Fiscal Note
Fiscal Services Division
HF 664 – Sales and Use Tax Exemptions, Subsidiaries (LSB1208HV.2)
Staff Contact: Evan Johnson (515.281.6301) evan.johnson@legis.iowa.gov
Fiscal Note Version – Final Action
Description
House File 664 does the following:
• Exempts vehicles leased between affiliates from the fee for new registration when the new
registration has been paid by the lessor prior to the lease.
• Exempts the lease or rental of a vehicle between affiliates from the sales and use tax when
a fee for new registration for the vehicle has been paid by the lessor or entity providing the
vehicle prior to such lease or rental.
The Bill defines “affiliate” as a lessor or entity that directly or indirectly controls, is controlled with
or by, or is under common control with the lessee or renter. The Bill takes effect upon
enactment and applies retroactively to January 1, 2015, for leases or rentals occurring on or
after that date. However, refunds are not authorized under the Bill.
Background
Under current law, vehicle rentals are subject to a 6.0% sales or use tax plus a 5.0% vehicle
rental excise tax. Vehicle leases are subject to a fee for new registration but exempt from the
sales or use tax and the rental excise tax. A fee for new registration is 5.0% of the sales or
lease price of a vehicle at the time of registration. “Lease” is defined in Iowa Code section
321F.1 as a written agreement providing for the leasing of a motor vehicle for a period of more
than 60 days.
Assumptions
Vehicle Rentals
• Growth trends in future fiscal years are based on Consumer Price Index estimated increases
of 2.0% from FY 2025 to FY 2029.
• According to Iowa Code section 423C.3(1), anything not taxable under Iowa Code chapter
423 (Streamlined Sales and Use Tax) is also not taxable under Iowa Code chapter 423C
(Automobile Rental Excise Tax). Therefore, the rental excise tax will also be exempt when
the vehicle rental between affiliates is exempt from the sales and use tax.
• According to the Iowa Department of Revenue, it is assumed that companies with
transactions that would be exempt under the Bill are companies in industries that would
likely lease vehicles to affiliate businesses with annual taxable sales of $1.0 million or more
in FY 2019 through FY 2022. On average, there are 260 such companies with filed tax
returns during those years with an estimated $1.103 billion in taxable sales in the aggregate
for FY 2023. It is assumed that 2.0%, or $22.1 million, of these total taxable sales represent
transactions among affiliated businesses that will be exempt under the Bill. Figure 1
includes the taxable sales that are assumed to be exempt from sales/use tax and the rental
excise tax from FY 2025 to FY 2029.
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 Figure 1 — Assumed Taxable Vehicle Rentals in FY 2025 Through FY 2029 (in Millions)
Fiscal Taxable
Year Rental Sales
FY 2025 $ 23.0
FY 2026 23.4
FY 2027 23.9
FY 2028 24.4
FY 2029 24.9
• It is assumed that all taxable rental sales in Figure 1 are vehicle rentals and that the
organization renting the vehicle to an affiliate has already paid an initial registration fee on
the vehicle.
• 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.
• For the purposes of this Fiscal Note, it is assumed that all organizations are currently
paying the sales/use tax and rental excise tax for vehicle rentals between affiliates.
Vehicle Leases
• Growth trends in future fiscal years are based on Consumer Price Index estimated increases
of 2.0% from FY 2025 to FY 2029.
• The fee for new registration is paid by the lessor at the time of initial vehicle purchase. This
fee will continue to be paid and is unchanged under the Bill. It is assumed that the lessor
has paid an initial vehicle registration for all vehicles exempt under the Bill.
• In FY 2022, there were approximately 68,000 vehicles newly registered to an organization.
1.0%, or 680, of these vehicles may be leases between affiliates and exempt from the fee
for new registration annually under the Bill.
• The average new vehicle registration fee paid by organizations in FY 2022 was $1,251.
Counties retain $1 for every new vehicle registration pursuant to Iowa Code section
321.152. The amount per new registration exempt under the Bill is $1,250.
• Revenue collected from fees for new registration is deposited into the Road Use Tax Fund
(RUTF).
• For the purposes of this Fiscal Note, it is assumed that all organizations are currently
paying the fee for new registration for leased vehicles between affiliates.
Fiscal Impact
House File 664 is estimated to reduce revenues to the General Fund, SAVE Fund, LOST, and
the RUTF by the amounts in Figure 2.
Figure 2 — Fiscal Impact of HF 664 (in Millions)
General Fund* SAVE LOST RUTF
FY 2025 $ -2.3 $ -0.2 $ -0.2 $ -0.9
FY 2026 -2.3 -0.2 -0.2 -0.9
FY 2027 -2.4 -0.2 -0.2 -0.9
FY 2028 -2.4 -0.2 -0.2 -1.0
FY 2029 -2.5 -0.2 -0.2 -1.0
*General Fund impact includes 100.0% of the rental excise tax decrease as
rental excise tax receipts are not apportioned to SAVE.
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Sources
Iowa Department of Revenue
Department of Transportation
/s/ Jennifer Acton
April 26, 2024
Doc ID 1449626
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
www.legis.iowa.gov
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Statutes affected:
Introduced: 321.105A, 423.3
Enrolled: 321.105A, 423.3