Making a rural water district a designated exempt entity for purposes of the sales and use tax

Sponsored by the House Ways and Means Committee

Topics:Taxes

Same legislation: HSB 226

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Official bill page Lobbyist declarations One-pager to print

Where it is now

Done: IntroducedFebruary 20, 2025
Done: SubcommitteeFebruary 20, 2025
Done: House committeeApril 23, 2025
Done: Passes the HouseMay 12, 202586–4
Stopped: Senate committeeDied when the General Assembly ended
Next: Passes the Senate
Next: To the Governor
Next: Signed into law

Died when the session ended The 2026 session adjourned on May 3, 2026, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?

What’s in it

AI summary Nonprofit rural water districts would be able to get refunds on sales tax paid for building materials, supplies, and equipment. This change also makes construction services provided to these districts exempt from sales tax. The bill replaces the old tax rules to make sure there aren't two different ways to get these exemptions at the same time.¹

Read the official explanation

This bill makes a nonprofit rural water district organized under Code chapter 504 as provided in Code chapter 357A a designated exempt entity, which allows the nonprofit rural water district to apply to the department of revenue for the refund of the sales and use tax upon sales of building materials, supplies, and equipment, or from services furnished by a contractor in the performance of a written contract with the rural water district, if certain circumstances relating to the contract are met. By designating a rural water district a designated exempt entity under the bill, construction services provided to the water district also become exempt from the sales tax which is different than the sales tax exemption under current law.3(38).3(38) so two separate and distinct sales tax exemptions do not exist at the same time relating to building materials, supplies, or equipment sold to a rural water district.

Why it matters. Nonprofit rural water districts would be able to apply for refunds on sales and use tax for building materials, supplies, and equipment, and construction services provided to them would become exempt from sales tax. This change is estimated to decrease annual revenues to the state's General Fund by $877,000, the SAVE Fund by $175,000, and the LOST by $170,000 in fiscal year 2026.²

Full bill text³

Senate subcommittee

Named May 14, 2025. It hasn’t reported yet.

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 expands the sales and use tax exemption for rural water districts to include construction services. It is estimated to decrease annual revenues to the state's General Fund, the SAVE Fund, and the LOST by $877,000, $175,000, and $170,000 respectively in fiscal year 2026. These decreases are projected to grow slightly each year through fiscal year 2030.⁴

Read the fiscal note

Description

House File 1033 establishes rural water districts as designated exempt entities. This expands the current sales and use tax exemption for rural water districts by including construction services provided to the rural water district.

Background

Under current law, rural water districts are exempt from the sales and use tax on building materials, supplies, or equipment sold to a rural water district and used for the construction of facilities.

Designated exempt entities can apply to the Iowa Department of Revenue for a refund of the sales and use tax paid for building materials, supplies, equipment, and services furnished by a contractor in the performance of a written contract.

Assumptions

The Bill is effective July 1, 2025 (FY 2026).
There are 12 rural water districts impacted by the Bill.
An average of $1.4 million in FY 2025 taxable sales per rural water district are made exempt under the Bill.
The price of building materials, supplies, equipment, and services furnished to rural water districts increases by 2.0% annually.
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.

Fiscal Impact

House File 1033 is estimated to decrease annual revenues to the General Fund, the SAVE Fund, and the LOST by the amounts in Figure 1.

Figure 1 — Fiscal Impact of HF 1033General Fund SAVE LOST FY 2026 -877,000$ -175,000$ -170,000$ FY 2027 -894,000 -179,000 -173,000 FY 2028 -912,000 -182,000 -177,000 FY 2029 -930,000 -186,000 -180,000 FY 2030 -949,000 -190,000 -184,000

Sources

Iowa Department of Revenue
Iowa Rural Water Association

Sales Tax Exemption, Rural Water Districts · May 5, 2025

Reading a fiscal note⁵

Iowa Code it changes

Amends§423.3 §423.4

How the Code works⁶

Lobbying

1 for · 0 against · 4 undecided · Who →

Family tree

Study bill

HSB 226Renumbered

91st General Assembly

HF 1033Passed a chamberfrom HSB 226

Notes

The summary is written by an AI model from the official explanation. It can miss details; the explanation and the bill are what count. ↩
Written by an AI model from the official explanation and fiscal note only, for bills that passed a chamber, drew heavy lobbying or carry a large cost. It doesn’t weigh whether the bill is a good idea. ↩
The explanation is printed with the bill as introduced and written by the Legislative Services Agency, the Legislature’s nonpartisan staff. Amendments adopted later aren’t reflected in it. ↩
Written by an AI model from the newest fiscal note. It can miss details; the note itself is what counts. ↩
Fiscal notes are nonpartisan cost estimates from the Legislative Services Agency’s Fiscal Services Division. The newest is listed first. ↩
Code sections are read from the bill as introduced. Each links to every bill touching that chapter of the Iowa Code. ↩