Relating to the sales tax exemption for the purchase of central office equipment or transmission equipment used by certain entities primarily in the furnishing of telecommunications services on a commercial basis

Description

House File 960 expands the sales and use tax exemption in Iowa Code section 423.3(47A)(a) by making all purchases of central office equipment or transmission equipment used by certain entities in the furnishing of telecommunications services and internet access services on a commercial basis exempt from sales and use tax.

Background

Under current law, a sales tax exemption is available only for central office equipment or transmission equipment primarily used by local exchange carriers and competitive local exchange service providers; by franchised cable television operators, mutual companies, municipal utilities, cooperatives, and certain communications services companies; by long distance companies; or for a commercial mobile radio service in the furnishing of telecommunications services on a commercial basis.

“Central office equipment” is defined as equipment utilized in the initiating, processing, amplifying, switching, or monitoring of telecommunications services. Central office equipment also includes ancillary equipment and apparatus that support, regulate, control, repair, test, or enable such equipment to accomplish its function.

“Transmission equipment” is defined as equipment utilized in the process of sending information from one location to another location. Transmission equipment also includes ancillary equipment and apparatus that support, regulate, control, repair, test, or enable such equipment to accomplish its function.

Assumptions

• The Bill is effective July 1, 2026 (FY 2027).
• There are 116 telecommunications providers affected by the Bill.
• Estimated taxable expenditures made exempt by the Bill are based on appeals information filed with the Iowa Department of Revenue related to the sales tax exemption in Iowa Code section 423.3(47A)(a) and scaled to include all telecommunications and internet access providers in the State.
• The amount of taxable sales for FY 2025 that would be made exempt under the Bill is $16.4 million.
• The estimated value of purchases made exempt under the Bill will increase by 2.4% 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 0.95% of taxable expenditures.

Fiscal Impact

House File 960 is estimated to decrease annual revenue to the General Fund, the SAVE Fund, and the LOST by the amounts in Figure 1.

Figure 1 — Fiscal Impact of House File 960 (in Millions)

General Fund SAVE LOST

FY 2027 $ -0.9 $ -0.2 $ -0.2 FY 2028 -0.9 -0.2 -0.2 FY 2029 -0.9 -0.2 -0.2 FY 2030 -0.9 -0.2 -0.2 FY 2031 -0.9 -0.2 -0.2

Sources

• Iowa Department of Revenue
• Iowa Communications Alliance
• Legislative Services Agency calculations