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Sales, Use & Excise Tax

Effective January 1, 2019, businesses that meet the definition of marketplace facilitator must collect and remit Iowa sales tax and applicable local option sales tax for sales made or facilitated on the business’s marketplace if the business receives $100,000 or more in gross revenue from those sales. Very generally, a marketplace facilitator is a business that provides infrastructure or support for retail sales to occur and collects the sales price, processes payments, or receives compensation from the retail sale.

One type of business that may qualify as a marketplace facilitator is a food delivery service company. If a business allows customers to order food and handles the payment for the customer, the business likely qualifies as a marketplace facilitator. Businesses interested in learning more about whether they may be obligated to collect sales tax as a marketplace facilitator should read the Department’s marketplace facilitator guidance and Iowa Code section 423.14A.

The service of delivering prepared food itself is not taxable. Iowa Code section 423.1(51) defines “sales price” for purposes of Iowa sales tax. Excluded from “sales price” are certain charges that are “separately contracted for” and “separated stated” on a bill. A service fee is typically charged because of the mere purchase of a product, whereas a delivery fee is for a separate item (delivery service), which is not a taxable service.

The following examples are intended to illustrate some possible situations involving different types of businesses and the obligation to collect tax in Iowa. The first example involves a food delivery service company that receives a customer’s order and payment and delivers the food from a restaurant. The second example involves a business directory company that receives a customer’s order and payment, but utilizes a food delivery service company to deliver the food from a restaurant.