USA – IOWA Law and Practice Contributed by: David M. Erickson, Christopher S. Talcott, Amy S. Montgomery and Shannon M.H. Hasse, Dentons Davis Brown PC
will generally be recoverable by owners and contrac - tors in the event of delay, unless the contract includes a provision for no damages upon delay. Additionally, there are numerous exceptions to enforcement of delay damages. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance There are numerous additional forms of security that an owner may require to guarantee a contractor’s performance. Generally, these additional forms of security are not negotiated in residential construction agreements. However, in larger commercial trans - actions, and in construction agreements involving a state, county or municipality as the owner, owners generally require the contractors to obtain payment and performance bonds, and, at times, maintenance bonds. In some real estate development settings, the more prevalent method is through a requirement that the developer provides a letter of credit from a financial institution for the amount of the improvements. 7.6 Liens or Encumbrances in the Event of Non-Payment For non-public projects, Iowa has a mechanics lien statute which permits a lien in favour of a contrac - tor or subcontractor who furnishes any material or labour for the improvement, alteration or repair of any building and/or land. Generally, a properly perfected mechanics lien is superior to all other liens upon the building or land, except those liens recorded prior to the original commencement of the contractor’s work. However, liens resulting from construction mortgages are superior to all mechanics liens of claimants who commenced their particular work or improvement subsequent to the date of the recording of the con - struction mortgage lien. For public projects, subcontractors have the right to file claims against the retainage held by the public entity under Iowa Code Chapter 573, as well as claims against the payment bond. 7.7 Requirements Before Use or Inhabitation Iowa law requires that a certificate of occupancy be issued prior to construction being used or inhabited.
The state statute delegates issuance of certificates of occupancy to the particular governmental subdivi - sions within the state. The certificate of occupancy must, at a minimum, state that the building complies with the Iowa State Building Code.
8. Tax 8.1 VAT and Sales Tax
No VAT or equivalent is payable on the sale or pur - chase of corporate real estate in Iowa, only transfer tax. See 2.10 Taxes Applicable to a Transaction . 8.2 Mitigation of Tax Liability The transfer tax due upon conveyance of Iowa real estate is only payable upon consideration given for real property. Accordingly, two methods to reduce or avoid the payment of transfer tax are: • to allocate a portion of the total consideration paid in a transaction to personal property acquired, if any; and • to acquire equity interests in an entity that owns real estate rather than acquiring the real estate itself. 8.3 Municipal Taxes No municipal taxes are paid on the occupation of business premises or payment of rent in Iowa. 8.4 Income Tax Withholding for Foreign Investors Beginning in 2022, most Iowa pass-through enti - ties must file a composite tax return and pay Iowa income tax on behalf of their non-resident owners’ Iowa-source income from the pass-through entity. A non-resident owner and the related Iowa pass- through entity may annually file a joint election out of this requirement if the non-resident owner agrees to pay income taxes on its Iowa-source income inde - pendent from the entity in which it has an ownership interest. As in all states, withholding for federal income tax is often required. At the federal level, the sale of real property in Iowa is generally subject to withhold - ing at a rate of 15%, and foreign investors must file a federal tax return to recoup this amount where no tax is ultimately due.
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