August 14, 2012

 

 

            Re: Taxability of the Sale of Certain Services

 

Dear :

 

Recently, the Department received your inquiry regarding whether you should be charging sales tax on the sales price of certain services.  Specifically, you wanted to know whether you should be charging sales tax on 1) space you sell to setup a booth at events your organization has; 2) renting out the track for a driving school; and 3) renting out the parking lot for defensive driving classes. 

 

Iowa imposes sales tax upon the sale price of all sales of tangible personal property unless otherwise exempted.  Iowa also imposes sales tax upon the sales price of specifically enumerated services. The items you inquire about are services and, therefore, will be subject to tax only if they are enumerated in the Iowa Code.

 

1.      Renting Space to Set Up a Booth at an Event You Have

 

The issue here is whether the sales price of renting space to set up a booth at your organization’s events is subject to sales tax.  At your organization’s events, which generally consist of motorsports races, the vendors purchase space to sell apparel and/or promote products. 

 

Iowa Code section 423.2(6) does not impose sales tax on the sales price of renting spaces to sell or promote goods. The Iowa Code does impose sales tax on the sales price of renting space to store household goods and of mini-storage, but the service that you describe is not similar enough to those services to be taxable.  Therefore, the sale of space to setup a booth at your organization’s events is not subject to sales tax.

 

2.      Renting out the Race Track for a Driving School

 

The issue here is whether renting out the race track for a driving school is the taxable sale of “commercial recreation” or, conversely, whether it is the non-taxable rental of real property.

 

Under 701 IAC 26.18(2)”b” the sales price of rental of real property is not subject to sales tax if the rental contract allows the renter exclusive possession or use of a defined area of the real property. 

 

Iowa Code section 423.2(6) imposes sales tax on commercial recreation. Furthermore, “[p]ersons providing facilities for recreation for a charge are rendering, furnishing, or performing a service, the gross receipts from which are subject to tax. ‘Recreation’ . . . include[s] all activities pursued for pleasure, including sports, games and activities which promote physical fitness.”  701 IAC 26.24. 

 

In a 1997 declaratory order,[1] the Director of the Department of Revenue ruled on an issue similar to the issue here.  There, a sports and recreation facility rented the arenas for the purpose of teams conducting baseball, soccer, or roller hockey practice.   Instruction and equipment was not provided by the facility.  The issue was whether rental of the sports and recreation facility was providing a taxable enumerated service (a facility for commercial recreation) or was the rental of real property. 

 

The Director quoted 701 IAC 26.24 and 701 IAC 26.18(2)”b”, exactly as quoted above, and ruled that “the rental of the arena is not the rental of real property, but is the taxable service of renting an area of a facility for commercial recreation.”  His rationale, which comports with the Department of Revenue’s current position, was that:

 

One who rents an arena is not simply renting an area of the . . . real property. Instead, the renter is paying a fee to rent the arena, which is a portion of the . . . facility designed for the purpose of playing or practicing a designated sport. . . . [T]he arena is the true item that is being rented.

 

In your case, instead of renting the race track for baseball, soccer, or roller hockey practice, your organization is renting out the race track to a driving school which allows participants to drive cars around the facility’s track.  Driving stock cars around a racetrack falls into the category of “commercial recreation” because participants pursue stock car racing for pleasure and stock car racing is a sport. Moreover, similar to the aforementioned declaratory order, your organization is not renting out the area of the real property but rather renting out the facility so the driving school can participate in commercial recreation.  Therefore, the sales price of renting out the race track for a driving school is subject to sales tax.     

 

3.      Renting Out the Parking Lot for a Defensive Driving Class 

 

The issue here is whether the sales price of renting out the race track parking lot for a defensive driving class is subject to sales tax.  The organization that rents the parking lot sets up cones and teaches participants defensive driving techniques; the participants use their own vehicles. 

Here, the parking lot is not rented out for commercial recreation because the defensive driving class is not for pleasure or for sport. Moreover, the price of renting out the race track parking lot is not an enumerated taxable service nor is it the sale of tangible personal property. Renting out the race track parking lot is the rental of real property which is not subject to tax.  Therefore, the sales price of renting out the parking lot for a defensive driving class is not subject to sales tax because the parking lot is real property. 

 

In sum, the sales price of renting space to set up a booth at your event is not subject to sales tax. The renting out the race track for a driving school is the performance of a taxable enumerated service and the sales price is subject to sales tax.  Finally, renting out the parking lot for a defensive driving class is the rental of real property and therefore, the sales price is not subject to sales tax.

 

I hope this information is of assistance to you.  Please be advised that this letter is an informal opinion and is only applicable to the factual situation referenced and to the statutes in existence at the time of issuance.  Because of this, the department could, in the future, take a position contrary to that stated in the letter.  Any written advice or opinion rendered to members of the public by department personnel that is not pursuant to a Petition for Declaratory Order under 701 IAC 7.25 is not binding upon the department.  If you have any additional questions regarding this matter, please do not hesitate to contact me.

 

Sincerely,

 

Cody J. Edwards

Attorney--Tax Policy & Communications

Iowa Department of Revenue

Hoover State Office Building

1305 East Walnut Street

Des Moines, Iowa 50319

515.7252294

cody.edwards@iowa.gov