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September 2013 Brief: Volume 20, Number 27

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What Does the Property Tax Reform Mean to YOU?

 

by Jennifer L. Crull

 

 

Property tax reform has been a very hot topic during the last few legislative sessions. Finally in the last few weeks of this legislative session, a deal was struck to pass Senate File 295, which will bring about real property tax relief for Iowans. This bill creates a commercial, industrial, and railway property-tax credit that will take effect on July 1, 2014. It also limits the annual growth of residential and agricultural property taxes to 3 percent instead of the current 4 percent and reforms the assessments on multi-residential properties.[1] These are just a few of the revisions from Senate File 295. Yet as you read about these changes, you may be wondering exactly what this means for you as a taxpayer.

 

At first glance most people don’t think that the business property tax credit reform will affect the average person much, because most don’t own any business property, but that is not the case. As an average person who shops at local stores, you care about the amount of property taxes these shop owners are paying! Because if their property taxes were to continue to rise without something changing, then their prices would also have to increase to cover the cost of the property taxes. The following are two major points of the new piece of legislation:

 

• Property tax reduction for all commercial and industrial property: a 10 percent reduction in taxable value (assessed value) over two years.
• A new tax credit for commercial and industrial property. When phased in over three years, the taxable value of the first $145,000 of a property’s market value will be sharply reduced to the same level that applies to residential property.[2]

 

These changes will result in savings for the property owners and will translate into savings for the customers as we take the time to shop local. The current property tax system before the changes shifts the responsibility from residential to commercial and industrial property owners, and this will help decrease the shift that has been going on. But the big change is you shouldn’t see local prices rise as quickly as they have over the last few years due to the slowing down of the amount of property taxes the owners are paying. The following table shows the shift in percentage of tax burden for FY 2013 depending on class of property.

 

 

The second part of Senate File 295, which is the part that most individual property taxpayers care about, is the modification of the property tax assessment limitation for residential and agricultural property. The current limitation on annual growth of 4 percent has been changed to 3 percent.[3] This will add some needed protection for homeowners and farmers about how much their property taxes can increase from year to year. This section of Senate File 295 took effect when Governor Branstad signed the bill on June 12, 2013, and it “applies retroactively to assessment years beginning on or after January 1, 2013.”[4]

 

The other major reform of this section is that it provides for commercial and industrial property tax replacement payments to local taxing districts starting July 1, 2013.[5] This will provide the additional revenue that local governments are worried about losing with the reduction in property taxes that commercial and industrial property owners are paying. We heard a lot of concerns about the impact that Senate File 295 will have on local governments. If we look at the Public Interest Institute’s POLICY STUDY from February concerning the collection of property taxes:

 

The second largest recipient of property tax revenue is local governments. Local governments collected $503.1 million in 1992, and in 2012 it was $1,344.5 million. This is an increase of a staggering 167.2 percent. WOW! The counties were collecting $515.3 million in 1992 and $1,004.1 million for 2012. The increase there is only 94.9 percent.[6]

 

So we hope that local governments take the time to review their budgets and work to control the increase in spending that has occurred over the last decade as property tax collections increased.

 

The other big change for property taxpayers concerns multi-residential properties. This includes “mobile home parks, manufactured home communities, land-leased communities, assisted living facilities, properties primarily used or intended for human habitation containing three or more separate dwelling units.”[7]

 

The percentage of actual value at which multi-residential property is assessed is reduced by 3.75 percentage points each year until the assessment year beginning January 1, 2022, at which time and for subsequent assessment years, multi-residential property is assessed at the same percentage of actual value as residential property is assessed for the same assessment year, unless for any assessment year beginning before January 1, 2022, the percentage of actual value at which residential property is assessed exceeds the percentage for multi-residential property.[8]

 

This change should help control the ever-increasing cost of rent. As a renter, you are paying for the property taxes of a property with your rent.

 

These are a few of the changes that are going into effect with Senate File 295. Yes, this is a great bipartisan bill. But for these reforms to really work for you, you have to take the time to review what your local cities, counties, and school districts are up to with their budgets. If we ask questions, then hopefully they will watch the increase in their spending and that will help us to experience some much-needed property-tax relief in Iowa.

 

(Endnotes)
[1] Legislative Services Agency, “2013 Summary of Legislation” Iowa General Assembly Legislative Services Agency Regular Session, p. 187 – 189, <https://www.legis.iowa.gov/DOCS/GA/85GA/Session.1/Summary/summary.pdf#nameddest=SF295> accessed on July 30, 2013.
[2] Iowans for Tax Relief, “The Taxpayers’ Watchdog,” Session Week 18, Monday, May 20, 2013, <http://www.taxrelief.org/reports/0000/0190/May_20_2013_ITR_Watchdog_2.pdf> accessed on July 31, 2013.
[3] Legislative Services Agency, p. 188.
[4] Ibid.
[5] Ibid.
[6] Jennifer L. Crull, “Creating a Fair Property Tax System: Is it Possible?,” POLICY STUDY, No. 13-2, February 2013, Public Interest Institute, <http://www.limitedgovernment.org/ps-13-2-p3.html> accessed on July 31, 2013.
[7] Legislative Services Agency, p. 189.
[8] Ibid.

 

Jennifer L. Crull is an IT Specialist with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.

 

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