Reminder: Iowa sales tax exemption for computer hardware ending Dec. 31, 2023

Computer and computer peripheral sales and use tax exemption eliminated

Nov 03, 2023
Business tax State & local tax Indirect tax

Executive summary: Iowa computer and computer peripheral sales tax exemption to end

Recall that in 2022, Iowa Gov. Kim Reynolds signed legislation eliminating the computer and computer peripheral sales tax exemption effective Jan. 1, 2024. Since 1985, Iowa law has allowed the exemption for essentially any for-profit entity purchasing computers and peripherals (computer hardware) used in processing or storage of data or information by businesses such as insurance companies, financial institutions or commercial enterprises (i.e., not a profession or occupation). Further description of the exemption as well as next steps for taxpayers purchasing or that have purchased eligible equipment follows below. 

Exemption background

The almost 40-year-old sales tax exemption has been unique among the states because it is available to most for-profit businesses and includes a broad-range of eligible computer hardware purchases. In 2020, Iowa clarified that the exemption includes ‘computer peripherals’ when directly used in manufacturing, research and development, processing or storage of data for insurance companies, financial institutions or commercial enterprises, reprocessing of waste products and pollution control.

The Iowa Department of Revenue followed the 2020 clarification with non-binding guidance providing definitions as well as a non-exhaustive list of items the department deemed to qualify as exempt or taxable. For example, computers, flash drives, hard drives, keyboards, mice, printers and webcams are considered exempt under the guidance, while adapters, cables, replacement parts and uninterruptible power supplies remain taxable.


Computer hardware currently exempt will be subject to sales tax beginning Jan. 1, 2024. Taxpayers should consider three strategies due to the legislative change. First, taxpayers making such purchases or planning such purchases should make them before year-end. Second, taxpayers should take the opportunity to review their historic purchases for overpayments of sales tax on exempt items. Some taxpayers may not have considered the 2020 clarification of the exemption or have never considered the taxability of computer hardware. In practice, taxpayers must provide a properly completed exemption certificate to their vendor to purchase eligible exempt hardware without sales tax – a process step that may have contributed to not taking advantage of the benefit. Third, taxpayers should consider that certain contract costs may increase due to the elimination of the exemption and plan for the changes accordingly.

Additionally, vendors of computer hardware should recognize that, even though a properly completed exemption certificate may be on file, the exemption will no longer be available. It is not yet known whether the current exemption certificate will change, but computer hardware vendors should generally be cautious if receiving such an exemption request after Jan. 1.

Importantly, manufacturers using computer hardware directly and primarily in processing will be able to continue purchasing those items exempt from sales and use tax. It is unknown if or when the department will provide guidance on how manufacturers should claim the exemption going forward. Finally, taxpayers should note that the exemption for software and other digital goods or services was not repealed and remains unchanged.

Taxpayers with questions about the elimination of the computer hardware exemption should reach out to their Iowa sales and use tax specialists. 

RSM contributors

  • Todd Hendricks
    Senior Director
  • Tim Reilly
    Senior Manager
  • Mo Bell-Jacobs
    Mo Bell-Jacobs
    Senior Manager

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