Tax

Telecommunications Equipment Sales Tax Exemption Update

January 2017
Author:  Todd Thorson

Todd Thorson

Partner

Tax

1401 50th Street, Suite 350
West Des Moines, IA 50266-5935

Des Moines
515.223.0159

Iowa allows a sales tax exemption on central office and transmission equipment purchases for certain companies furnishing telecommunication services in the state; Iowa Code Section 423.3(47A) and regulation 701-224.9 include ancillary equipment and apparatus that supports, regulates, controls, repairs, tests or enables transmission equipment to accomplish its function. The regulations don’t define ancillary equipment or apparatus examples.

In an appeal ruling from the Iowa Department of Revenue (DOR) review unit, conduit was denied as eligible equipment. Although, it could be argued that a conduit protects fiber running through it by regulating or controlling the communication delivery. The DOR views equipment as technological in nature and not—in its definition—a building material. The DOR didn’t specifically address this point: Central office racks also could fit the same category as conduit and be denied an exemption.

The DOR Policy and Communications Division made a second ruling related to the installed equipment’s primary purpose. In this case, an electric cooperative was installing fiber and electronics judged to be primarily for internet and video services. Telecommunications wasn’t the electric cooperative’s primary motive. The cooperative was denied the sales tax exemption within 423.3(47A).

These separate rulings have narrowly defined eligible equipment for the special sales tax exemption. These two rulings are directed specifically at the companies; however, it’s expected the policies will be followed for other, similar types of requests. Exemptions are available for remaining eligible equipment purchases by filing an Iowa Sales Tax Exemption Certificate with the billing vendor or filing an IA 843 Claim for Refund for previous purchases.

Contact your BKD advisor for more information.

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