Iowa Use Tax As Applied to Installment Payments

The Iowa Department of Revenue (IDOR) has explained that Iowa consumers' use tax is due on the last day of the month that next succeeds the quarterly period, even if payment is done in installments.  That has implications for asset acquisitions, and may come as a surprise to some.

The facts involved the purchase of large asset that the buyer paid for in three installments.  Ten percent of the purchase price was paid via a deposit at the time the original purchase order was sent to the seller in 2006.  As of December 1, 2007, the asset was completely installed.  When the installation was complete, another 80 percent of the purchase price was due.  The buyer planned to make that payment in January of 2008.  The final payment of 10 percent is due by December 1 of 2008.  The asset was not purchased in Iowa, but will be used in Iowa, and the seller has no connection with Iowa.  So, the buyer owes consumers' use tax on the purchase price of the asset.  The question is when the tax is due and owing.

The relevant Iowa Code section is §423.34.  That section ties the tax to actual usage of the asset and specifies that the consumers' use tax is due and owing by the last day of the month that immediately follows the calendar quarter in which the asset was first used.  Since the first usage of the asset occurred in December of 2007, the tax was due and owing by January 31, 2008.  For installment purchases, therefore, payment of the tax is not based on the calendar quarter in which the payments are made.  IDOR Policy Letter #08300005 (Jan. 18, 2008).