Are Software and Digital Products subject to sales tax?
While Iowa's sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. This page describes the taxability of software and digital products in Iowa, including canned software - delivered on tangible media, canned software - downloaded, custom software - delivered on tangible media, custom software - downloaded, customization of canned software and digital products. To learn more, see a full list of taxable and tax-exempt items in Iowa.
Canned Software - Delivered on Tangible Media
Sales of canned software - delivered on tangible media are subject to sales tax in Iowa.
Canned Software - Downloaded
Sales of canned software - downloaded are exempt from the sales tax in Iowa.
Custom Software - Delivered on Tangible Media
In the state of Iowa, all custom software which is transferred in the form of the written procedures, for instance, any program instructions which were on coding sheets, and any tangible personal property which is seen as being incidental to the sale of any custom software is seen as exempt. Material which is transferred in the form of typed or printed sheets is taxable, so long as it is separately stated. If the cost for the typed or printed sheets is invoiced lump sum with the cost for custom software, the entire sale would become seen as being taxable.
Custom Software - Downloaded
Sales of custom software - downloaded are exempt from the sales tax in Iowa.
Customization of Canned Software
In the state of Iowa, any separately stated charges for any modifications made to canned software which was prepared specifically for a certain customer is considered to be exempt only to the extent of the modification. If charges are not separately stated, then tax applies to entire charge unless modification is so significant that the new program qualifies as a custom program.
Sales of digital products are exempt from the sales tax in Iowa.
Back to Iowa Sales Tax Handbook