Iowa Sales Tax Issues for the Cosmetology Industry
Transcript of Iowa Sales Tax Issues for the Cosmetology Industry
![Page 1: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/1.jpg)
Iowa Sales Tax Issues for the Cosmetology Industry
Terry O’Neill
Taxpayer Service Specialist
![Page 2: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/2.jpg)
Are Cosmetology Services Subject to Iowa Sales Tax?
Yes
Barber & beauty services are listed in the Iowa Code as being taxable.
![Page 3: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/3.jpg)
What Specific Services are Taxable?
Taxable barber & beauty / cosmetology services include:
• Hair cutting / styling / coloring • Manicuring & pedicuring• Applying facial & skin preparations• Hair removal• Wig care • All other similar activities which tend to enhance the
appearance of the individual
![Page 4: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/4.jpg)
Are Sales of Products Taxable?
Yes
Sales of tangible personal property are subject to sales tax.
![Page 5: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/5.jpg)
What Types of Products are Taxable?
When sold to a customer over the counter at retail, sales tax should be charged on the following:
• Hair care products
• Hair accessories
• Nail polish
• Manicure/Pedicure Tools
• Jewelry
![Page 6: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/6.jpg)
Should I Pay Sales Tax When I Buy Products?
It Depends
How the products are transferred to the customer determines whether tax is due when
they are purchased by the cosmetologist.
![Page 7: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/7.jpg)
When Can Products be Purchased Tax Exempt?
Products that are purchased for resale are exempt from sales tax.
• The product must be for direct over the counter retail sale to customers
• An Iowa Sales Tax Exemption Certificate should be provided to your supplier
![Page 8: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/8.jpg)
• Show an exemption certificate here
![Page 9: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/9.jpg)
When Can’t Products be Purchased Tax Exempt?
Products that are used in the performance of your service are taxable.
This includes items such as shampoo used on a customer.
![Page 10: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/10.jpg)
What if I Sell Some Products and Use Others?
• Purchase the products tax free for resale
• Collect tax on over the counter retail sales
• Report products taken out of resale inventory for use in the performance of your service on line 2, Goods Consumed of your sales tax return
• Enter your cost of the product on line 2, not the price for which you would sell the product at retail
![Page 11: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/11.jpg)
QUIZ QUESTION #1
True or False?
Tax is due on shampoo used on a customer.
True
![Page 12: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/12.jpg)
Do I Pay Sales Tax on Equipment & Supplies
Yes
Items purchased for use by the business are taxable.
![Page 13: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/13.jpg)
Taxable Equipment & Supplies
• Blow dryers
• Bobby-pins
• Brushes
• Chairs
• Clippers
• Combs
• Cotton balls
• Curling irons
• Edgers
• Emery boards
• Eye pencils
![Page 14: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/14.jpg)
Taxable Equipment & Supplies
• Hair clips
• Hair dryers
• Hot combs
• Mannequins
• Nail clippers
• Nail files
• Nail scissors
• Paper towels
• Plastic caps
• Plastic gloves
![Page 15: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/15.jpg)
Taxable Equipment & Supplies
• Pressing combs
• Q-tips
• Razors
• Rollers
• Rubber bands
• Soap
• Scissors
• Towels
• Tweezers
![Page 16: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/16.jpg)
Taxable Equipment & Supplies
• Brooms
• Dust pans
• Garbage bags
• Mops
• Rags
• Sponges
• Vacuum cleaners
• Waste baskets
![Page 17: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/17.jpg)
QUIZ QUESTION #2
Which of the following are taxable when purchased by a cosmetologist?
a. Hair dryer
b. Scissors
c. Curling iron
d. All of the above
d. All of the above
![Page 18: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/18.jpg)
What Do I Need in Order to Charge, Collect, and Remit
Iowa Sales Tax?
An Iowa Business Tax Registration must be completed to apply for an
Iowa sales tax permit.
![Page 20: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/20.jpg)
Who Should Apply for a Sales Tax Permit?
