed at the address of the subscriber who is billed for the purchase of this property or services. If that billing address is located in a local option taxing jurisdiction, the tax will apply.

The Department of Revenue is able to provide an estimate based on general state sales tax data for the most recent completed fiscal year. This estimate would represent the potential collections that would be generated in a county by the retailers collecting local option sales tax for that county.

By August 15 of each fiscal year, a written notice of the monthly estimated local option payments for the fiscal year will be sent to localities.

Since the local option sales tax and the state sales tax are imposed differently based on each transaction, the data is adjusted. For example, the local option sales tax is imposed on goods delivered into a locality. State sales tax statistics are kept on the basis of sales made by merchants within a locality. Local option sales tax is not imposed on room rental or on the sale of natural gas or electric energy in a city where these receipts are subject to a users fee or a franchise fee, to mention just a few differences.

The local option tax is imposed if the first use of the service occurs, or potentially could occur, in the taxing jurisdiction.

Countywide: 

• A petition is presented to the county board of supervisors. The number of signatures must be equal to 5 percent of the persons in the county who voted in the preceding state general election. Eligible voters of the county must sign the petition; OR
• A motion or motions of governing bodies within the county that represent at least half of the population of the county.

For individual cities and unincorporated territories: 

• A petition is presented to the county board of supervisors. For cities, the number of signatures must be equal 5 percent of the persons in the the city (or portion of the city within the county); for unincorporated areas, the number of signatures must be equal 5 percent of the persons in the unincorporated portion of the county who voted in the preceding state general election; OR
• For cities, a motion of the governing body of a city; for an unincorporated portion of the county, a motion of the governing body of the county.

Each county's account is distributed on the basis of population (75 percent) and property tax levies (25 percent). The population factor is based on the most recent certified federal census. The property tax factor is the sum of property tax dollars levied by boards of supervisors or city councils for the three years from July 1, 1982 , through June 30, 1985 . The property tax data is compiled from city and county tax reports available in the State Department of Management. Only population and property tax levies of the jurisdiction imposing the tax are used in figuring percentages.

The actual distribution is computed as follows:

• D = (.75 x P x Z) + (.25 x V x Z)
  D = distribution for the taxing jurisdiction
  P = jurisdiction percentage of the population
  V = jurisdiction percentage of the property tax levied
  Z = the total collections for the county in which the jurisdiction is located.
• Examples of an actual distribution are in 701 Iowa Administrative Code § 270.10.

A majority of voters at an election must approve the local option sales tax.

The general rule is that payments associated with periods when the property is used within a taxing jurisdiction are subject to local option tax. Motor vehicle, recreational vehicle and recreational boat rentals where state sales tax is imposed are subject to local option sales tax only if pursuant to the rental contract, possession of the vehicle or boat is transferred to the customer within the taxing jurisdiction and payment is made within the same taxing jurisdiction.

Local option sales tax is imposed on any service subject to state sales tax when the first use of the service occurs, or potentially could occur, within a taxing jurisdiction.

If the ordinance contains a sunset provision, the tax remains in effect until that date. If there is no sunset provision, the tax stays in effect for an unlimited period or until repealed in a subsequent election.

Iowa's state sales/use tax rate is 6%. Many cities and counties also have a 1% local option tax.

By August 15 of each fiscal year, a written notice of the monthly estimated local option payments for the fiscal year will be sent to localities.

Ninety-five percent of estimated tax receipts are paid monthly. For example, localities’ estimated monthly tax distributions will be issued for July by August 31.

A final payment of any remaining tax due to a locality for the fiscal year will be made before November 10 of the next fiscal year. If an overpayment to a locality exists for the fiscal year, a reduction of monthly distributions to reflect the overpayment will begin with the November payment.

Yes. Often, local officials are better economic predictors, because they are familiar with the occupation, purchasing, and spending patterns in a locality. The Department will review the logic and the variables considered in compiling the estimate.

The tax will still be imposed. Passing the ordinance is mandatory. The Linn County District Court in City of Walker, et al vs. Oxley, et al, EQ 93 1 0, June 4, 1986.

