Posted on 10/31/2018 at 01:13 PM by Cody Edwards
This past legislative session, the Iowa legislature created a sales tax exemption for the “sale or furnishing by a water utility of a water service in the state to consumers and users.” Don’t get too excited about this tax exemption, though, the legislature created a new 6-percent Water Services Excise Tax (“WET”) under Iowa Code chapter 423G on the “sale or furnishing by a water utility of a water service in the state to consumers or users.” So, the Iowa legislature swapped a potentially 7-percent sales tax (if in a LOST jurisdiction) with a 6-percent excise tax, while keeping all the sales tax exemptions in Iowa Code § 423.3 applicable to the WET (except, of course, the sales tax exemption for the sale of water services).
Under the new law, which became effective July 1, 2018, the WET applies the sales price of the sale of a water service by a “water utility.” A “water utility” is “any person, partnership, business, association, or corporation, foreign or domestic, owning or operating any facilities for furnishing of water by a piped distribution system to the public for compensation.” Iowa Code § 476.1(3). The latest iteration of the Iowa Department of Revenue’s proposed administrative rules, ARC 4083C, defines “facilities” to include “storage tanks, water towers, wells, plants, reservoirs, aqueducts, hydrants, pumps, pipes . . . designed to hold, treat, sanitize or deliver water.”
A previous version of the Department’s proposed rules did not include “pipes” and, now that it does, whether “pipes” includes water piping inside apartments is not exactly crystal clear. However, an example in the Department’s latest proposed administrative rules clarifies that water piping inside apartments is a “facility.” Accordingly, apartment’s that provide water service for an “identifiable price” to their tenants—regardless of whether the water is a flat fee or based on actual meter usage—must now collect and remit the WET on the sales price of the water service. Water service is sold for an identifiable price if the price of the “water service is identifiable from an invoice, bill, catalogue, price list, rate card, receipt, agreement or other similar document . . . .”
The example provides:
The apartment owner separately bills each of the tenants $40 per month for water service, including the cost of water and maintenance on the water distribution system. The apartment owner is a water utility and must collect and remit water service excise tax on the $40 monthly charge for water service.
Tax should not be paid on the price of water by the apartment and on the apartment’s sale of water; apartment owners may purchase the water from the water utility exempt for resale by providing the water utility with an exemption certificate.
The foregoing is a very limited analysis of a small number of the many issues raised by Iowa’s new Water Services Excise Tax. Additional issues to consider are the definition of “water service,” which sales are integral to furnishing water services, proper billing methods, and WET return filling frequency. Contact one of Dickinson Law’s State and Local Tax Attorneys with questions.
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