The sales tax in Johnson County, Iowa is 6% today and will rise to 7% on July 1, 2026, when a voter-approved 1% local option sales tax takes effect in Iowa City, Coralville, and North Liberty.1Iowa City, IA. Local Option Sales Tax (LOST) Until that date, purchases carry only the 6% state rate. Hotel stays cost more, several categories of goods are exempt entirely, and businesses face their own set of rules for registering, filing, and paying.
The Current Rate and What Changes in July 2026
Iowa’s statewide sales tax is 6% and applies uniformly across every county to tangible goods, utilities, admissions, and most services.2Justia. Iowa Code 423.2 – Tax Imposed Local governments cannot change that rate.
On November 4, 2025, voters in Iowa City, Coralville, and North Liberty approved a 1% Local Option Sales and Services Tax (LOST). Collection begins July 1, 2026.3Coralville, IA – Official Website. Local Option Sales Tax From that date on, most taxable purchases in those three cities will be taxed at a combined 7%.1Iowa City, IA. Local Option Sales Tax (LOST)
The local portion follows the location of the sale. A store in an incorporated area that adopted the tax collects 7%; a business in an area that did not adopt it collects only the 6% state rate. One point of confusion worth clearing up: the statewide 1% SAVE tax that funds school infrastructure is already inside the 6% figure. It does not stack on top of the local option.
Hotel and Motel Stays
Lodging is taxed differently from general retail. Iowa charges a 5% state hotel and motel excise tax on stays in hotels, motels, and short-term rentals, and local governments can add up to another 7% on top of that.4Department of Revenue. Iowa Hotel and Motel Tax These charges appear as separate line items on the guest’s bill and are collected by the lodging provider.
What Isn’t Taxed
Groceries and Food
Most food and food ingredients sold for home preparation are exempt, whether fresh, frozen, canned, or dried, as long as they’re sold for human consumption. The exemption does not cover prepared food, candy, soft drinks, dietary supplements, or vending-machine sales.5Iowa Department of Revenue. Iowa Sales Tax on Food The practical line comes down to whether the seller heats, mixes, or serves the food. A loaf of bread from the bakery shelf is exempt. A sandwich made to order is taxable.
Prescription Drugs and Medical Equipment
Iowa exempts prescription drugs, prosthetic devices, durable medical equipment, mobility-enhancing equipment, and other medical devices.6Iowa Legislature. Iowa Code 423.3 – Exemptions The “other medical devices” category is broader than most people expect, covering diabetic testing materials, hypodermic syringes, ostomy supplies, and tracheostomy equipment.7Iowa Legislature. Iowa Admin Code 701-231.8 – Prosthetic Devices, Durable Medical Equipment Durable medical equipment must be prescribed by a practitioner, intended for home use, and not generally useful to someone without an illness or injury.
The August Sales Tax Holiday
On the first Friday and Saturday of August each year, Iowa waives both state and local sales tax on clothing and footwear priced under $100 per item.8Iowa Department of Revenue. Iowa’s Annual Sales Tax Holiday The window runs 12:01 a.m. Friday through midnight Saturday. Items priced at $100 or more remain fully taxable during the holiday, and accessories like jewelry, handbags, and sports equipment don’t qualify.
Out-of-State and Online Purchases
When you buy something from an out-of-state seller that doesn’t collect Iowa sales tax, whether online, by phone, or while traveling, you owe Iowa use tax at the same 6% rate. The local 1% can also apply depending on where you use the item.9Iowa Department of Revenue. Sales and Use Tax Guide
Reporting depends on the amount. If you owe $1,200 or more per year, you need a sales and use tax permit and report use tax on your regular return. Below $1,200, you can file an Iowa Non-Permit Use Tax Return or pay electronically through GovConnectIowa.9Iowa Department of Revenue. Sales and Use Tax Guide Most individual buyers owe relatively little now that large online retailers collect Iowa tax at checkout. Use tax matters most for purchases from smaller vendors without an Iowa collection obligation.
