Session Week 10
Fax: 563-355-9954

Sales and Use Tax Exemption for Iowa Foundries

On Wednesday, March 19, the House Ways & Means Committee approved House Files 26. This bill exempts the sale or rental of mold making equipment, sand, and chemicals directly and primarily used by a foundry in the mold making process from the sales and use taxes.

This bill simply clarifies that the sale or use of machinery, equipment, and materials used to produce a pattern, mold, or die in facilities such as foundries is exempt from taxation.

Current law provides that machinery and equipment used in manufacturing is exempt from the sales tax.

There are 66 Iowa foundries located across the state, of which there are two types—dye casters and sand casters. HF 26 only affects the sand casters, which accounts for approximately half of all Iowa foundries. The dye casters are not required to pay tax on similar equipment. The Department of Revenue and Finance (DORF) has taken the position that mold making and core making equipment is not part of processing, although without this equipment, an imposition of sales and use tax on patterns hurts those foundries that focus on producing special-order castings for their customers (a.k.a. “job shops”). For job shops, a large part of their business involves making patterns that are sold to their customers but are held by the foundry for use on an as-needed basis.

The DORF has indicated that these job shops must collect Iowa tax from their customers on the sale of these patterns. Due to the potential new sales tax, many customers could have the pattern made and the order filled by an out-of-state foundry. The result: Iowa-based job shops could lose business, or be forced to absorb the Iowa tax, making it extremely difficult for Iowa foundries to operate profitably in this state.

Surrounding states exempt this type of machinery, equipment, and materials from their sales tax and therefore put Iowa foundries at a clear disadvantage. The following states exempt both mold making equipment and materials: Illinois , Ohio , Michigan , Minnesota , Missouri , Texas , and Wisconsin . Indiana exempts only the machinery from sales tax. Nebraska and South Dakota are the only two surrounding states that tax both.

states where the tax is not imposed. This could cost the state hundreds of jobs.

Defining the Equalization Process

Every two years, the DORF is required to equalize assessments to ensure that all classes of property are assessed at the value defined by state law. Agricultural property, excluding agricultural dwellings, is assessed according to its productivity value. Other properties, residential and commercial realty, are assessed on the basis of market value. Increasing or decreasing the aggregate valuations of certain classes of property within each assessing jurisdiction accomplishes equalization.

Iowa ’s 108 city and county assessors establish valuations of individual properties every two years. Assessment equalization involves the aggregate valuations of entire classes of property. A county can ask the department for permission to adjust the valuations of individual properties differently (i.e., if the equalization order tells a county to raise residential property 2%, lake homes could be raised well above 2% while other residential property may not be adjusted to meet the 2% order by DORF.)

Equalization of assessments is necessary for the following reasons: (1) Iowa ’s more than 2,000 taxing districts do not correspond with the 108 assessing districts. Consequently, two or more local assessors may value the property in one taxing district, such as a school district. (2) State aid to local schools is based in part upon the property tax base of each school district. (3) Equalization is necessary to ensure that each class of property is assessed at the statutory level of actual value.

The determination of assessment is based upon: (1) An assessment/sales ratio study (based on real estate transactions). (2) Appraisals and investigation made by the Property Tax Section’s appraisal staff. (3) For agricultural realty, a study of each county’s actual productivity.

City and county assessors compare the aggregate actual valuations determined for each class of property with those reported to DORF after they have completed their biennial reassessments. If the reported valuations are more than five percent above or below those determined by DORF, there is an order for an adjustment for that class.

It is important to note that equalization and the reassessment of individual properties affects only the valuation of property.

  Ways & Means Update

Bills passed out of Ways & Means this week:
No Bills passed out of committee this week.

Bill Assigned in Ways & Means this week:

HF 99-A bill for an act relating to the recycling property exemption form property tax.

HSB 270-A study bill exemption the purchase of coins, currency, and bullion from sales and use taxes.

HSB 271-A study bill relating to the requirements for receiving a property tax exemption for open prairies and wildlife habitats.

HSB 272-A study bill relating to the gradual repeal of the state franchise tax.

   Week in Review Archives

2003 Session
03-14-03
03-07-03
02-28-03
02-21-03
02-14-03
02-07-03
01-31-03
01-17-03
01-24-03

2002 Session
05-28-02 Special Session II 
05-10-02 Special Edition
04-22-02 Special Session I
04-12-02
04-05-02
03-29-02
03-22-02
03-15-02
03-08-02
03-01-02
02-22-02
02-15-02
02-08-02
02-01-02
01-25-02
01-18-02

2001 Session
05-04-01
04-27-01
04-20-01
04-13-01
04-06-01
03-30-01
03-23-01
03-16-01
03-09-01
03-02-01
02-23-01
02-16-01
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02-02-01
01-26-01
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2000 Session
04-28-00
04-21-00
04-14-00
04-07-00
03-31-00
03-24-00
03-17-00
03-10-00
03-03-00
02-25-00