Exempting certain leases or rentals between affiliates from the sales and use tax and from the fee for new vehicle registration, and including effective date and retroactive applicability provisions

Sponsored by the House Ways and Means Committee

Topics:Taxes Transportation

Same legislation: HSB 68, SSB 1204

Write your legislators about itWhat changed before it passed

Official bill page Lobbyist declarations One-pager to print

Where it is now

Done: IntroducedJanuary 20, 2023
Done: SubcommitteeJanuary 20, 2023
Done: House committeeMarch 9, 2023
Done: Passes the HouseMay 1, 202394–0
Done: Senate committeeApril 3, 2024
Done: Passes the SenateApril 10, 202445–0
Done: To the GovernorMay 2, 2024
Done: Signed into lawMay 17, 2024

Signed into law What’s a funnel?

What’s in it

AI summary Companies that are part of the same parent organization will no longer have to pay sales tax or certain registration fees when they rent or lease property to each other. This rule only applies if the tax or registration fee was already paid on that property before the lease started. The law does not allow anyone to get refunds for taxes or fees paid in the past.¹

Read the official explanation

This bill exempts certain leases or rentals between affiliates from the sales and use tax and from the fee for new vehicle registration.105A(2) has been paid by the lessor prior to the lease. The bill exempts from the sales and use tax the lease or rental of personal property between affiliates when a sales tax, use tax, or fee for new registration for a vehicle has been paid by an affiliate on the personal property leased or rented prior to such lease or rental. The bill prohibits refunds of taxes, interest, or penalties arising from claims resulting from the enactment of the bill. The bill defines “affiliate” to mean an entity that directly or indirectly controls, is controlled with or by, or is under common control with another entity. The bill defines “control” in most instances to mean the ownership, directly or indirectly, of percent or more of the voting power to elect directors. The bill takes effect upon enactment and applies retroactively to January 1, 2015, for leases or rentals occurring on or after that date.

Changed since by amendment S-5138; see Amendments.

Full bill text · What changed before it passed²

Senate subcommittee

Named March 25, 2024. On March 27, 2024 it recommended passage. [].

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 exempts certain vehicle leases and rentals between affiliated businesses from sales and use taxes and new registration fees. It is estimated to reduce revenues for the General Fund, the SAVE Fund, LOST, and the Road Use Tax Fund from fiscal year 2025 through fiscal year 2029. For example, in fiscal year 2027, the bill is estimated to reduce the General Fund by $2.4 million, the SAVE Fund by $0.2 million, LOST by $0.2 million, and the Road Use Tax Fund by $0.9 million.³

Read the fiscal note

Description

House File 664 does the following:

Exempts vehicles leased between affiliates from the fee for new registration when the new registration has been paid by the lessor prior to the lease.
Exempts the lease or rental of a vehicle between affiliates from the sales and use tax when a fee for new registration for the vehicle has been paid by the lessor or entity providing the vehicle prior to such lease or rental.

The Bill defines “affiliate” as a lessor or entity that directly or indirectly controls, is controlled with or by, or is under common control with the lessee or renter. The Bill takes effect upon enactment and applies retroactively to January 1, 2015, for leases or rentals occurring on or after that date. However, refunds are not authorized under the Bill.

Background

Under current law, vehicle rentals are subject to a 6.0% sales or use tax plus a 5.0% vehicle rental excise tax. Vehicle leases are subject to a fee for new registration but exempt from the sales or use tax and the rental excise tax. A fee for new registration is 5.0% of the sales or lease price of a vehicle at the time of registration. “Lease” is defined in Iowa Code section 321F.1 as a written agreement providing for the leasing of a motor vehicle for a period of more than 60 days.

Assumptions

Vehicle Rentals

Growth trends in future fiscal years are based on Consumer Price Index estimated increases of 2.0% from FY 2025 to FY 2029.
According to Iowa Code section 423C.3(1), anything not taxable under Iowa Code chapter 423 (Streamlined Sales and Use Tax) is also not taxable under Iowa Code chapter 423C (Automobile Rental Excise Tax). Therefore, the rental excise tax will also be exempt when the vehicle rental between affiliates is exempt from the sales and use tax.
According to the Iowa Department of Revenue, it is assumed that companies with transactions that would be exempt under the Bill are companies in industries that would likely lease vehicles to affiliate businesses with annual taxable sales of $1.0 million or more in FY 2019 through FY 2022. On average, there are 260 such companies with filed tax returns during those years with an estimated $1.103 billion in taxable sales in the aggregate for FY 2023. It is assumed that 2.0%, or $22.1 million, of these total taxable sales represent transactions among affiliated businesses that will be exempt under the Bill. Figure 1 includes the taxable sales that are assumed to be exempt from sales/use tax and the rental excise tax from FY 2025 to FY 2029.

Figure 1 — Assumed Taxable Vehicle Rentals in FY 2025 Through FY 2029 (in Millions)

It is assumed that all taxable rental sales in Figure 1 are vehicle rentals and that the organization renting the vehicle to an affiliate has already paid an initial registration fee on the vehicle.
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.
For the purposes of this Fiscal Note, it is assumed that all organizations are currently paying the sales/use tax and rental excise tax for vehicle rentals between affiliates.

Vehicle Leases

Growth trends in future fiscal years are based on Consumer Price Index estimated increases of 2.0% from FY 2025 to FY 2029.
The fee for new registration is paid by the lessor at the time of initial vehicle purchase. This fee will continue to be paid and is unchanged under the Bill. It is assumed that the lessor has paid an initial vehicle registration for all vehicles exempt under the Bill.
In FY 2022, there were approximately 68,000 vehicles newly registered to an organization. 1.0%, or 680, of these vehicles may be leases between affiliates and exempt from the fee for new registration annually under the Bill.
The average new vehicle registration fee paid by organizations in FY 2022 was $1,251. Counties retain $1 for every new vehicle registration pursuant to Iowa Code section 321.152. The amount per new registration exempt under the Bill is $1,250.
Revenue collected from fees for new registration is deposited into the Road Use Tax Fund (RUTF).
For the purposes of this Fiscal Note, it is assumed that all organizations are currently paying the fee for new registration for leased vehicles between affiliates.

Fiscal Impact

House File 664 is estimated to reduce revenues to the General Fund, SAVE Fund, LOST, and the RUTF by the amounts in Figure 2.

Figure 2 — Fiscal Impact of HF 664 (in Millions)Fiscal Taxable

Year Rental Sales

FY 2025 23.0$ FY 2026 23.4 FY 2027 23.9 FY 2028 24.4 FY 2029 24.9General Fund* SAVE LOST RUTF FY 2025 -2.3$ -0.2$ -0.2$ -0.9$ FY 2026 -2.3 -0.2 -0.2 -0.9 FY 2027 -2.4 -0.2 -0.2 -0.9 FY 2028 -2.4 -0.2 -0.2 -1.0 FY 2029 -2.5 -0.2 -0.2 -1.0 *General Fund impact includes 100.0% of the rental excise tax decrease as rental excise tax receipts are not apportioned to SAVE.