"Seinfeld" and the Iowa Department of Revenue
Posted on 03/03/2017 at 09:42 AM by Cody Edwards
Call me old school, but the first thing I thought about when reading the Iowa Department of Revenue’s ("Department") latest released Letter of Findings (“Letter”) was the episode, “The Implant”, of Seinfeld, the 1990’s sitcom. It may not seem that Seinfeld's “The Implant” and the Department have anything in common, but they do.
In the “The Implant,” George Costanza, while at a funeral reception, dips a chip into dip, takes a bite, and then dips the same chip into the dip for a second time—the double dip. When George gets caught double dipping, he refuses to acknowledge there is anything wrong with double dipping and double dips again. In the recently released Letter, the Department engaged in its own type of double dipping.
Based on the facts of the Letter, a construction contractor filed a refund claim for sales tax paid on building materials, refrigeration equipment, and tangible personal property used in a remodeling project. The contractor’s theory for the refund was that it also charged its customer sales tax on those same items, a fact the Department does not appear to dispute. (The contractor also, improperly, charged sales tax on the labor). The Department denied the construction contractor’s refund claim.
By denying the construction contractor’s refund claim while also collecting sales tax on the marked-up sales price of the building materials, refrigeration equipment, and tangible personal property, the Department is double dipping in sales tax—collecting tax on both the contractor's purchases and the contractor’s customer purchase of the same products. George Costanza’s double dipping is “like putting your whole mouth right in the dip,” but the Department’s double dipping is a bit more concerning.
The Department’s denial of the contractor’s refund claim results in the collection of more than double the amount of tax that the Department should have correctly received. The Department is collecting tax on (1) the price the contractor paid on the purchase price of the building materials, refrigeration equipment, and tangible personal property and (2) the marked-up sales price of the same sold by the construction contractor to its customer. Additionally, in this case, the Department appears the have incorrectly received sales tax on the labor charges for the remodeling project—labor charges for remodeling projects are not taxable in Iowa.
The Department generally responds to this double dipping criticism by saying the construction contractor’s customer could file a refund claim for the tax paid on the remodeling projects. This is problematic for two reasons.
First, by the time the Department denies or resolves the construction contractor’s protest (at last check, the Department has over 900 protests) or refund claim, the three-year statute of limitations for filing a refund claim has often times expired. Thus, in many cases by the time the contractor resolves its sales tax issue, the contractor’s customer is precluded from filing a refund claim for tax charged by the contractor.
Second, and most troubling, the Department takes two different positions depending on the circumstances. If a contractor’s customer does file a refund claim within the statute of limitations, the Department denies the refund claim, taking the position that the contractor was acting as a retailer making two different sales: a sale of labor and a sale of building materials. However, if a contractor files for a refund claim, as was the case in the Letter, the Department takes the position that the contractor “was operating as a contractor . . . and did not make retail sales of building materials and supplies to its customers.”
So there you have it, Seinfeld’s “The Implant” and the Department do have at least one thing in common. As an opponent of these types of double dipping, I can only hope for a Festivus Miracle that both George Costanza and the Department stop doubling dipping to the benefit of party guests everywhere and taxpayers of Iowa.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
Categories: Construction Law, Table SALT, Cody Edwards, Taxation Law
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