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

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