Iowa Admin. Code r. 701-205.2
Except as otherwise provided in the agreement, retailers providing taxable services in Iowa shall source the sales of those services using the destination sourcing requirements described in Iowa Code section 423.15. In determining whether to apply the provisions of Iowa Code section 423.15 to the sale of a taxable service, it is necessary to determine the location where the result of the service is received, is first used, or could potentially be first used by the purchaser or the purchaser's donee. The provisions of these rules do not affect the obligation of a purchaser or lessee to remit additional tax, if any, to another taxing jurisdiction based on the use of the service at another location.
EXAMPLE 1: Company Z is a photography business located in Mason City, Iowa. Company Z enters into an agreement with Customer Y, a resident of the state of Illinois, to take a photoshoot in Okoboji, Iowa. Company Z charges Customer Y $2,000 for the photoshoot itself and $1,000 for printed photos once they are finalized. Customer Y pays Company Z $3,000 in advance for the photoshoot and photographs. The photoshoot takes place as planned in Okoboji, and three weeks later Company Z sends Customer Y a package containing the photographs to Customer Y's Illinois address.
The photoshoot is the result of Company Z's service, which occurs in Okoboji, Iowa-the location where the performance of the photoshoot begins. Company Z must therefore charge Iowa sales tax and any applicable local option tax on the $2,000 charge for the photoshoot. The $1,000 charge for the photographs is a sale of tangible personal property and is sourced to Illinois-the location where the photographs are delivered. Company Z therefore does not need to charge Iowa sales tax on the $1,000 but may be responsible for collecting and remitting Illinois tax.
EXAMPLE 2: Same facts as in Example 1, except that Company Z charges Customer Y a one-time, flat $3,000 charge without any itemization or breakdown of the cost. This $3,000 charge represents the sale of tangible personal property and is sourced to Illinois-the location where the photographs are delivered. Company Z therefore does not need to charge Iowa sales tax on the $3,000 but may be responsible for collecting and remitting Illinois tax.
EXAMPLE: An Iowa resident first uses the results of services performed on tangible personal property in another state and pays that state's 5 percent sales tax to that state. The Iowa resident returns to Iowa to use the tangible personal property on which the service was performed. Iowa's use tax rate on the services performed on the tangible personal property is 6 percent. The resident must remit to the department 1 percent use tax; no local option use tax is due. If, on the other hand, the other state's sales tax rate is equal to or greater than Iowa's use tax rate, the Iowa resident does not have to remit use tax to the department on the services performed on tangible personal property.
Iowa Admin. Code r. 701-205.2