ARC 8732C

ARC 8732C

Proposing rulemaking related to state-imposed water service excise tax and providing an opportunity for public comment

The Administrative Rules Coordinator provided preclearance for publication of this Notice of Intended Action on December 10, 2024.

A Regulatory Analysis for this rulemaking was published in the Iowa Administrative Bulletin on November 13, 2024. A public hearing was held on the following date(s):

●December 3, 2024

No public comments on the Regulatory Analysis were received at the hearing or in writing. No changes have been made to the text since publication of the Regulatory Analysis.

Any persons who intend to attend a public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Department and advise of specific needs.

ITEM 1.Rescind 701—Chapter 252 and adopt the following new chapter in lieu thereof:

CHAPTER 252

STATE-IMPOSED WATER SERVICE EXCISE TAX

701—252.1(423G) Definitions.

252.1(1) Incorporation of definitions. To the extent they are consistent with Iowa Code chapter 423G, all words and phrases used in this chapter mean the same as defined in Iowa Code section 423.1.

252.1(2) Chapter-specific definitions. For the purposes of this chapter, unless the context otherwise requires:

“Facilities” means any storage tanks, water towers, wells, plants, reservoirs, aqueducts, hydrants, pumps, pipes, or any other similar devices, mechanisms, equipment, or amenities designed to hold, treat, sanitize, or deliver water.

“State-imposed tax” or “tax,” unless otherwise indicated, means the water service excise tax imposed by Iowa Code section 423G.3.

“Water utility” means the same as defined in Iowa Code section 423.3(103). “Corporation” as used in Iowa Code section 476.1 and as incorporated by Iowa Code section 423.3(103) includes municipal corporations.

This rule is intended to implement Iowa Code sections 423G.2 and 423G.3.

701—252.2(423G) Imposition. A state-imposed tax of 6 percent is imposed upon the sales price of water service furnished by a water utility to a purchaser.

This rule is intended to implement Iowa Code section 423G.3.

701—252.3(423G) Administration.

252.3(1) Generally. The department is charged with the administration of the tax, subject to the rules, regulations, and direction of the director.

252.3(2) Application of 701—Chapter 11. The requirements of 701—Chapter 11 apply to water utilities in the same manner that those requirements apply to all sellers and retailers making sales subject to state sales tax.

This rule is intended to implement Iowa Code section 423G.5.

701—252.4(423G) Charges and fees included in the provision of water service.

252.4(1) Sales integral to the ability to furnish water service. The water service excise tax applies to the sale of water by piped distribution to consumers or users, including sales of accompanying services that are integral to furnishing water by piped distribution, even if the water service and accompanying services are billed separately.

252.4(2) Examples of sales integral to the provision of water service. Sales of services to consumers or users that are considered integral to the furnishing of water by piped distribution include but are not limited to the following:

a.Nonitemized tangible personal property included with the sale of water service or an accompanying service that is integral to the provision of water service. More information on nonitemized tangible personal property is contained in subparagraph 252.4(4)“a”(2).

b.Water sold, regardless of whether the water is metered.

c.Service, account, or administrative charges or fees for water service, including but not limited to new customer account charges and minimum charges for access to water service, whether the customer uses the water service or not.

d.Fees for connection, disconnection, or reconnection to or from a water utility’s facilities, including tap fees.

e.Fees for maintenance, inspection, and repairs of the water distribution system, water supplies, and facilities, including but not limited to fees for labor or materials.

f.Fees for using or checking water meters.

g.Water distribution system infrastructure and improvement fees.

252.4(3) Examples of sales that are not water service or are not integral to the provision of water service. Sales of services that are not integral to the furnishing of water by piped distribution include but are not limited to the following:

a.Residential service contracts regulated under Iowa Code chapter 523C.

b.Sales or rentals of tangible personal property, other than water, sold for a separately itemized price. More information on itemized tangible personal property is contained in subparagraph 252.4(4)“a”(1).

c.Returned check fees.

d.Deposits, including but not limited to check and meter deposits.

e.Fees for printed bills, statements, labels, and other documents.

f.Fees for late charges and nonpayment penalties.

g.Leak detection fees.

252.4(4) Sales generally not subject to water service excise tax. Water utilities may make sales that may or may not be integral to the sale of water service but that are not subject to water service excise tax because those nonintegral sales are subject to sales tax under Iowa Code section 423.2 as the sale of tangible personal property enumerated nonwater services or specified digital products.

a.Sales of tangible personal property. Whether the sale of tangible personal property that is integral to water service is subject to the water service excise tax depends on whether the tangible personal property is sold to the consumer or user for a separately itemized price.

(1)Itemized tangible personal property. Sales or rentals of tangible personal property by a water utility for a separately itemized price are not subject to the water service excise tax but may be subject to sales and use tax.

(2)Nonitemized tangible personal property. If the sale of tangible personal property is not itemized but is instead bundled with the sale of water service, including sales of services listed in subrule 252.4(2), then the entire sales price is subject to the water service excise tax.

b.Painting of hydrants. The painting of hydrants constitutes painting services under Iowa Code section 423.2(6)“aj.” Painting is subject to sales tax and is not subject to water service excise tax.

c.Pipe fitting and plumbing. Some repairs of a water distribution system may constitute pipe fitting and plumbing under Iowa Code section 423.2(6)“an.” Pipe fitting and plumbing services are subject to sales tax and are not subject to water service excise tax.

