Professional Firms Taxed on Computer Purchases in Iowa

The state recently provided guidance with respect to computer purchases by professional companies. In a policy letter issued by the Iowa Department of Revenue, the state indicated that purchases of computers by commercial enterprises for processing or data storage are exempt from sales and use tax. The taxpayer, an architectural company, did not qualify as a commercial enterprise, but rather a professional corporation. Factors used for this interpretation included: the incorporation under Chapter 496C and using “P.C.-Professional Corporation” as part of the entity’s name, or deriving all/substantially all of its revenue from the practice of a licensed profession. The firm’s unlicensed support staff did not change the interpretation. Therefore, the firm did not qualify for the computer purchase exemption.

In a recent Declaratory Order, the state provided a similar interpretation, but this time the entity was an accounting firm. The accounting firm was considered a professional corporation as it provided accounting services, employing professionals with four-year degrees that require extensive training and experience. Therefore, any purchase of computers and computer equipment made by accounting firms are also subject to Iowa sales and use tax. (Policy Letter 07300004, Iowa Department of Revenue, January 9, 2007); (Iowa Department of Revenue, IA -Declaratory Order 07-30-6-0009, Sales and Use (Feb. 23, 2007)

Posted on June 26, 2007