Iowa Enacts Change to Persons Eligible for Manufacturing Exemption

Effective August 19, 2020, Iowa has enacted legislation that narrows the limitation on persons eligible for the state’s manufacturing sales tax exemption. The original language of the manufacturing exemption in Sec 423.3(47)(d)(4) excludes persons who “are not commonly understood” to be manufacturers and excludes a person who engages in any one of five listed activities. Those five activities are:

  • Construction contracting
  • Repairing tangible personal property or real property
  • Providing health care
  • Farming, including cultivating agricultural products and raising livestock
  • Transporting for hire

The new legislation amends that provision to exclude persons who are “primarily engaged” in one of those five activities. Per the legislation, a person is “primarily engaged” in an activity if the person generates more than 50% of gross revenue from its operating business from, or spends more than 50% of their time engaging in, any combination of those activities during the 12-month period after the date the person engages in one of the listed activities. The previous language excluded persons that performed any of the listed activities.  Examples are included in the revised regulation.  (2019 Iowa Acts, House File 779, filed June 22, 2020, effective August 19, 2020 Rule 230.15(4))

Posted on July 28, 2020