In order for a city to have a local option sales tax (LOST), a majority of the eligible electors in that city must approve it in a county-wide election to impose the local option sales tax. The local option sales tax is placed on the ballot through a petition of 5% of the county electors having voted in the last state general election or by a motion (or motions) of governing bodies within the county that represents at least half of the population of the county.
The election for a local option sales tax can be held during any regular election or one of the special election dates allowed by state code (go to the Secretary of State’s website to review those dates). The election cannot be held sooner than 60 days following publication of notice of the ballot proposition in the newspaper. The election is county wide, but the local option sales tax will only apply in those incorporated or unincorporated areas of the county where the majority of the eligible electors approve the tax. The ballot must specify:
- The type of tax (in this case Local Option Sales Tax)
- The tax rate (not more than 1%)
- The date it will be imposed
- The approximate amount of local option tax revenue that will be used for property tax relief, if any
- The specific purpose(s) for which local option tax revenues will be spent if for purposes other than property tax relief
- A sunset clause for termination of the tax.(optional)
For the imposition, repeal or change of the LOST, within 10 days after a successful referendum, the county auditor must give written notice of the results and abstract of votes to the Director of the Iowa Department of Revenue. This must be done 90 days before the effective date which is on the ballot (plan out this timing with the county auditor before the ballot language is drafted).The LOST is imposed on the same items as state sales and excise tax, except on:
- Room rentals, in a hotel, motel or other similar facility.
- Sales of equipment by the State Department of Transportation.
- Sales of natural gas or electric energy subject to a city or county imposed franchise fee or users fee.
- The sale of direct-to-home satellite pay television service.
- Self-propelled building equipment, pile drivers, motorized scaffolding or attachment customarily drawn or attached to them including auxiliary attachments which improve their performance, safety, operation or efficiency and including replacement parts used by contractors, subcontractors and builders for new construction, reconstruction, alterations expansion or remodeling of real property or structures.
- Vehicles subject to a 5% one-time registration fee.
- Beginning July 1, 2018 cities must include a new Water Service Excise Tax (WET) when it sells or furnishes water services to both commercial and residential customers. This replaces the state sales tax on such charges and cities are required to apply for a new tax permit through the Iowa Department of Revenue. In addition, the authorizing legislation prohibits cities from inlcuding LOST on water service charges. Please consult the WET page on the Iowa Department of Revenue Web site for additional guidance.
By August 15 of each fiscal year, a written estimate will be sent to each city stating how much money the city will receive for each month of the following year. Ninety-five percent of the money will be distributed to the city by the end of the month following the month in which the money was collected. Any remaining amount due to the city at the end of the fiscal year will be sent to the city before November 10 of the next fiscal year. If an overpayment has been made, a reduced monthly distribution will begin with the November distribution until all overages are reconciled.
Beginning with the October 2022 LOSST payment, the administration of local government LOSST distribution payments will change per legislation passed during the 2021-22 legislative session (SF 2367). The Iowa Department of Revenue (IDR) will move away from the old “annual estimated payments” process, and will begin making distributions based on actual LOSST receipts in the preceding month. July, August, and September 2022 will be the final months that will use estimated payments; any adjustments or reconciliations to those will be made by December 30, 2022.
Not all local option sales tax collected in a jurisdiction will be returned to the jurisdiction. The amount distributed is calculated based on a formula that takes into account the percentage of population and the property tax collected in the jurisdiction out of the total for the county. For a more thorough explanation of the formula and any other possible adjustments, visit the Iowa Department of Revenue (IDR) Web site.
Distributions of the taxes collected by the IDR are paid to the city in the subsequent month by direct deposit to the city designated account based upon the IDR estimates. To see the history of funds previously distributed, see the IDR Web site listed above. Also on that web site is a listing of all jurisdictions that have LOST and the history of sales generated.To repeal the tax or change the designations for the money to be used, an election may be called and held in the same manner and under the same conditions and restrictions as the election which approved the tax.
This information relates to the “regular” local option sales tax and not the “school” local option sales tax which was abolished in 2008 when the state rate for Iowa sales tax increased from 5% – 6%. The School Local Option Sales Tax (SILO) no longer exists as a separate tax.