Relating to the sales tax imposed on amusement devices

Sponsored by the House Ways and Means Committee

Topics:Taxes

Same legislation: HSB 60, HF 2625

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Official bill page Lobbyist declarations One-pager to print

Where it is now

Done: IntroducedJanuary 20, 2023
Done: SubcommitteeJanuary 20, 2023
Done: House committeeFebruary 8, 2023
Skipped: Passes the HouseContinued as HF 2625
Next: Senate committee
Next: Passes the Senate
Next: To the Governor
Next: Signed into law

Became HF 2625 → Its progress continues under the new number. Go to HF 2625 What’s a funnel?

What’s in it

AI summary People who run amusement machines, like arcade games, would not have to pay sales tax on the money used to buy prizes for players. This change only applies to the portion of the sales price that goes toward those prizes.¹

Read the official explanation

This bill provides a sales tax exemption on the sales price from the operation of amusement devices, to the extent the amount of the sales price represents amounts that will be awarded as prizes during the operation of such devices.

Full bill text²

House subcommittee

Named January 24, 2024. On January 31, 2024 it recommended passage. Vote Total: 3-0.

Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part

Fiscal note

AI summary This bill changes the law so that sales tax is only charged on the net revenue from amusement devices rather than the total sales price. It is estimated to reduce annual revenues to the state's General Fund, the SAVE Fund, and the LOST by $2.1 million, $0.4 million, and $0.4 million respectively in fiscal year 2025. These reductions are projected to continue through fiscal year 2029.³

Read the fiscal note

Description

House File 2625 provides for an exemption of sales tax on the sales price from the operation of amusement devices less prizes paid during the operation of such devices. Under current law, sales tax is imposed on the entirety of sales prices derived from the operation of amusement devices. This Bill imposes a sales tax only on the net revenue from the operation of amusement devices.

Background

The Iowa Department of Inspections, Appeals, and Licensing (DIAL) regulates the registration of all electrical and mechanical amusement devices. Under Iowa Code chapter 99B, an electrical or mechanical amusement device that awards a prize where the outcome is not primarily determined by the skill or knowledge of the operator must be registered by the DIAL. An amusement device must meet the following requirements:

A prize of merchandise may not exceed $50.
A cash prize may not be awarded.
A device may not be designed or adapted to cause or to enable a person to cause the release of free games or portions of games when designated as a potential award for use of the device.
A device may not be designed or adapted to enable a person to increase the chances of winning free games or portions of games by paying more than is ordinarily required to play the game.
Awards must only be redeemed on the premises where the device is located and only for merchandise sold in the normal course of business for the premises.

The total number of electrical or mechanical amusement devices registered in the State may not exceed 6,928. For FY 2022, the Department of Inspections and Appeals (now the DIAL) reported in the Legislative Services Agency (LSA) Fee Project that there were 5,566 devices registered, 14 device manufacturers registered, 43 device distributors registered, and 10 device owners registered.

481 IAC 104 and 481 IAC 105 establish additional provisions regulating amusement devices and registered amusement devices.

Assumptions

The Bill is effective July 1, 2024 (FY 2025).
Current average annual sales collected from amusement devices are estimated to equal approximately $82,000 per company.
An estimated 75.0% of current taxable sales are paid out in prizes. Therefore, net revenue from the operation of amusement devices is estimated to be 25.0% of sales.
It is estimated that there are approximately 40 vendors that make taxable sales in Iowa.
Growth trends are based on Consumer Price Index (CPI-U) less food and energy average estimated increases of 2.0% from FY 2023 to FY 2029.
Secure an Advanced Vision for Education (SAVE) refunds are 1.0% of taxable expenditures. Local Option Sales Tax (LOST) distributions are estimated to be 0.97% of taxable expenditures.