Maybe. If a resident of a taxing jurisdiction takes physical possession of the item in a non-taxing jurisdiction, no local option tax can be imposed. However, if the Iowa seller delivers it by the seller’s vehicle or through a common carrier to the purchaser who lives in a local option tax jurisdiction, then the seller must collect the local option tax applicable in the buyer’s location.

No. Only the jurisdictions in which the tax is imposed can participate in the distribution.

The election may be either countywide or only in a specific city or unincorporated area in a county.  However, the tax only applies to sales sourced to cities and unincorporated areas of the county where a majority vote in favor of the local option tax.

Yes, except on:

• Room rentals that are subject to hotel and motel tax
• Sales of equipment by the State Department of Transportation
• Sales of natural gas or electric energy subject to a city- or county-imposed franchise fee or users fee
• The sale of direct-to-home satellite pay television service
• Self-propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to them, including auxiliary attachments which improve their performance, safety, operation, or efficiency and including replacement parts used by contractors, subcontractors and builders for new construction, reconstruction, alterations, expansion or remodeling of real property or structures

No. Room rental is not subject to local option tax, whether or not the rental is subject to hotel/motel tax.

The Department regularly emails updates and notices to anyone who has signed up on the Department’s Website to receive free information by email. A current jurisdiction list is also maintained on the Department’s Website.

This tax can be imposed on either January 1 or July 1 only. Repeals can only occur on June 30 or December 31. Any jurisdiction with a repeal date specified in the ballot prior to April 1, 1999, may repeal on the date specified. Imposition or change in rate or use can occur no sooner than 90 days following the election.

The local option tax cannot be repealed or reduced in rate if bond obligations are outstanding unless sufficient funds to pay the principal, interest, and premium, if any, on the outstanding obligation at and prior to maturity have been properly set aside and pledged for that purpose.

Local option taxes, and state sales tax, on utility payments are imposed based on the “billing date.”

Where tangible personal property is delivered determines whether or not a sale is taxable. If delivery occurs within a local option jurisdiction, the local option sales tax may be due. If delivery does not occur in a local option jurisdiction, local option tax is not due.

Delivery usually occurs when the seller transfers physical possession of the property to the buyer. In most instances, this transfer takes place at the seller’s place of business. If the seller transfers the property to the buyer from the seller’s own vehicle, then delivery is considered to take place at the place of transfer. Finally, if the seller transfers the property to a common carrier or the U.S. Postal Service for subsequent transport to the buyer, the “delivery” of the property occurs at the customer’s location.

Anyone aware of a problem may contact the Department. In most cases, the problems are the result of misunderstandings and not intentional noncompliance.

Whenever the Department audits for state sales tax, it will also audit for local option taxes. The penalties associated with the nonpayment of local option sales tax are the same as those for state sales tax.

Local option tax cannot be charged on a transaction where delivery occurs in a jurisdiction where no Iowa local option tax is imposed.

The funds will be allocated to active counties based on special rules filed by the Department. The rules specify distribution be made based on the ratio of each individual county's population to the total population of counties with local option taxes.

If the item is brought into Iowa by the purchaser:

No. Local option sales tax can only be imposed when state sales tax is applicable. Iowa does not impose a local option use tax.

If the item is brought into Iowa by the seller in the seller’s own vehicle or common carrier:

Yes, local option sales tax is due if delivery occurs in a local option jurisdiction. See the page on remote sales to determine when retailers must register and collect local option taxes on sales delivered into Iowa.

If a retailer located in a taxing jurisdiction purchases items for resale or processing and later withdraws them from inventory for other purposes, the local option tax for the jurisdiction where the items are withdrawn from inventory is imposed. It does not matter where or when the items were first purchased.

Owners, contractors, subcontractors, or builders purchasing building materials, supplies, and equipment for use in a construction project must pay local option sales tax on these items if they take delivery in a taxing jurisdiction.

Contractors, subcontractors, or builders who are also retailers located in a taxing jurisdiction must pay local option tax when they withdraw building materials, supplies and equipment from their resale inventory for construction projects in Iowa, even if the construction project is outside the taxing jurisdiction.

Manufacturers of building materials located in a taxing jurisdiction who are principally engaged in manufacturing and selling building materials and who withdraw them from inventory for use in a construction contract must pay local option tax if the construction contract is within Iowa. The tax is computed on fabricated cost. They must pay local option tax when they withdraw building materials, supplies and equipment from inventory for construction purposes even if the construction project is outside the taxing jurisdiction.

