Recently, the Iowa Department of Revenue issued informal guidance regarding Iowa’s sales tax exemption for purchases of computers by a commercial enterprise.

I have previously discussed Iowa’s computer sales tax exemption here and here. The informal guidance, in some cases, contradicts previous guidance provided by the Department and relied upon by taxpayers, and in other cases, is confusing. 

Notable contradictions are as follows:

  • The Department’s guidance indicates surveillance or security cameras are taxable. The Department previously ruled that video cameras used “to monitor customers and employees and record video footage” are exempt. See Iowa Tax Research Library Doc. Ref. 16300059
  • The Department’s guidance indicates cables used to connect component parts to computers are taxable.  The Department previously ruled that cables used to connect computer parts are exempt. See Iowa Tax Research Library Doc. Ref. 16300059
  • The Department’s guidance indicates that computer replacement parts are taxable. The language of the computer exemption statute, Iowa Code § 423.3(47), exempts from sales tax computer replacement parts. 
  • Based on personal knowledge, the Department has previously taken the position that smartphones, tablets, docking stations, routers, modems, smart TVs, and DVRs are taxable.  However, these items mysteriously make the new list of exempt items.

Moreover, comparing the items on the Department’s lists creates significant confusion about what is and is not an exempt computer.  For example:

  • The list of taxable items includes digital displays or billboards, but the list of exempt items includes computer monitors. Digital displays or billboards are connected to computers and are nothing more than large computer monitors. So, is it the size of the monitor that determines the taxability?
  • The list of taxable items includes “computerized phone systems.” So, according to the Department, these phone systems are computerized (and likely attached to a computer) but are not exempt computers.   
  • The list of exempt items includes flash drives (the items that you plug into your computer and that simply store information and data). However, the list of taxable items includes much more sophisticated items that connect to a computer, such as firewall hardware, postage meters, pill counters or sorters, and time clocks. The distinction, for purposes of the computer exemption, between a flash drive and other items that connect to a computer is unclear. 

The Department’s lists of taxable and exempt items creates more questions than it answers. And, the Department’s distinction between a taxable and exempt computer lacks any coherent basis. Accordingly, taxpayers should use caution when relying on the Department’s guidance.


Cody Edwards is a Shareholder Attorney at Dickinson Law, leading the firm’s state and local tax practice. To contact him, or for more information on his practice, click here