Sent via email

 

October 15, 2014

 

 

 

            Re:      Construction equipment

 

Dear :

 

Recently, the Department received your question regarding the Iowa tax exemption for the rental of construction equipment on new construction projects.  You ask what qualifies as “ construction equipment” for purposes of being tax exempt.  You stated that if you rent a crane or something similar, you thought that would be exempt.  Conversely, you thought that the copier in your construction trailer on the job site would likely not qualify as “ construction equipment” and would therefore not be able to be rented tax exempt.  However, you are unsure of the treatment of rentals of construction trailers you rent as temporary offices and storage containers rented to store materials in.

 

Iowa Code § 423.2 imposes tax on the sale price of tangible personal property purchased at retail in this state.  Iowa Code section 423.3(37) exempts:

 

The sales price of services on or connected with new construction, re construction, alteration, expansion, remodeling, or the services of a general building contractor, architect, or engineer.  The exemption in this subsection also applies to the sales price on the lease or rental of all machinery, equipment, and replacement parts directly and primarily used by owners, contractors, subcontractors, and builders for new construction, re construction, alteration, expansion, or remodeling of real property or structures and of all machinery, equipment, and replacement parts which improve the performance, safety, operation. or efficiency of the machinery, equipment, and replacement parts so used.

 

As indicated in the statute, the exemption applies to “machinery, equipment, and replacement parts.”  Neither the construction trailers rented as temporary offices nor the storage containers rented to store materials are used directly in new construction.  As you mentioned, the types of equipment normally treated as exempt under Iowa Code section 423.3(37) include cranes, excavators, bulldozers, compactors, and scrapers.  “The fact that machinery or equipment is essential or necessary to new construction…does not mean that it is also ‘directly used’ in such an activity.”  701 IAC 107.9.  “Machinery or equipment may be necessary to one of the previously mentioned activities, but so remote from it that it is not directly used in the activity.”  Id.  The trailers and storage containers do not have an actual causal relationship with the actual physical construction.  See id.  Generally, property is “directly used” only if it is used to “initiate, sustain, or terminate an exempt activity.”  701 IAC 18.58.  Because the trailers and the storage containers are not directly used in new construction, they are not exempt.  In addition, it is not clear the trailers and storage containers would even meet the definition of equipment, and if they do, whether they are primarily used in new construction; however, as stated above, because the trailer sand storage containers cannot satisfy the “directly” requirement, that analysis is not necessary.

 

I hope this information has been helpful to you. Please remember that this letter is an informal opinion based only on the facts you provided, and on the current law. In the future the Department could take a position contrary to that stated in this 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 7.24 is not binding upon the Department. If you have any additional questions regarding this matter please do not hesitate to contact me.

 

 

Sincerely,

 

Theresa A. Dvorak

Policy Section

Taxpayer Services and Policy Division

Iowa Department of Revenue

(515) 281-3194

theresa.dvorak@iowa.gov