Contiguous cities are not treated as one large incorporated area for purposes of determining whether a majority of voters support imposition of a local option sales tax.

It makes no difference when the contract is signed or where it is signed. "Delivery" is the taxing event. If tangible personal property subject to state sales tax is delivered into a jurisdiction after the date local option sales tax has been imposed, local option sales tax is due. If a taxable service is rendered, furnished, or performed after the date local option sales tax has been imposed, local option sales tax is due.

If a local option tax is imposed or increased after a construction contractor enters into a written contract, the contractor may apply for a refund of additional local option sales tax paid as a result of the imposition or increase if all the following circumstances exist:

1. The additional tax was paid on tangible personal property incorporated into an improvement to real estate in fulfillment of a written construction contract entered into prior to the date local option sales tax is imposed or its rate increased, and
2. The contractor has paid the full amount of both state and local option sales tax due to the Department or to a retailer, and
3. The claim is filed with the Department within one year of the date the tax was paid. The IA 843 (22-009) Claim for Refund is used for this purpose.

This local option tax right of refund is not applicable to equipment transferred under a mixed construction contract.

The criteria for placing the proposition on the ballot are the same as previously explained. However, only qualified voters of the area of the county where the tax has not been imposed can vote.

Through June 30, 2008, Iowa's state sales tax rate was 5%.
Beginning July 1, 2008, the state rate is 6%.
Local option tax is in addition to the state rate.

Local option sales tax has been adopted in most cities and unincorporated areas in Iowa. Local option sales tax is imposed on the gross receipts from sales of tangible personal property. Tax applies if "delivery" of the tangible personal property occurs within a local option sales tax jurisdiction.

Local option sales tax is imposed on a taxable service if the first use of the service occurs, or potentially could occur, within a local option sales tax jurisdiction.

Out-of-state retailers with a physical presence or nexus in Iowa who make deliveries into Iowa must collect Iowa sales tax. If these deliveries occur in a local option jurisdiction, local option sales tax also applies.

The ballot must specify:

• The type of tax
• The tax rate (exactly 1 percent)
• The date it will be imposed
• The approximate amount of local option tax revenue that will be used for property tax relief, if any
• The specific purpose(s) for which local option tax revenues will be spent if for purposes other than property tax relief
• If the tax has a sunset provision that specifies the date on which the tax will be repealed, the date of future repeal

Questions about elections and ballot language should be addressed to the Secretary of State at 515-281-0145 or 1-888-SOS-Vote. A ballot language sample is available from the Iowa Secretary of State.

They are contiguous when their boundaries are in actual contact or touching. Burd v. Board of Education of Audubon County, 167 N.W. 2nd 174 (IA 1969); City of Walker, et al v. Oxley, et al.

The special election may only be held on one of the special election dates allowed by law for the jurisdiction. See Special Election Dates Calendar on the Secretary of State's Website. Local option sales tax elections cannot be held sooner than 84 days after the notice of the election is given to the county auditor by the county board of supervisors, and no sooner than 60 days after the notice of the ballot proposition is published by the auditor.

The question of repeal of the tax or of a rate change can also be voted upon at a general or special election as outlined above.

As with the state sales tax, the local option sales tax is remitted for the tax period in which the tangible personal property is delivered to the customer. Even if the customer has not paid for the merchandise, the tax is due when delivery occurred.

For taxable services, the retailer remits the local option tax for the tax period in which the first use of the service occurs, or potentially could occur.

No. It is imposed in addition to, but not on top of, the state sales tax. A taxable sale will be subject to the state sales tax and the local option tax. However, the amount of the sale for purposes of determining the amount of local option sales tax does not include any amount of state sales tax or other local option taxes if a jurisdiction imposes more than one local option tax.

Imposition, repeal, or change: Within 10 days after the election, the county auditor must give written notice of the results and send an abstract of votes to the Director of the Iowa Department of Revenue. This must be 90 days before the effective date.

Businesses are responsible for all programming changes and costs.

Checks will be made out to each city and each unincorporated area (county) that imposed the tax.

No. The local option tax collected within a county is placed in a special distribution fund. The fund is distributed on the basis of population and property tax levies.