Policy letter; computers; Dec. 28, 2009

Topic Code: C266 Computer (ST)          Document Reference: 09300092

December 28, 2009




Re: Commercial enterprises and computers, your letter, 11-13-2009.


Your recent letter to the Iowa Department of Revenue has been given to me for reply.  Please allow me to introduce myself.  My name is Darwin Clupper.  I am a technical tax specialist with the Department of Revenue’s Policy Section.  My particular area of concentration is Iowa sales and use tax law.


You inquire on behalf of your company which, your letter states, is a manufacturer, and, for the purposes of answering that letter, can be safely assumed to be a for-profit enterprise.  Recently, purchased a piece of office equipment called a Canon Imagerunner 1025.  This machine will send faxes and print received faxes, scan documents to a file server, copy documents, and print documents from your office network.  The Imagerunner is connected to your company’s “file server” computer by a cable.


Your letter asks two questions:


q      Based on the information from the State of Iowa website cited above are we exempt from having to pay sales tax on computer equipment used in our facility?


q      Do you consider the new equipment we have described to be a printer and thus exempt from sale tax?


In reply to your first question, Iowa Code, § 423.3(47) “a” (4) (2009) exempts from tax the sale of tangible personal property which is a computer “used in processing or storage of data or information by an insurance company, financial institution, or commercial enterprise.”  The term “commercial enterprise” is defined by § 423.3(47) “d” (1) of the Code as follows:


  1)  "Commercial enterprise" includes businesses and manufacturers 
       conducted for profit and centers for data processing services
       to insurance companies, financial institutions, businesses, and
       manufacturers, but excludes professions and occupations and
       nonprofit organizations.


There is no need for extensive argument or analysis; your business is a for-profit manufacturer, so it is clearly a commercial enterprise.  Sales to it of computers used in the processing or storage of data are exempt from Iowa tax.


Concerning the Cano Imagerunner, Department subrule 701 IAC 18.58(1) defines, for the purposes of Code § 423.3(47), the word “computer” as follows:


  "Computer" means stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. Nonexclusive examples of devices fastened by a signal cable or other communication medium are terminals, printers, display units, card readers, tape readers, document sorters, optical readers, and card or tape punchers.


The Department’s rules have the force of law and are presumed to be valid, Richards v. Iowa Department of Revenue, 360 N.W.2d 830, 833 (Iowa 1985) and cases cited therein.  Words contained in exemption statutes are strictly construed; all doubt regarding their meaning is resolved in favor of taxation and against exemption.  Ballstadt v. Iowa Department of Revenue, 368 N.W. 2d 147 (Iowa 1985) and Iowa Movers and Warehousemen's Association v. Briggs, 237 N.W. 2d 759 (Iowa 1976).  A combination of the above two principles has led the Department to adopt the policy that more than mere attachment to a computer is necessary to render a peripheral device a part of a computer, the sale of which is exempt from tax.  The output of other than incidental amounts of information from any device must be derived from data stored or processed within a computer’s central processing unit if that device is to be considered part of the computer.  Based on the information provided, the Imagerunner printing is not a computer nor a devise attached to a computer and thus, it is not exempt from the sales tax.  A printer incidentally attached to a computer but used mainly to print materials derived from sources other than a computer could not be purchased exempt from tax under § 423.3(47) of the Code.    


In closing, I must issue my usual warning.  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.




Darwin D. Clupper

Tax Specialist, Policy Section

Compliance Division