Many Iowans unaware of one particular state tax - KWWL - Eastern Iowa Breaking News, Weather, Closings

Many Iowans unaware of one particular state tax


If you're like many Iowans, there's a tax you owe and you've never even heard of it.

It's called the "use tax. Shoppers not charged state sales tax in online purchases are required to pay a six percent use tax -- equal to the state's six percent sales tax -- to the Iowa Department of Revenue.

Some local businesses are appealing to state legislators for tighter laws on Internet taxing.

At Bike Tech in downtown Cedar Falls, owner Brent Johnson said it's unfair to small businesses and to the state that online shoppers can avoid a state sales tax.

"I'm part of the National Bicycle Dealers Association, and this has been a long-term topic on their e-mail list, of sales tax equity. Essentially, by shopping online, you get a seven percent discount of the products we sell here," Johnson said.

That's because prices in-store come with the state's six percent sales tax plus Cedar Falls' one percent local option sales tax.

Carol Lilly is director of Community Main Street in Cedar Falls, which works to meet the needs of local businesses.

"The increased Internet sales are causing a decrease in the revenue for the state," Lilly said. "Currently, business that sell on the Internet that don't have a physical presence within the state are not required to collect state sales tax."

That's where the use tax comes in, but the Iowa Department of Revenue said most people haven't heard of it or just don't pay it. It comes down to the honor system for online shoppers who do know about it, since enforcement is nearly impossible.

That's why people such as Lilly and Johnson say they'd like to see Iowa follow the example of other states, which are working on legislation, "to require companies such as Amazon to collect state sales tax," Lilly said.

It would help level the playing field, she said.

In Iowa, the six percent sales tax goes into the state's general fund, which helps pay for services such as roads and schools.

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