• All owners of cosmetology businesses
• All persons performing work as an independent contractor at a business owned by another
![Page 21: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/21.jpg)
Who is Considered an Independent Contractor?
Iowa follows federal guidelines on the determination of independent contractor status.
For Internal Revenue Service information, contact the IRS at 1-800-829-1040.
If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Employee Work Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, with the IRS.
![Page 22: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/22.jpg)
Example 1
• Paul Pick, a barber, signed a lease agreement with Larry Lord, the owner of a barber shop, to use a chair in Larry’s shop. Larry bears all the shop expenses, including rent, utilities, advertising, linens, and other supplies.
• The agreement provides that 70 percent of the receipts from Paul’s chair go to him and 30 percent go to Larry. All receipts are put in Larry’s cash register. At the end of the week, he pays Paul the agreed percentage of the receipts.
![Page 23: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/23.jpg)
Example 1 Continued
• Shop hours are displayed on the shop door. Paul is expected to comply with them. He must take customers in turn, maintain clean premises, use clean towels and sterile equipment, and keep a clean personal appearance. Although Larry does not supervise Paul, Larry can dismiss him for acting in a manner that would cause the loss of patrons, or for any other reason.
• Larry does not direct or control Paul in the actual performance of his services, but he has the right to do so and to discharge him. Larry’s income depends on a percentage of Paul’s receipts. Thus, Larry retains the right to direct and control Paul to protect his investment and to be assured a sufficient profit from the shop. Paul has no investment in the shop, assumes no liability for its operation, and furnishes nothing except his personal services. Paul is an employee of Larry and doesn’t need to apply for a sales tax permit.
![Page 24: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/24.jpg)
Example 2
• Charlie Blue, the owner of a barber shop, and Sally Gold have an agreement under which Sally, a professional manicurist, furnishes manicuring services to shop patrons during business hours.
• According to the agreement, Sally regulates her own hours, furnishes her own equipment and supplies, and keeps the proceeds from her work. She does not use the shop cash register nor does she report her earnings to Charlie. She does not have to perform her services personally but can hire a substitute. Charlie cannot direct the way she performs her services. Either party to the agreement can end the arrangement at any time.
![Page 25: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/25.jpg)
Example 2 Continued
• Although Charlie has the right to dismiss her by ending the agreement, and although he furnishes her a place to work, he does not have the right to exercise over her work the degree of direction and control necessary to establish an employer-employee relationship. Therefore, Sally is an independent contractor and must apply for her own sales tax permit.
![Page 26: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/26.jpg)
QUIZ QUESTION #3
True or False?
The owner of a salon is always the only person who needs a sales tax permit.
False
![Page 27: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/27.jpg)
What Sales Tax Rate Do I Charge When I Sell Taxable
Products & Services?
The State of Iowa sales tax rate is 6%.
Some areas also have a
local option sales tax (LOST).
![Page 28: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/28.jpg)
What is Local Option Sales Tax (LOST)?
An additional 1% sales tax
that can be imposed
by Iowa counties and cities.
![Page 29: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/29.jpg)
How Do I Know if a Jurisdiction Has LOST?
See our Web site for LOST jurisdictions
www.iowa.gov/tax
![Page 30: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/30.jpg)
LOST List and Look Up App
Look up by zip code or address.
![Page 31: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/31.jpg)
What Sales are Subject to LOST?
LOST is due when products are delivered in an area that imposes
the additional 1% tax.
It is also due when cosmetology services are provided in a LOST
jurisdiction.
![Page 32: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/32.jpg)
Important Rule
Tax Cannot be Absorbed by, nor Paid by the Retailer
![Page 33: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/33.jpg)
Sales Tax can be Included in Total Sales Price
…if posted
![Page 34: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/34.jpg)
Consumer’s Use Tax
• A tax on the use of taxable goods or services in Iowa, when sales tax was not paid at the time of purchase.
• The rate is 6%.
![Page 35: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/35.jpg)
What Types of Purchases are Subject to Consumer’s Use Tax?• Typically due when purchases are made from
an out-of-state seller.
