Policy Letter; Services Subject to Local Option Sales Tax
Topic Code: L136Local Option Tax (ST) Document Reference:
Policy letter; Services Subject to Local Option Sales Tax
Senior Manager
Peat Marwick
P. O. Box 772
Des Moines, IA 50303
DearThe meeting on January 13, 1993 involving yourself, Ms. Oberlander, Mr. Hickman and myself was very productive. After some considerable thought on the matter, I have decided to summarize the conclusions which we reached on that matter concerning the relationship between the taxable service of a financial institution and the Iowa local option sales tax. At a later time, I intend to deal with the question of whether or not the sale of an ATM machine is or is not subject to tax. The factual basis for the situation which I'm discussing in this letter is as follows: Your client is . This banking corporation has two subsidiary institutions which are located in Davenport and Ames, Iowa in areas of Scott and Story counties which impose the Iowa local option sales tax. employees in Davenport and Ames accumulate checks, deposits and other documents, package this data on a daily basis and ship the data to third parties in Polk County for processing. A third party named processes the data for the Davenport Bank and another party named processes the data for the Ames Thrift. and perform various computer processing services for on behalf of depositors. Given the above factual situation, we agreed first that under Iowa Code, § 422.43(11) made applicable by § 422B.8, only if a taxable service is "rendered, furnished or performed" in a jurisdiction imposing the local option sales tax are the gross receipts from that service subject to that jurisdiction's local option sales tax. We then discussed the question of whether or not any services which fit within the ambit of the taxable " service charges of all financial institutions" were performed at your client's subsidiary bank in Davenport or its subsidiary in Ames. Specifically, we examined those financial institutions service charges mentioned in Department subrule 701-26.8(3). After discussion, we determined that those services mentioned in 26.8(3)"a" through 26.8"f", were performed outside Scott and Story Counties. Finally, we concluded that the service mentioned in Department subrule 701-26.8(3)"g" (that is the issuance of certified checks drawn from a particular account) was a service performed at the local bank or thrift in Davenport or Ames, and within the jurisdictions imposing the local option sales tax. Thus, the gross receipts from the services mentioned in 26.8(3)"a" through "f" would not be subject to the Scott and Story County local option sales tax, but the gross receipts from the performance of the service of issuing a certified check in either of those counties would be subject to local option sales tax. Having discussed the question of how to determine if a service is performed entirely within or entirely outside of a jurisdiction imposing a local options sales tax, we next discussed the situation in which substantial portions of a taxable service are performed both inside and outside of a jurisdiction imposing a local option sales tax. You were then referred to Department rule 701-10.7(5) which deals with this question and sets out the principle that: if a taxable service is substantially performed partly within and partly without the areas of a county imposing a local option service tax, it will be presumed that all of the service is performed within the area of the county imposing the tax unless that portion of the service not subject to tax is separately stated, separately billed, and is reasonable in amount. We also discussed, somewhat, the difficulties involved in applying the rule and its fairly simple examples to the taxable service charges of financial institutions. I hope that this letter has accurately and fairly characterized the substance of our discussion on the above issue. If you do not believe that this is the case, do not hesitate to contact me as soon as possible. In closing, as previously promised, I will be sending you a letter stating the Department's informal position on the question of whether or not an ATM is part of a "computer". Sincerely, Darwin Clupper Tax Specialist, Policy Section Technical Services Division