If you sell on a marketplace like Amazon, Etsy, or eBay, the platform itself is generally responsible for collecting and remitting Iowa tax once it crosses the state’s $100,000 threshold, so a seller using a registered platform typically doesn’t collect the tax again on those transactions.11Department of Revenue. Remote Sellers and Marketplace Facilitators
Getting a Sales Tax Permit
Any business making taxable sales in Johnson County needs an Iowa sales tax permit before its first transaction. Registration is free. The fastest route is GovConnectIowa; a paper form (78-005) can also be mailed or faxed.10Department of Revenue. Business Permit Registration
To register, you’ll need:
- A Federal Employer Identification Number for corporations, partnerships, and LLCs. Sole proprietors without an FEIN can use an SSN or ITIN.
- The legal name of the entity, plus any “doing business as” name.
- Your NAICS code describing your primary business activity.
- Owner information: corporations, partnerships, LLCs, and associations must list each owner’s full name and Social Security Number.
Businesses operating in multiple locations need a separate permit for each county where they have a physical presence. If you later move a location to a different county, you cancel the original permit and register for a new one.12Iowa Department of Revenue. Iowa Business Tax Permit Registration
Filing Frequency and Deadlines
Iowa assigns one of two filing frequencies based on how much tax you collect. If your total sales and use tax liability reaches $1,200 or more per calendar year, you file monthly. Below that, you file annually.13Cornell Law. Iowa Code r 701-202.1 – Sales and Use Tax Return Filing Quarterly and semimonthly filing were eliminated in 2022.14Department of Revenue. Sales and Use Tax Permit, Return Filing, and Payment Changes
Monthly returns are due by the last day of the month following the reporting period. January tax is due by the end of February. Annual returns are due January 31 for the prior calendar year. Returns must be filed through GovConnectIowa, with payment made electronically at the same time. After submission, verification can take up to five business days before payment posts.15Iowa Department of Revenue. GovConnectIowa Help
Penalties and Interest
Penalties add up quickly. The Department of Revenue’s charges for sales tax violations are:16Iowa Department of Revenue. Penalties and Interest Rates
- Late filing: 5% of the unpaid tax if you miss the due date and paid less than 90% of the correct amount.
- Late payment: an additional 5% of the unpaid tax, applied separately from the filing penalty. Both can hit at once.
- Failure to file or pay electronically when required: 5% of the tax due per violation. Since GovConnectIowa filing is mandatory, filing on paper triggers this.
- Failure to file after a demand letter: $1,000 per unfiled return if you still haven’t filed 90 days after the Department sends a demand, on top of the other penalties.
- Fraud or willful failure to file: 75% of the unpaid tax. This one cannot be waived.
- Frivolous return: a $500 civil penalty if a return lacks enough information to determine the tax owed or contains information designed to obstruct the process.
Unpaid balances also accrue interest at 10% per year (roughly 0.8% per month) for 2026. The rate is set annually and can change. A business two months late that underpaid can easily face 10 to 15% in combined penalties before interest is added.
Buying an Existing Business
If you’re buying an existing business in Johnson County, you can inherit the seller’s unpaid sales tax debt. Iowa law makes the buyer, called the “immediate successor,” responsible for asking whether the seller owes any delinquent tax, penalties, or interest, and for withholding enough of the purchase price to cover what’s owed.17Cornell Law. Iowa Admin Code r 701-202.12 – Immediate Successor Liability
The safest step is to request a certified statement from the Iowa Department of Revenue confirming no delinquent tax is outstanding. The Department treats its own statement as the preferred evidence that you bought in good faith. A notarized statement from the seller is an alternative but carries less weight. Pay the full price without checking, and if the seller left $15,000 in unpaid sales tax behind, that amount is now yours. An escrow holdback and a tax clearance before closing keep that liability from surfacing months after the deal is done.