What is Consumer's Use Tax?

Iowa defines consumer’s use tax as the tax on the use of a taxable good or service in Iowa when sales tax has not been paid.   Some people confuse use tax with sales tax; however, they aren’t the same and a taxable good or service is subject to only one of the taxes, never both. 

The majority of the time, consumer’s use tax is due when purchases are made out-of-state or from an online or mail order distributor.   If no sales tax was paid during these transactions, and the service or good was used in Iowa, the buyer is responsible for paying a 6% use tax to the state of Iowa.  If sales tax was paid during the transaction, the buyer is only responsible for additional use tax when the other state’s sales tax is lower than 6%. In this case, the buyer owes the state of Iowa the difference.  One note: consumer’s use tax is not subject to any local option sales tax.

For example, if a business purchases office supplies from a vendor in a state that isn’t required to collect Iowa tax, and the Iowa business uses the supplies, the business owes the state of Iowa a 6% consumer’s use tax.  In addition, a service can be subject to the consumer’s use tax.  For example, if a business has a vehicle repaired in another state, consumer’s use tax would be owed if the vendor didn’t charge it since vehicle repair is a taxable service in Iowa. 

If you are a business that makes purchases requiring a use tax payment on a regular basis, you should apply for a consumer’s use tax permit.  There is no cost to apply.   If your purchases are less frequent, you can report the purchases on line 2 Goods Consumed of your quarterly sales tax return.

Hint:  If you make regular purchases using the same vendor, you can ask them to start adding sales tax to your purchases.  Some vendors will accommodate your request while others won’t, but it never hurts to ask.