MEMORANDUM APRIL 28, 1988
Topic Code: L136Local Option Tax (ST) Document Reference:
MEMORANDUM APRIL 28, 1988TO: JERRY HILTON, TAXPAYER SERVICES FROM: DARWIN D. CLUPPER, TTS III DATE: APRIL 28, 1988 RE: LOCAL OPTION TAXES, YOUR REQUEST FOR POLICY, APRIL 7, 1988 FACTS:
and of Dubuque purchased a bank in Dyersville that closed in 1986. The and Savings "home" office bank is in Dubuque. A local option sales tax is imposed within that city. The Dyersville bank which purchased has become a "branch bank". There is no local option tax in Dyersville at this time. Checks and envelopes issued by American Trust and Savings indicate that it has offices in both Dubuque and Dyersville. Certain customers do their banking (e.g. deposit or withdraw money from a checking account) at the branch bank in Dyersville and other customers do their banking at the home office in Dubuque. ISSUE: Is local option sales tax due on gross receipts from bank service charges performed for customers who bank at the branch bank located outside the area of Dubuque County which imposes a local option sales tax? STATUTES AND RULES INVOLVED: Iowa Code, subsection 422.42(16), 422.43(11) and 422B.8. Department rules 701-26.8(3), 701-107.4 and 701-107.5. DISCUSSION: Under Section 422B.8 of the Code "A local...service tax at the rate of not more than one percent may be imposed by a county on the gross receipts taxed by the state under Chapter 422, Division IV." Under Section 422.43(11)(1987 Code Supplement) the "service charges of all financial institutions" are subject to the service tax. Further, under Section 422B.8 the local service tax is imposed "on the same basis as the state...services tax". Again, under subsection 422.43(11) taxable services are "subject to the tax imposed on gross taxable services". Subsection 422.42(16) defines "gross taxable services" to mean only those services "rendered, furnished, or performed in this state". Under these circumstances, imposing the local option service tax "on the same basis" as the state service tax demands that local option service tax be imposed only upon those services "rendered, furnished, or performed" within the areas of a county imposing the local option sales tax. Rule 26.8(3) sets out various financial institution service charges which, if performed in relation with a checking account, are subject to tax. Among those charges are: a. Fees for transferring funds from one account to another....
b. Stop payment charges.
c. Debit card replacement fees.
d. Copy and research fees.
e. Bill payment fees.
f. Returned deposit item fees g. The fee for issuing a "certified" check....
The law's demands are clear. If a taxable service is rendered, furnished or performed at the "home" bank in Dubuque the receipts from that service are taxable. If the service is rendered, furnished or performed in Dyersville, the receipts are not taxable. It is also logical to ask what the result is if some service charges performed in relation to a single checking account are performed in Dyersville and some other charges are performed in relation to that same checking account in Dubuque. I believe that rule 701-107.5 deals with that situation. The rule reads in relevant part:If a contract for taxable service is substantially performed partly within and partly without the area of a county imposing a local option service tax, it will be presumed that all of the contract is performed within the area of the county imposing the tax unless that portion of the service is separately stated, separately billed, and is reasonable in amount.
I had a telephone conversation with. During the conversation I endeavored to find out what services are performed in Dyersville and what services are performed in Dubuque with regard to checking accounts for customers who bank in Dyersville. The conversation was fairly enlightening thought did not particularly want to get beyond generalities and into specifics. However, as I understand it, not that many actual services are performed with regard to checking accounts in Dyersville. The branch bank acts as a point at which deposits can be made in an account or money withdrawn from it, but not as a point where that many other services are performed with regard to checking accounts. The records with regard to checking accounts, the checks themselves and deposit slips are kept in Dubuque. The actual mathematical calculations regarding all checking accounts are done, as I understand it, by a data processing service located in Wisconsin. It seems fairly clear, after my conversation with , that taxable services for Dyersville checking account customers are "substantially performed" within Dubuque although there may also be substantial performance of those contracts outside of Dubuque. Under these circumstances, rule 701-107.5 would become applicable and taxable service charges on Dyersville checking accounts taxed in their entirety unless the requirements of the rule were adhered to. I must state in closing that sincerely believes that service charges for Dyersville checking account customers ought not to be subject to tax. He expects that you will give him this answer. He considers it grossly unfair that Dyersville customers should have the Dubuque local option tax imposed upon them. In response to his inevitable complaints I do have some suggested answers: 1) one cannot make tax laws perfectly fair; 2) the Department will endeavor to tax other persons who have taxable services performed partly within Dubuque and partly without. The requirements of the rule will be equally applied; 3) the effects of the rule can be avoided if all taxable services for Dyersville checking account customers are performed either in Dyersville or otherwise outside the areas of Dubuque county imposing the local option sales tax. The difficulties inherent in answer 3) lead logically to answer to 4): Centralizing and dividing functions between the branch bank in Dyersville and the central bank in Dubuque brings many advantages to and and to its customers as well. The fact that some small amount of additional local option sales tax is paid as a result of this centralization of functions is a small price to expend for the benefits of centralization and consolidation.