Local Option Sales Tax (LOST): Information for Businesses

Beginning July 1, 2026, the City’s 1% Local Option Sales Tax (LOST) will take effect.

What is the Local Option Sales Tax?

LOST is a 1% local sales tax approved by voters. It is collected at the point of sale on taxable goods and services and remitted to the Iowa Department of Revenue. The LOST is in addition to the State of Iowa’s 6% sales tax.

Who must collect LOST?

If your business is required to collect Iowa state sales tax, you must also collect the 1% Local Option Sales Tax (LOST) on any taxable goods and services delivered to or received by customers in Iowa City.

This applies to both in-person and online sales when Iowa law requires sales tax collection.

Whether a business must collect sales tax (including LOST) is determined by the Iowa Department of Revenue, not the City of Iowa City.

For questions about your specific situation, please contact the Iowa Department of Revenue (IDOR). You may find additional resources on their website:

• LOST FAQs (IDOR)
• Sales & Use Tax Guide (IDOR)
• Guidance for Remote Sellers and Marketplace Facilitators (IDOR)

When should I start charging the 1% LOST?

LOST must be collected on taxable transactions occurring on or after July 1, 2026. Businesses are advised to update their point-of-sale systems before that date.

For goods, the tax should be collected at the time of sale. Taxable services should collect the tax when the first use of the service occurs, or potentially could occur, in the taxing jurisdiction regardless of where the contract was entered into.

What do I collect it on?

LOST applies to the same transactions that are subject to Iowa’s state sales tax. To view a full list of taxable and exempt items:

1. Visit the Iowa Department of Revenue’s (IDOR) Sales & Use Tax Guide
2. Scroll down to “Taxable or Exempt” and click the “+” icon to expand and view the full list.

If you are a service provider, you can also review the IDOR’s list of taxable services.

How much do I collect?

The total sales tax rate within Iowa City will be 7%:

6% State Sales Tax + 1% Local Option Sales Tax = 7% Total Sales Tax.

Please note that businesses do not remit LOST directly to the City. It is reported and paid through the Iowa Department of Revenue along with state sales tax.

How do I start collecting LOST?

1. Update your point-of-sale (POS) system to reflect the new 7% rate to begin effective July 1, 2026.
2. Confirm online sales platforms (e.g. Shopify, Square, Toast, etc.) are configured to collect the correct tax rate as well.
3. Notify your tax professional or accountant; they may have additional advice for you.
4. Continue filing through the Iowa Department of Revenue’s portal, GovConnectIowa, as you currently do.

No separate registration or permit with the City or State is required.

When and where do I remit the LOST?

Local option taxes are remitted whenever state sales tax is remitted. Retailers show a breakdown of local option taxable sales and tax by county on returns. Paper checks/payments and returns are not mailed; filing is through GovConnectIowa. (Note that the amount of local option tax collected is not used to determine how frequently a retailer should file.)

No tax permit other than the state sales tax permit is required or available. Local option tax is remitted to the State of Iowa along with the state sales tax; retailers make no payment directly to a locality.

For questions about whether LOST applies to your situation: Iowa Department of Revenue.

For assistance updating your point-of-sale (POS) system or online sales platform, contact your platform provider or payment processor.

For individualized tax advice, consult your accountant or tax professional. 

Local Option Sales Tax (LOST) Frequently Asked Questions

 A Local Option Sales Tax (LOST) is a 1% sales tax applied to eligible purchases made in Iowa City. This means the sales tax increases from 6% to 7% with that additional 1% allocated to local priorities. LOST was approved by a simple majority of Iowa City voters on November 4, 2025, and goes into effect July 1, 2026.

Who pays for LOST?

Anyone who shops in a community that has adopted LOST pays the tax, including visitors and people making online purchases delivered there.

In Johnson County, this means the millions of visitors who spent more than $450 million locally in 2023, will now help fund local services. Iowa City residents already paid the additional 1% when shopping in the other Iowa communities that adopted LOST, including Des Moines, Cedar Rapids, Davenport, Sioux City, Waterloo, Council Bluffs, Dubuque, and Ames.

What purchases are and are not impacted by LOST?

 LOST applies to most taxable goods and services. However, many basic necessities are not subject to sales tax in Iowa. For example, the following categories are generally not taxed under LOST:

• Groceries
• Rent, mortgage payments, and utilities
• Vehicles and gasoline
• Prescription drugs and many health products
• Purchases made during the annual Sales Tax Holiday
• A complete list is available at the Iowa Department of Revenue's Sales & Use Tax Guide.

By exempting food and other necessities from sales taxes, the impact on vulnerable households can be minimized.

How are local retailers affected?

Local retailers will begin collecting the additional 1% sales tax on July 1, 2026. The City is currently working with local partners to help inform retailers about the new rate. Additional resources are available under the 'Info for Businesses' section. 

How much money would LOST generate?

In Iowa City, LOST is expected to generate up to $14 million annually for property tax relief and local projects.

Sales tax revenues for all communities in Johnson County that approve LOST are pooled and distributed according to a formula based on population and property tax dollars. If a community does not adopt LOST, that community would not share in the revenue collected from other communities that adopt LOST.

How would LOST affect property taxes?

 By law, 50% of LOST revenues must be used for property tax relief. This could mean lowering property tax rates or preventing rate increases that would otherwise be needed to fund critical infrastructure and public services. Each year, City Council will decide how property tax relief is applied through the public budget process. For FY27, Council has used LOST to decrease the City’s levy rate from $15.63 per $1,000 of taxable value to $15.43. Learn more at www.icgov.org/budget.

How will LOST be used in Iowa City?

In addition to the 50% required for property tax relief, the remainder would be distributed according to community priorities in the ballot language:

• 25% - Affordable Housing: LOST would create a dedicated funding source that would support affordable housing. Funding may be used for preserving existing affordable housing, increasing temporary and permanent housing supports, and improving access to and increasing the supply of affordable housing for households with low incomes.
• 10% - Public Infrastructure & Facilities: LOST would help increase funding for essential public improvement projects for infrastructure and public facilities. Funding may be used for maintaining and constructing public streets, sidewalks, trails, parks, and public facilities.
• 15% - Community Partnerships: LOST would sustain and expand the City’s many collaborations with local organizations. Funding may be used to support social service, arts and culture, economic, and intergovernmental partnerships.

For Iowa City, the Council adopted these priorities based on community feedback and its Strategic Plan values.

City Council will decide each year how funds are applied within these categories. For specific information for the upcoming FY27 budget year, visit www.icgov.org/budget. If voters believe that funds are not being used as promised, they can petition for another ballot measure to ensure accountability.

Has Iowa City used LOST before?

Yes. After the 2008 flood, a 1% LOST was in place in Iowa City from 2010-2013, raising about $35 million. These funds were used for major flood protection projects like the Dubuque Street Gateway reconstruction project, the South Wastewater Treatment Facility expansion, and Riverfront Crossings Park.

Who should I contact with specific questions?

Questions about how LOST may affect Iowa City can be directed to: Kirk Lehmann, Assistant City Manager, City of Iowa City, klehmann@iowa-city.org; 319-356-5014.