Iowa Sales Tax

April 2018 WATCHDOG

Everybody pays it, but do you really know what you are paying for and where your money goes? In 1992 Iowa sales and use tax was increased to five percent to be applied to the sale of all tangible goods, except groceries and prescription drugs. All of the five percent sales tax revenue goes to the State of Iowa General Fund. A comparable use tax should apply to all goods sold in Iowa from outside the state, but many Internet companies have expected their customers to pay the use tax, but they do not. That will be changing. Amazon will begin paying Iowa Use Tax.

In 1988 the Legislature decided the schools needed more money, so each County was given the option of voting for an additional one percent sales tax that was to be used for school infrastructure. Originally this school add-on was known as the School Infrastructure Local Option (SILO) sales tax. In 2008 that extra one percent was combined with the original five percent. In the beginning the SILO tax was given to the school districts were the SILO tax was collected. Dickinson County faired very well under that program. Some counties complained they were not receiving their fair share, so the name was changed to Secure An Advanced Vision For Education (SAVE). And the distribution formula was changed to distribute the SAVE revenue evenly among all school districts based on the number of students. The most recent annual distribution was $960 per student. This school infrastructure sales tax is set to expire in 2029. The Legislature is considering extending that date to 2050.

In the late 1990’s each County and City was given an option to vote for an additional one percent sales tax that became known as the Local Option Sales Tax LOST). Dickinson County and most cities voted for that also. That money is distributed to the City or County where it is collected. For Fiscal Year 2018 Dickinson County has estimated $1.3M in Local Option Sales Tax that will be allocated 75% to the Rural Fund and 25% to the General Fund. In most of Iowa you are paying a seven percent sales tax that includes a one percent Local Option and one percent School Infrastructure sales tax.

Note: Iowa school funding is a very complex set of formulas and annual appropriations that are beyond the scope of this newsletter.

Hotel – Motel Tax

All lodging in Iowa is taxed by a five percent excise tax. Then each community with a lodging facility can add an additional tax., Okoboji, Spirit Lake, , and the unincorporated areas of Dickinson County charge an additional five percent for a total of ten percent lodging tax. Arnolds Park, Milford, Wahpeton, and West Okoboji charge seven percent additional.

The distribution of the lodging tax revenue in Arnolds Park and the unincorporated areas of Dickinson County is 50% to the Okoboji Tourism Committee and 50% to the government entity. The City of Okoboji keeps 50% of the revenue and provides the other 50% to the Okoboji Marketing Committee, a committee of the City of Okoboji - who determines how the funds should be distributed, and if any should be given to the Okoboji Tourism Committee.

Spirit Lake sends $35K to the Spirit Lake Chamber and $35K to Okoboji Tourism. Milford allocates $5K to Okoboji Tourism and keeps the balance. The FY-17 revenue produced by the Hotel – Motel Tax is Arnolds Park $370K, Milford $68K, Okoboji $251K, Spirit Lake $89K, Wahpeton $25K, and Dickinson County $55K – totaling $858,000.

 Natural Resources & Outdoor Recreation Trust Fund

In 2010 Iowans approved a constitutional amendment to provide a trust fund for keeping natural resources and outdoor recreation funds safe from being used for other purposes. It was proposed that the first 3/8ths of the next one percent increase in sales tax would be used to fund this trust fund. The measure received 69 percent approved, but it asked for no new tax money. Increasing the sales tax has languished ever since. When it happens the sales tax will probably be increased by a full one percent. The question is how to spend the additional 5/8ths of an additional cent in sales tax.