GUIDE: GET MY BUSINESS ONLINE | STEP SIX:
Do I Need to Collect Sales Tax for Online Orders?
If you sell goods or services, regardless if it is online or in person, you more than likely will need to collect sales tax from your customers, and remit it to your state’s tax authority. However, not every state has a statewide sales tax mandate. Alaska, for example, does not have sales tax, but some local jurisdictions impose local sales taxes. You, as the business owner of an online or in person business, are responsible for understanding if you need to collect sales tax, to whom to give it to, and when to remit it to the state or local government.
Obtain an Iowa Sales Tax Permit
If you are just starting your online business, and will be making sales within Iowa, you need to obtain a Sales Tax Permit from the Iowa Department of Revenue (IDR). The IDR has a large library of helpful tools and resources to better understand sales and use taxes, necessary tax forms, webinars, and more. Before beginning your application, which can be done by paper or online (fastest method), you will need:
- Federal Employer ID Number (FEIN), if applicable (determine if you need one)
- Business owner(s) names and Social Security Number(s) (SSN)
After you formally apply for your permit (online or by paper), you can begin collecting sales tax from your customers prior to receiving your official permit number. If you apply by mail, it can take anywhere between four to six weeks to receive your permit. If you want your permit sooner, you should consider applying online. By applying online, you should receive confirmation within a few days, rather than a few weeks. Keep in mind that you will need either your EIN or Social Security Number to apply. Make sure you know your filing dates as it can change based on the amount of sales you have.
As of 2022, the current sales tax rate for the state of Iowa is 6%. Depending on the city the sale is taking place, there could be an additional 1% local option tax. This means the total % tax that would be collected from the customer is up-to 7%. Make sure you check with local municipalities (city governments) to see if they have additional taxes or fees to add to the state’s sales tax rate. The IDR has a helpful tool that can assist you in determining what tax is applicable and where. Remember, it’s always a good idea to speak with a tax or legal advisor to make sure you are doing this step correctly.
Collect Sales Tax in Iowa Only
If you have your own website and want to take orders for your products or services, you more than likely will need a shopping cart feature available for your customers to use. Website builders like Wix, Squarespace, and Shopify, typically have their own built-in store apps you can easily install and use for online sales. These stores would allow you to display your products or services, the cost of said products and services, and even the applicable tax you will collect and remit on the customers behalf.
Sometimes, these shopping carts have a premium feature that allows your customer to add in their ZIP Code to automatically apply the correct tax rate for the city/state they live in. If you are just selling to customers in Iowa, your singular Iowa sales tax permit is all you need. However, if you want to venture into other states, you will need to obtain the required permits/licenses to sell within those other states.
Collect Sales Tax Outside of Iowa
Question: I am an Iowa company, but I have customers living outside of Iowa who want to buy my products or services. What do I need to do to stay compliant with any and all tax laws?
Answer: Understand the applicable tax laws where your customers live.
The internet has revolutionized how we conduct business. We are now able to sell essentially anything online and for any price. Because these sales occur from one state into another, the question of who is liable to collect and pay the tax on the purchase has come into question. If you aren’t physically located within the state but are making taxable sales, the state theoretically is losing out on lost tax revenue.
In most states, if you sell under a certain dollar amount, you will not be subject to collecting or remitting sales tax on the sales you made. For example, in Iowa, if you are not located within Iowa but make taxable sales within the state, you are considered a remote seller. Remote sellers are not required to collect or remit sales tax to Iowa unless they have $100,000 in revenue or more in any given tax year.
Each state is different, so make sure you understand these thresholds before making any taxable sales outside of Iowa. If your sales are under their threshold (if they have one) you shouldn’t have to worry about collecting tax on their behalf. If they do, make sure you are doing it correctly and on time. For one-on-one assistance with this step, speak with your own tax or legal professional. For general information about each state’s requirements, connect with someone from the listed tax departments below:
Alabama | Alaska | Arizona | Arkansas | California | Colorado | Connecticut | Delaware | Florida | Georgia | Hawaii | Idaho | Illinois | Indiana | Iowa | Kansas | Kentucky | Louisiana | Maine | Maryland | Massachusetts | Michigan | Minnesota | Mississippi | Missouri | Montana | Nebraska | Nevada | New Hampshire | New Jersey | New Mexico | New York | North Carolina | North Dakota | Ohio | Oklahoma | Oregon | Pennsylvania | Rhode Island | South Carolina | South Dakota | Tennessee | Texas | Utah | Vermont | Virginia | Washington | West Virginia | Wisconsin | Wyoming
Frequently Asked Questions
Do you have questions about sales tax and other related taxes? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state who provide free to low-cost assistance to Iowa entrepreneurs and small business owners.
Question: When does my Iowa Sales Tax permit expire?
Answer: Permits remain active until you or the DOR cancels it.
Question: I only need a tax permit for a short period of time, how do I get a temporary permit?
Answer: There are no temporary event tax permits (craft shows, farmers markets, etc)
Question: How much sales tax/use tax am I supposed to collect from my customers?
Answer: Iowa’s Sales/Use Tax rate is 6%, and the Local Option tax rate is 1%. Learn where this tax is applicable within Iowa.
Question: Does IDR host any workshops to learn about taxes?
Answer: IASourceLink has hosted many tax webinars with members from the Iowa Department of Revenue’s team over the years.
Question: How do I become exempt from paying or collecting sales tax?
Answer: You will give a completed Exemption Certificate to each supplier when you buy goods and services for resale or other exempt purposes. Similarly, you will also need to obtain exemption certificates from your customers when they purchase goods or services from you for resale or other exempt purposes. Keep these for your records.
Question: I’ve lost my sales tax permit information, what do I do?
Answer: If you lose or cannot find your Business eFile Number (BEN), Send an email to [email protected] and provide the business name of your tax permit, Iowa tax permit number (if applicable), requestor’s name, requestor’s ten-digit phone number, and requestor’s email address. The Iowa Department of Revenue will mail you a copy of your Business eFile Number (BEN), your permit number and instructions on how to file and remit taxes.
Question: Does IDR have any helpful resources that can teach me about sales tax in my industry?
Answer: There is a complete guide to Iowa Sales and Use Tax on the IDR website, as well as more tailored guides for industries like:
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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.
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