An Iowa Sales Tax Exemption Certificate is a document that allows a business to purchase goods and services tax-free from suppliers for the purpose of reselling them. The tax certificate is also sometimes referred to as a Resale Permit or a Reseller’s Permit.
Learn how the Iowa Sales Tax Exemption Certificate works, how to get one, and more.
Related: Guide to starting a business in Iowa
How Does an Iowa Sales Tax Exemption Certificate Work?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier on the purchase. The sales tax will still be paid, but instead of the retailer paying the state sales tax, the retailer charges sales tax to their customer on the final value of the merchandise.
For instance, when a lawn equipment dealer in Iowa purchases items like mowers or parts from a manufacturer to sell at their dealership, by having a resale certificate, the dealer won’t typically pay sales tax on these transactions. When a homeowner farmer purchases a piece of equipment from the dealer, the dealer will charge the state sales tax to the customer based on the full price of the equipment. Then, typically at the end of the month, the dealer will take the collected state sales taxes and send them to the Iowa Department of Revenue.
It’s important to understand that the sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations such as paper, pens, etc.
How to Fill Out the Iowa Sales Tax Exemption Certificate
Before a business starts selling products or providing taxable services, it must first get an Iowa Business Tax Permit (sometimes referred to as a sales tax permit or seller’s permit) from the Iowa Department of Revenue. After registering for the permit, the Iowa Department of Revenue will issue a sales tax permit number, which will be listed on the Sales Tax Exemption Certificate.
Step 1: Begin by downloading the Iowa Sales Tax Exemption Certificate Form 31-014a.
Step 2: Identify the name, business address, general nature of the business, and telephone number of the purchaser.
Step 3: Identify the name and business address of the seller.
Step 4: Indicate whether the purchaser is doing business as a:
- Retailer (If so, include the sales or use of excise tax permit number)
- Retailer car dealer (If so, enter the DOT number)
- Governmental agency
- Wholesaler
- Farmer
- Lessor
- Manufacturer
- Nonprofit hospital
- Private nonprofit educational institution
- Qualifying residential care facility
- Nonprofit museum
- Commercial enterprise
Step 5: Indicate the reason the purchaser is claiming the sales tax exemption. Options include:
- Resale
- Leasing
- Processing
- Qualifying Farm Machinery/Equipment
- Qualifying Farm Replacement Parts
- Qualifying Manufacturing Machinery/Equipment
- Research and Development Equipment
- Pollution Control Equipment
- Recycling Equipment
- Qualifying Computer
- Qualifying Replacement Parts/Supplies (Manufacturing, R&D, Pollution Control, Recycling, Computer)
- Qualifying Computer Software, Specified Digital Products, and Digital Services
Step 6: Describe the description of what the buyer will be purchasing
Step 7: The purchaser will affirm the information on the form is correct, then sign, include their title and date
Iowa Sales Tax Exemption FAQs
How much does an Iowa Sales Tax Exemption Certificate cost?
There is no cost for a Certificate of Exemption in Iowa.
How often is Iowa sales tax due?
Most new businesses are set up to file and pay sales and use tax monthly, but depending on the amount of tax collected, your business may have a different filing frequency.
Does an Iowa Sales Tax Exemption Certificate Expire?
Iowa Sales Tax Exemption Certificates are good for up to three years.
Where do I file the Iowa Sales Tax Exemption Certificate?
The completed form is kept on file by both the buyer and seller and is not filed with the state.
Is a Sales Tax Exemption Certificate the same as a Business Tax Permit?
No – The Business Tax Permit and Sales Tax Exemption Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Business Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Sales Tax Exemption Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
Also, in addition to these, your business may need to register for additional items. For more information, check out our guide to Iowa business licenses.
What steps should a business take to accept a Sales Tax Exemption Certificate?
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records. Failing to verify this information may put the liability of paying Iowa sales taxes on the seller.
To verify whether the Sales Tax Exemption Certificate is valid:
– Review the Sales Tax Exemption Certificate to make sure it is completely filled out.
– Sellers are also responsible for examining the certificate and evaluating whether the goods sold are reasonably consistent with the purchaser’s line of business. For example, if the buyer’s business is a car dealership, but they want to purchase office supplies tax-free, the seller should investigate further.
– Keep a file of Sales Tax Exemption Certificates.
