State of Iowa Property Tax Reform

Posted by Christopher Nuss Kelly Hamborg Adam Van Dike on Thursday, January 2, 2014

This past summer, Governor Branstad signed into law various revisions to how the State of Iowa (the “State”) imposes property tax on business and residential properties, with an emphasis on alleviating the tax burden on small businesses. Within the past month, the Department of Revenue (the “Department”) announced procedures for how certain parts of the reform will operate, although the Department is still working on developing other rules and guidance.

This article summarizes the major property tax law changes and, more importantly, highlights an important filing deadline for commercial and industrial property owners to take full advantage of the business property tax credit. For property taxes due in October 2014, an application must be filed no later than January 15, 2014

Business Property Tax Credit

For most business property (classified as commercial or industrial), the new law established a property tax credit. The credit is based on treating the first $145,000 of value in a business property as if it was classified as “residential.” Given that residential property is taxed at approximately 54% of its value, while business property is taxed at 100% of its value, estimates of the annual savings are approximately $3,100. The first year of this credit program, however, is not anticipated to be fully funded by the State. The State’s Legislative Services Agency has estimated that the maximum credit for this first year will be approximately $523. 

To be eligible for this tax credit for the upcoming taxable year, a property owner must file an application with the assessor of the county in which the property is located no later than January 15, 2014. Click here for a copy of the application. The application can be found at http://www.iowa.gov/tax/locgov/54-024.pdf. Furthermore, the Department provides additional information about the credit at http://www.iowa.gov/tax/locgov/BPTCInstructions.pdf.

Note that filing an application does not automatically qualify a property owner for this credit. The county assessor will initially determine whether the property qualifies, and will then forward that recommendation to the county auditor, who then delivers the assessor’s recommendation to the county board of supervisors, which will make the final determination. If the board of supervisors denies the credit, the property owner should receive notice of this disallowance and then would have the ability to appeal that decision to the District Court of the county in which that property is located in. 

Commercial Property Rollback

In addition to the property tax credit, the new law creates a rollback on commercial property up to 10%. As mentioned above, commercial property is currently taxed at 100% of its value (while residential property is taxed at approximately 54% of its value). For 2014, the commercial property taxable value will be reduced by 5%, then another 5% in 2015. Once the rollback is fully phased in, the value of a $1,000,000 commercial building would be “rolled back” to $900,000 for tax purposes. If, for example, the tax rate is 47% per $1,000, the approximate savings would be $4,700.

Property Tax Assessment Limitation

For residential property, a rollback is already in effect, resulting in such property being taxed at approximately 54% of its value. As background, the assessed value arrived at 54% generally because current law restricted the values of residential and agricultural property from increasing by more than 4% faster than the other property classification type. For example, if your home value increased by 10% and your farm increased by 5%, then for property tax purposes your home value increase was limited to 9% (the 5% farm increase + the maximum 4% increase). Under new law, that increase limitation is now 3% instead of 4%. Thus, under the previous example, the home value increase is now capped at 8% (5% + 3%), limiting how quickly the values of these properties are able to increase.

Property Assessment Appeal Board (“PAAB”)

Several years ago, the State established the PAAB to hear property owners’ challenges to property tax assessments, as an alternative to appealing at district court. The new law extended the sunset of the PAAB until July 1, 2018 (the PAAB was originally scheduled to be eliminated on July 1, 2013). Also, changes were made to how the PAAB is managed. Additional information about the PAAB that has been summarized by the Department can be found at http://www.iowa.gov/tax/taxlaw/13SF295I.pdf.

Please call your BrownWinick attorney to discuss how this property tax reform affects you.