252.4(5) Exemptions. The exemptions from sales tax under Iowa Code section 423.3 also apply to sales subject to water service excise tax. For example, a water utility that purchases water service from a different water utility may be eligible to claim the sale for resale exemption pursuant to Iowa Code section 423.3(2).

This rule is intended to implement Iowa Code sections 423G.4 and 423G.5.

701—252.5(423G) When water service is furnished for compensation.

252.5(1) Itemized sales of water service. Water service is furnished for compensation when water service is sold for a separately itemized price.

EXAMPLE A: Itemized sale of water service. Z is an entity that provides water from a well by piped distribution to various homes in the community. Each home that is connected to the well pays $20 per month, which is used by Z for maintaining the water distribution system. Z is a water utility making sales of water service and must collect and remit tax on the $20 monthly fee charged to each of Z’s members.

EXAMPLE B: Sale for resale. An apartment owner purchases water from a city water utility and distributes the water to each unit through a system of pipes. The city meters the apartment owner’s use of water each month and charges the apartment owner for the water service. The apartment owner separately bills each of the tenants $40 per month for water service, including the cost of water and maintenance on the water distribution system. The apartment owner is a water utility and must collect and remit tax on the $40 monthly charge for water service. The apartment owner may purchase the water from the city exempt from tax as a sale for resale.

252.5(2) Water service sold for an identifiable price. Water service is furnished for compensation when the price of the water service is identifiable from an invoice, bill, catalog, price list, rate card, receipt, agreement, or other similar document, including where the total sales price increases when water service is included in the sale.

EXAMPLE: Cost varies with inclusion of water service. A campground provides three campsite packages to its customers:

Package A includes only campsite access for $10 per night.

Package B includes campsite access and an electrical hookup for $20 per night.

Package C includes campsite access, an electrical hookup, and water service for $30 per night.

Sales of package C by the campground include sales of water service. The campground must collect and remit tax on $10—the identifiable sales price of water service.

252.5(3) Water service not furnished for compensation; incidental sales. No sale of water service for compensation occurs where water service is not sold for a separately itemized or identifiable price and is incidental to the rental of real property.

EXAMPLE A: Water service sold with real estate rental for one nonitemized price. A manufactured housing community (MHC) owner owns a well and pipes water to the lots. The MHC owner charges tenants $500 per month for each lot rental. Water from the well is included in the $500 rental charge. The MHC owner does not do any of the following: charge a flat water fee, charge tenants based on their actual water used, or offer comparable lots at a lower price that do not have access to water service. The MHC owner is not required to collect or remit tax because water is not being furnished for compensation; it is incidental to the rental of real property.

EXAMPLE B: Water service sold with real estate rental for one nonitemized price. A manufactured housing community (MHC) purchases water from a city water utility and distributes the water to each lot in the community through a system of pipes. The city meters the MHC’s use of water each month and charges the MHC for the water service and the applicable tax. The MHC charges its tenants $500 for lot rental. As in the previous example, the MHC owner does not do any of the following: charge a flat water fee, charge tenants based on their actual water used, or offer comparable lots at a lower price that do not have access to water service. The MHC owner is not required to collect or remit tax because water is not being furnished for compensation; it is incidental to the rental of real property.

This rule is intended to implement Iowa Code section 423G.3.

701—252.6(423G) Itemization of tax required. A water utility shall add the tax to the sales price of the water service, and the tax, when collected, shall be stated as a distinct item on any bill, receipt, agreement, or other similar document. The tax shall be identified as the water service excise tax, and the amount of tax paid shall be displayed clearly on the bill, receipt, agreement, or other similar document provided to the purchaser.

This rule is intended to implement Iowa Code section 423G.3.

701—252.7(423G) Date of billing—effective date and repeal date. For purposes of determining whether sales tax or water service excise tax applies to billings that span across the July 1, 2018, effective date of Iowa Code chapter 423G or the future repeal date described in Iowa Code section 423G.7, the provisions of rule 701—204.7(423) apply.

This rule is intended to implement Iowa Code section 423G.5.

701—252.8(423G) Filing returns; payment of tax.

252.8(1) Application of 701—Chapter 202. The requirements of 701—Chapter 202 apply to water utilities in the same manner that those requirements apply to all sellers and retailers making sales subject to state sales tax.

252.8(2) Frequency of return filing and payment of tax based on combined water service excise tax and sales and use tax. With respect to the tax thresholds used for determining whether a retailer must file a return and remit sales and use tax monthly or annually as described in rule 701—202.1(423), the threshold for determining how frequently a water utility must file a return and remit the water service excise tax is based on the sum of the total amount of sales and use tax collected and the total amount of water service excise tax collected.

This rule is intended to implement Iowa Code section 423G.5.

701—252.9(423G) Permits.

252.9(1) Application of 701—Chapter 201. The requirements of 701—Chapter 201 apply to water utilities in the same manner that those requirements apply to all sellers and retailers making sales subject to state sales tax.

252.9(2) Separate water service excise tax permit required. All water utilities must register for a water service excise tax permit and remit the tax under that permit. Water utilities that also make other sales subject to sales tax must obtain a water service excise tax permit and a sales tax permit and must remit all sales tax under the sales tax permit and all water service excise tax under the water service excise tax permit.

This rule is intended to implement Iowa Code section 423G.5.