Iowa Supreme Court Ruling Affects Construction Contractors’, Service Providers’ Sales Tax Obligations

On December 14, 2018, the Iowa Supreme Court, in Lowe’s Home Centers, LLC v. Iowa Department of Revenue,  found that there is at least one additional category of taxable services—installation—to consider.  This ruling deviates from the position historically taken by many throughout the State of Iowa that if a service is not a taxable repair, it falls into the non-taxable category of new construction.

The Iowa Supreme Court made it clear that taxable repair and exempt capital improvements are not the only two categories of services. Based on the court’s opinion, installation charges may be subject to tax if such charges are explicitly taxed by the administrative rules and if they are not performed in connection with new construction, reconstruction, alteration, expansion, and remodeling.

In light of the court’s opinion, construction contractors or those businesses performing services on real property should reevaluate the services they are providing and the corresponding tax charges to ensure they are complying with Iowa’s sales tax laws.

Dickinson's tax attorney, Cody Edwards has authored this article explaining the key issues to consider in light of the new tax law.