• Internet
• Mail order catalogs
• Magazine subscriptions
• 800 numbers
• Untaxed purchases made in another state and shipped/brought to Iowa.
![Page 36: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/36.jpg)
How Do I PayConsumer’s Use Tax?
• Businesses and individuals making taxable purchases on a regular basis should apply for a consumer’s use tax permit.
• Businesses with a sales tax permit can report purchases subject to consumer’s use tax on line 2, Goods Consumed, of the quarterly sales tax return.
![Page 37: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/37.jpg)
QUIZ QUESTION #4
In a LOST area, the additional 1% is due on which of the following:
a. Products sold over the counter
b. Manicure provided to a customer
c. Both a. and b.
d. Neither a. nor b.
c. Both a. and b.
![Page 38: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/38.jpg)
DiscountsThe word "discount" means "to buy at a reduction." Iowa sales tax applies to the reduced price paid by the customer.
Example
The price of a hair cut and styling at a salon is $50. The salon reduces the price to $45. Customers will pay Iowa sales tax on $45.
![Page 39: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/39.jpg)
CouponsCoupons issued by the producer of a product
These are not discounts and cannot be used to reduce the taxable amount of the product.
Example
The manufacturer of a bottle of shampoo issues a $1 off coupon which can be redeemed at any store which sells the product. The shampoo costs $6.75. A customer pays $5.75 plus the $1 coupon. Tax is due on the $6.75 because the total gross receipts are $6.75. The coupon is not used as a discount in this situation. The store is reimbursed the $1 for the coupon by the manufacturer.
![Page 40: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/40.jpg)
CouponsCoupons issued by the retailer
These are treated as a discount.
Example
A salon offers a two-for-the-price-of-one coupon for its own brand of nail polish. Each bottle of polish normally sells for $7.50. The coupon can only be redeemed at this salon. A customer uses the coupon to buy two bottles of polish. The purchase price was $7.50 for both bottles. The tax is due on the $7.50 because this amount is the gross receipts, even though the value of the two bottles would normally be $15.00. The retailer has no avenue for reimbursement.
![Page 41: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/41.jpg)
Gift Cards/Certificates
• Gift cards/certificates are exempt from tax at the time they are purchased.
• Tax is due at the time the card/certificate is redeemed by the customer.
![Page 42: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/42.jpg)
Tips & Gratuities• Monetary tips or gratuities included with the charge
for cosmetology services are subject to tax.
• If cosmetology service cannot be obtained without paying the gratuity or if the gratuity is inseparable from the service charge, tax is due on the full amount charged for the service.
• Tips or gratuities paid voluntarily by the customer are not taxable.
![Page 43: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/43.jpg)
QUIZ QUESTION #5
True or False?
Sales tax must be added to the price when a gift card is purchased.
False
![Page 44: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/44.jpg)
On Our Websitewww.iowa.gov/tax
Barbers and Cosmetologists publication
![Page 45: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/45.jpg)
45
![Page 46: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/46.jpg)
46
For Breaking NewseLists• General Business (sales/use)
• Individual Income (tax professionals)
• Withholding
• Motor Vehicle Fuel
• Cigarette/Tobacco
• Construction Contractors
• Government Entities
• Economic, Fiscal & Statistical Research• Iowa Tax Research Library Updates
![Page 47: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/47.jpg)
Follow Us on Twitter
@IDRBusinessTax
@IDRIncomeTax
@IDRTaxPros
47
![Page 48: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/48.jpg)
Need More Information?
• Call us: 8 a.m. - 4:15 p.m. CT
515-281-3114 / 800-367-3388
• E-mail us at [email protected]
48
![Page 49: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/49.jpg)
Purpose of this Webinar
This presentation is intended for general educational purposes only.
Anyone involved in an audit or protest must contact the Department
representative they are working with on that issue.
![Page 50: Iowa Sales Tax Issues for the Cosmetology Industry](https://reader033.fdocuments.us/reader033/viewer/2022050411/6270aa6a7bac4734575173ad/html5/thumbnails/50.jpg)
Questions and Answersand Evaluation Time
50