Iowa Missing Out On Sales Tax Revenues From Online Retail Purchases

DES MOINES, Iowa  --  Businesses that have a Nexus, or physical presence in the state, are obligated to collect sales tax, but if a business does not have a physical Nexus in Iowa, under current federal law they are not obligated to collect on behalf of the state.

Amazon has agreed to collect sales tax on some purchases, but not all.

“They made an agreement with the state of Iowa, as they have with all of the states in the country that have sales tax, to collect on their behalf on any purchase that they fulfill," said Amy Rehder Harris, PhD, the Chief Economist and Division Administrator for the Iowa Department of Revenue. "So Amazon does sell a lot of items and they’re a large seller in the country, obviously. But they also sell what's called a market place. They have third party sellers that sell through Amazon, so they're just kind of a platform. They did not agree to collect on those, because they said we will collect sales tax on any item that we physically sell to Iowans."

Which means there are still purchases that people make on Amazon for which sales tax is not collected, and yet the tax is still due.

"Many taxpayers are not aware of their use tax obligation and so those revenue collections are quite small, and we’re trying to increase awareness of that through a communication campaign with taxpayers," said Harris. "So we encourage our citizens when you see, when you're fulfilling an order, was sales tax collected, and if it wasn't, you still owe that six percent to the state of Iowa on that purchase."

The Department of Revenue has several options on its website, where Iowans can go and pay their tax obligation.

Meanwhile, online retailers have a competitive edge against mom and pop brick-and-mortar shops like Fleet Feet Sports.

"Yeah, that's disappointing," said Andy Roat of Fleet Feet Sports in Des Moines. "I think sometimes people don't realize that we make an investment in training our team so they do a great job fitting people here, and that there is a cost involved with that, so it's disappointing when someone does that and then they go decide to make a purchase online."

Not only does gaming the system like that have a negative impact on how well local businesses can do, but it also affects how much good they're able to do for the community.

"We do things for pets, we do things for the homeless, pretty much any organization wants, needs some help, needs some support, and local businesses have a great heart," said Roat. "People in Des Moines have a great heart, but they need to realize in order to keep that good cycle of things going, they need to support local businesses."