Iowa: Department addresses post-Wayfair sales tax nexus standard

The Iowa Dept. of Revenue recently issued a declaratory order addressing whether a taxpayer was required to collect and remit Iowa sales tax.

Podcast Transcript

The Iowa Department of Revenue recently issued a Declaratory Order addressing whether a taxpayer making remote sales of brownies and cookies to customers in Iowa was required to collect and remit Iowa sales tax. Sales were made via the taxpayer’s website and through a third-party marketplace. The taxpayer also requested information on the taxability of its food products. Under Iowa law, effective January 1, 2019, a remote seller with no physical presence in the state is required to collect and remit sales tax if, in the immediately preceding or current calendar year, it has gross revenue exceeding $100,000 from Iowa sales or 200 or more separate transactions with Iowa customers. In determining whether the threshold has been exceeded, a seller must also account for sales made on its behalf through a marketplace facilitator.

In this instance, the taxpayer had not provided information on its volume of transactions and its gross revenue from Iowa sales. As such, the Department could not determine whether the taxpayer had exceeded the economic nexus thresholds. Nevertheless, the Department addressed the taxability of the products both when sold on a stand-alone basis and when the products were contained in a special “keepsake” box. Under Iowa law “prepared food” is subject to sales tax; however, “bakery items sold by the seller which baked them” are exempt. Although brownies were not specifically enumerated in the bakery item exemption, the Department concluded that they qualified for the exemption because they were baked and sold by the taxpayer. With regard to cookies and brownies sold in “keepsake” boxes, the Department ruled that despite the one non-itemized price for the box and the baked goods, the sale did not constitute a bundled transaction. In the Department’s view, purchasers could discern the price of the box itself by comparing it with the price of the same or similar food products sold without the box. Thus, the taxpayer would be required to collect sales tax on the price of the keepsake box. Please contact Jill Nielsen at 312-665-2794 with questions on In the Matter of Fairytale Brownie’s, Inc. 

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