Iowa Enacts Significant Property Tax Reform
On June 12, 2013, Iowa Governor Branstad signed into law Senate File 295, a significant tax reform bill. SF295, among other things:
- establishes a “business property tax credit fund” to incentivize small business growth in Iowa;
- rolls back the taxable value of certain commercial, industrial, and railroad property in Iowa;
- creates a new class of “multiresidential” property; and
- rolls back the taxable value of multiresidential property.
Background of Iowa Property Tax. Iowa imposes a property tax on the “actual value” of real estate located within Iowa. For residential and agricultural property, the growth in the actual value of residential and agricultural properties subject to property tax is statutorily limited and cannot exceed 4 percent. As a result, residential and agricultural classes of property with actual values that have increased more quickly than 4 percent enjoy a “rollback” of property tax. The Director of Revenue expresses the rollback as a percentage. For 2012, residential real estate received a rollback of about 47 percent from actual value, and agricultural property received a rollback of about 40 percent from actual value. Commercial and industrial property received no rollback for property tax purposes.
Business Property Tax Credit. To encourage economic growth in Iowa, SF295 establishes a property tax credit for Iowa businesses that pay property tax. Property classified as commercial, industrial, or railroad property (“CIR property”) is eligible for the credit. Property owners must apply to the Department of Revenue to receive the credit. While the calculation of the amount of the credit depends on a number of factors, it has been estimated that by 2017, CIR property will receive a credit equal to:
- the tax imposed at actual value; minus
- the amount that would have been imposed if the first $145,000 of CIR property was taxed as residential.
Low-income housing tax-credit property, mobile home parks, manufactured home communities, land-leased communities, and assisted living facilities are not eligible for the credit. The tax credit takes effect for property taxes due and payable in fiscal years beginning on or after
July 1, 2014.
Rollback for CIR Property. In addition to the property tax credit, SF295 provides a limited rollback for CIR property. The rollback is 5 percent for fiscal year 2014 and 10 percent after that. Therefore, Iowa will eventually tax CIR Property at 90 percent of its actual value.
Rollback for Multi-Family Housing. SF295 also establishes a new class of property for Iowa property tax purposes—”multiresidential” property. Multi-family residential property generally consists of property having three or more separate living quarters, with at least 75 percent of the space being residential. The Bill affords favorable property tax treatment to multiresidential property in the form of a 13.75 percent rollback from actual value that takes effect in 2015. The rollback increases to 37.25 percent from actual value for property assessed in 2021. After 2021, identical rollbacks will apply to both residential and multiresidential property.
Business clients, and in particular multiresidential property owners who pay property tax, should be aware of the new tax changes and should consult with their tax advisor about taking advantage of the changes.