Iowa has enacted legislation that subjects specified digital products and services to state sales and use tax. Per the legislation, “specified digital products” means electronically transferred digital audio-visual works, digital audio works, digital books, or other digital products. “Other digital products” means greeting cards, images, video or electronic games or entertainment, news or information products, and computer software applications. Digital codes are also included as taxable if the item to which the code applies is taxable. These definitions comply with the provisions of the Streamlined Sales Tax Agreement of which Iowa is a full member state. The definition of sales was also amended to include subscriptions. “Subscription” means any arrangement in which a person has the right or ability to access, receive, use, obtain, purchase, or otherwise acquire tangible personal property, specified digital products, or services on a permanent or less than permanent basis, regardless of whether the person actually accesses, receives, uses, obtains, purchases, or otherwise acquires such tangible personal property, specified digital product, or service. The act also expands taxable services to include streaming video, video on-demand and pay per view as part of pay television. Storage of tangible or electronic files, documents or other records; information services and software as a services are all new taxable services. Services arising from or related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products are also subject to Iowa sales and use tax.
Transactions are sourced to Iowa based on either taking possession or making first use of specified digital products, whichever comes first.
A new exemption is enacted which provides an exemption for the sales price of specified digital products and of prewritten computer software sold, and of enumerated services described in section 423.2, subsection 6, paragraphs “bq” (storage of tangible or electronic files, documents or other records), “br” (information services), “bs” (services related to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing specified digital products), and “bu” (software as a service) furnished, to a commercial enterprise for use exclusively by the commercial enterprise. The use of prewritten computer software, a specified digital product, or service fails to qualify as a use exclusively by the commercial enterprise if its use for noncommercial purposes is more than de minimis. Also exempt are sales of specified digital products sold to a non-end users. “Non-end user” means a person who receives by contract a specified digital product for further commercial broadcast, rebroadcast, transmission, retransmission, licensing, relicensing, distribution, redistribution, or exhibition of the product, in whole or in part, to another person. (S.F. 2417, Laws 2018, effective January 1, 2019)