IOWA SALES TAX EXEMPTION CERTIFICATES

1 Iowa SALES Tax EXEMPTION CERTIFICATES (78-637)(05/23/13)1 SALES tax EXEMPTION numbers are not issued in IowaThe Iowa Department of Revenue does not issue salestax EXEMPTION numbers which make purchases byindividuals or organizations exempt from SALES tax. Thepurchaser s SALES tax permit number is not an exemptionnumber. The purchaser must completea SALES Tax EXEMPTION CertificateWhen normally taxable SALES are made free of SALES oruse tax, the seller must require the purchaser to completeand sign a SALES Tax EXEMPTION certificate . Thiscertificate is a proper record of the tax-exempttransaction and must be retained by the seller for at leastthree years. It identifies the purchaser, the purchaser sbusiness, the items being purchased and the reason forexemption.

2 The purchaser must sign and date thecertificate. The purchaser s SALES tax permit number mustbe recorded on the certificate if the purchaser is all EXEMPTION CERTIFICATES on file for a minimum ofthree Department will recognize substitute SALES TaxExemption certificate forms, provided they meet certainrequirements. In order to be valid, a substitute form mustinclude: the seller s name, the purchaser s name andaddress, the purchaser s nature of business (wholesaler,retailer, manufacturer, lessor, other), reason forexemption (resale, processing, other), general descriptionof the products purchased and the purchaser s Iowa salestax permit number (if the purchaser is a retailer). Thepurchaser must sign and date the blanket EXEMPTION certificateis accepted in some casesIf the purchaser repeatedly makes tax exempt purchasesof similar items or services from the same seller, theseller may accept a blanket EXEMPTION certificate .

3 Theseller can keep this single certificate on file to coverrepeat purchases. The seller must verify at least everythree years that the information on the blanket exemptioncertificate is accurate and complete. Keep all blanketexemption CERTIFICATES on file for a minimum of SALES TAX EXEMPTION CERTIFICATESAn Iowa SALES Tax EXEMPTION certificate is required when normally taxable items or services are sold tax , these are items for resale or for use in processing, but there are also other reasons for EXEMPTION . It isimportant that the seller knows when to accept an EXEMPTION certificate . If audited, the seller will use exemptioncertificates to support tax exempt SALES . A valid certificate taken without fraudulent intent will pass the taxburden for unreported SALES tax from the seller directly to the EXEMPTION certificate must be completeAn EXEMPTION certificate must be thoroughly completedby the purchaser to be regarded as valid.

4 Examples ofvalid and invalid CERTIFICATES are included at the end ofthis an audit situation, the Department will not recognizean incomplete EXEMPTION certificate or a certificate takenwith fraudulent intent. Fraudulent intent may bedemonstrated by sellers who fraudulently fail to collectthe tax or who solicit purchasers to participate in anyunlawful claim of EXEMPTION . The seller may be heldresponsible for any SALES tax due from such seller should question the purchaser s claim ofexemption when evidence or circumstances indicate thatthe items or services purchased will not be used in anexempt manner. If the seller remains unconvinced thatthe sale is exempt, then the sale should be taxed. Theseller is not required to make a tax-exempt to determine if a transaction is exemptConstruction contractors are notalways exempt from paying taxContractor-retailers who make purchases for resale maydo so without paying tax.

5 They must, of course, completean EXEMPTION who purchase building materials andsupplies for construction projects must pay tax on theirpurchases, unless their contract is with a DesignatedExempt Entity registered with the Department to issuespecial EXEMPTION CERTIFICATES to contractors andsubcontractors, allowing them to purchase, or withdrawfrom inventory, materials for the contract free from nonprofit organizations must pay SALES and use taxesNonprofit entities, churches, and religious organizationsare not automatically exempt from paying state SALES taxon taxable goods and services. This is true even if theseentities are exempt from the payment of state and federalincome taxes. State SALES tax must be paid unless someother general SALES tax EXEMPTION applies.

6 (05/23/13)2 While these groups may hold Iowa SALES tax permits for taxable SALES , having a SALES tax permit does not make them exempt from paying tax on purchases for their own use. Purchases made for resale are exempt from all SALES tax. In other words, a nonprofit corporation, church, or other religious organization is treated the same as any other private citizen for SALES and use tax purposes when purchasing goods and taxable services at few nonprofit entities are exemptfrom paying SALES taxThe Iowa Code does exempt certain specific nonprofit entities from paying SALES tax on purchases. The most common of these are government agencies and subdivisions, including public schools. (For a complete list of entities which are not required to pay Iowa SALES tax, see our Iowa Tax Guide for Nonprofit Entities.)

7 These exempt entities must pay for their purchases with a check or voucher drawn on the entity s account or with a credit card set up the same when the purchaser is a government agency, school, or other exempt entity, the seller should require the purchaser to complete and sign a SALES Tax EXEMPTION certificate . If the purchaser repeatedly makes tax-exempt purchases of similar items, the seller may accept a blanket EXEMPTION reasons for EXEMPTION are listedon the back of the EXEMPTION certificateBelow are the EXEMPTION explanations found on the back of the EXEMPTION : Any person in the business of selling who is purchasing items to resell may claim this EXEMPTION . The purchaser can be acting as either a retailer or wholesaler and may not be required to have a SALES tax permit.

8 Retailers with a SALES tax permit number must enter it in the space : Exempt purchases for processing include tangible personal property which by means of fabrication, compounding, manufacturing, or germination becomes an integral part of other tangible personal property ultimately sold at retail; chemicals, solvents, sorbents, or reagents used, consumed, dissipated, or depleted in processing personal property intended to be sold ultimately at retail, and chemicals used in the production of free newspapers and shoppers guides. NOTE: To claim an EXEMPTION for fuel used to create heat, power, or steam for processing or for fuel used to generate electric current, use Iowa SALES Tax EXEMPTION certificate , Energy used in Processing or farm Machinery/ equipment : The item must be one of the following:1.

9 A self-propelled implement directly and primarily used inagricultural production, such as a An implement directly and primarily used in agriculturalproduction that is customarily drawn or attached to a self-propelled implement in the performance of its function, suchas a SALES Tax EXEMPTION CERTIFICATES (78-637) grain dryer (heater and blower only) directly and primarily used in agricultural snow blower, rear-mounted or front-mounted blade, or rotary cutter used in agricultural production, if attached to or towed by a self-propelled diesel fuel trailer, seed tender, all-terrain vehicle, or off-road utility vehicle primarily used in agricultural personal property that does not become a part of real property and is directly and primarily used in livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable systems, curtains, curtain systems, drip systems, fans, and fan systems, shutters, inlets, shutter or inlet systems, and refrigerators used in livestock or dairy production, aquaculture production, or the production of flowering.

10 Ornamental, or vegetable auxiliary attachment improving safety, performance, operation, or efficiency of items 1 through 7. replacement part for items 1 through 8. container, label, carton, pallet, packing case, wrapping,baling wire, twine, bag, bottle, shipping case, or other similaritem used in agricultural, livestock, or dairy Manufacturing Machinery/ equipment : The item must be computers, machinery, equipment , replacement parts, supplies, or material used to construct or self-construct computers, machinery, equipment , replacement parts, or supplies used for one of the following and primarily used in processing by a and primarily used to maintain integrity or uniqueenvironmental conditions for the and primarily used in research and development ofnew products or and primarily used in recycling or reprocessing ofwaste Control equipment .