How to get an Iowa Resale Certificate (Sales Tax Exemption Certificate)
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 those goods and services. The tax certificate is also sometimes referred to as a “resale permit” or a “reseller’s permit.”
Learn more about what a Sales Tax Exemption Certificate is, how to get one, and more.
What is a Sales Tax Exemption Certificate?
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. The collected sales tax is then sent by the retailer to the Iowa Department of Revenue.
For instance, when a lawn equipment dealer in Iowa purchases items like mowers, or parts from a manufacturer to sell in their dealership, by having a resale certificate, the dealer won’t pay sales tax on these transactions. When a homeowner farmer purchases a piece of equipment, the dealer will charge sales tax to the customer based on the full price of the item.
Throughout the course of business, the agricultural equipment dealer will accumulate sales tax from all their transactions with customers. Periodically, typically at the end of the month, the dealer will collect all the sales tax that has been charged to the customers and send it to the state of Iowa. In this way, the sales tax is effectively paid by the final consumer.
The purpose of the certificate is to provide evidence of why sales tax was not collected on a transaction. Similar names for a resale certificate include reseller number, seller’s permit, exemption certificate, wholesale license, or reseller’s license. In order for the supplier to allow the tax-exempt purchase, the seller needs proof the buyer intends to resell the product by providing a valid resale certificate.
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.
Before a business starts selling products or providing taxable services, it must first get an Iowa Sales Tax Permit from the Iowa Department of Revenue. The Sales Tax Permit is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
Is a Sales Tax Exemption Certificate the same as a Sales Tax Permit?
The sales tax permit and Sales Tax Exemption Certificate is commonly thought of as the same thing, but they are actually two separate documents. The Sales 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.
Related: How to register for an Iowa Sales Tax Permit
After registering, a sales tax number will be provided by the Department of Revenue. This number will be listed on the Sales Tax Exemption Certificate.
How to fill out the Iowa Sales Tax Exemption Certificate
Filling out the Iowa Sales Tax Exemption Certificate (Form 31-014a) is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Iowa Department of Revenue requires the seller to have a correctly filled out 31-014 Sales Tax Exemption Certificate. Without it correctly filled out, the seller could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.
Steps for filling out the 31-014 Iowa 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
- 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:
- 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 a Sales Tax Exemption Certificate cost in Iowa?
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.
Are sellers required to accept Sales Tax Exemption Certificates?
Sellers are not required to accept Sales Tax Exemption Certificates, however, most do. If the vendor doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, a credit is available when filing the Iowa sales tax return.
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.