2021 Updates to the Motor Vehicle Fee for New Registration
In 2008, the legislature moved the then-use tax imposed on vehicle registration to Iowa Code section 321.105A and renamed it to the “fee for new registration.” The Iowa Department of Revenue (IDR) and the Iowa Department of Transportation (DOT) often field questions about confusing provisions from taxpayers seeking to register their vehicles as well as county treasurers tasked with collecting the fee. IDR received input from DOT before submitting revisions to Iowa Code section 321.105A to the legislature.
The revisions improve the administration of and compliance with the fee for new registration. They were enacted by the legislature, signed into law by Governor Reynolds, and took effect July 1, 2021.
In addition to the changes to the statute, IDR has published administrative rule revisions to supplement the law. The administrative rules include many examples, some of which were taken from the UT-510 manual. View Iowa Administrative code 701.250.
Discontinue the use of the UT-510 manual as guidance and refer to the rules instead.
Vehicle Rental Tax
The rental of motor vehicles in Iowa is subject to sales or use tax. The rental may also be subject to the Iowa automobile rental tax.
Rental of a vehicle has occurred in Iowa when possession of a vehicle is transferred to a customer in Iowa. Transfer of possession of the vehicle must occur in Iowa; the contract for rental of the vehicle doesn’t need to be executed here. The tax is due when any lump-sum or periodic payment is paid in Iowa.
When both payment and transfer of possession occur in Iowa, sales tax is due regardless of whether the vehicle is subsequently used outside Iowa.
Example – Customer A signs a rental contract with and takes possession of a rental car from an office of a rental agency located in Des Moines. A drives the car from Des Moines to Dubuque, Iowa, and back. In Des Moines, the rental agency collects $100 for the rental. The $100 is subject to sales tax. If the customer had driven the rental car from Des Moines to Madison, Wisconsin, and back to Des Moines, the rental would also be subject to tax.
Example – Customer B enters into a contract to rent an automobile with a rental agency’s office located in Omaha, Nebraska. B takes possession of the car at the rental agency’s office in Council Bluffs, Iowa. B then drives the car from Council Bluffs to Dubuque and back. The rental is subject to Iowa sales tax since delivery and payment occurred in Iowa.
Example – Customer C enters into a contract to rent and takes possession of a rented automobile in Des Moines. C drives the vehicle to California and returns the vehicle to the rental agency’s office in Los Angeles, and there pays a total charge for the rental of $300. No Iowa sales tax is due. Transfer of possession occurred here, but payment did not.
Example – Customer D rents and takes possession of a truck in Des Moines. Before taking possession, D pays the rental agency a $500 deposit. Rental of the truck is on a mileage and per-day basis. Customer D drives the truck to Phoenix, Arizona. There it is discovered that the mileage and per-day charges add up to $600. Customer D pays the rental agency an additional $100 in Phoenix. Iowa sales tax is due on the $500 deposit paid in Des Moines, but not on the $100 paid in Phoenix. Only the payment made in Iowa is subject to tax.
Example – Customer E rents a car in Chicago, Illinois, and drives it to Des Moines. In Des Moines E pays $200 for the use of the car. Although payment occurred in Iowa, transfer of possession of the vehicle did not take place here. This transaction is not subject to sales tax, but may be subject to use tax.
If a customer takes possession of a vehicle outside Iowa and the vehicle is later used within Iowa, rental payments are subject to Iowa use tax if those rental payments are made in Iowa.
Example 1 – Customer W signs a rental contract and takes possession of a rental car in Los Angeles. W drives the car to Des Moines and then pays a total charge for the rental of $300. This $300 payment is subject to Iowa use tax assuming that no tax was previously paid to another state.
Example 2 – Customer X rents and takes possession of a truck in Phoenix, Arizona. There customer X pays a $500 deposit to the rental agency. Rental of the truck is on a mileage and per-day basis. Customer X then drives the truck to Des Moines. The mileage and per-day charges add up to $600. Customer X pays the rental agency an additional $100. This $100 is subject to Iowa use tax.
A 5% state excise tax is imposed on the rental of vehicles designed to carry nine or fewer passengers that are rented for a period of 60 days or less. This is in addition to the 6% state sales / use tax and any applicable local option sales tax. The automobile rental tax is not imposed on delivery trucks, motorcycles, and motorized bicycles.
This excise tax is reported and remitted electronically on a monthly basis. No permit other than an Iowa sales or use tax permit is required to collect the automobile rental tax.
The following are generally exempt from sales, use, and automobile rental tax:
Rental of a vehicle for more than 60 days. The customer must contract to rent for a single period exceeding 60 days and cannot accumulate these days.
Rental of vehicles registered for a gross weight of more than 13 tons.
Rental of a vehicle with a driver provided by the owner of the vehicle.*
*limousine service, towing service, and armored car service are subject to sales / use tax, but not to automobile rental tax.
The following are included in the rental price subject to tax:
Mandatory insurance
Any other payment required as a condition of the rental
The following are excluded from the rental price subject to tax:
Optional collision damage waiver fees
Optional personal accident insurance fees
Airport-imposed fees charged to a customer for the rental of a vehicle
Fuel
To be excluded from the taxable rental price, the charge must be separately stated, separately itemized, and the charge cannot be required as a condition of the rental.
