After three years of hard bargaining and decades of debate, the Iowa Legislature has approved dramatic changes in property tax laws.
The Iowa House passed the bill this morning, 84 to 13, after the Senate approved the legislation Wednesday by a vote of 43 to 6. Passage of the legislation was the last act of the 85th General Assembly and occurred on the 130th day of the session.
Business groups cheered the legislation, which is estimated to save property owners nearly about $561 million a year when it is implemented in fiscal year 2024, good tax groups gave guarded approval, an activist group called it a cheap compromise, and commercial real estate professionals called it a nice effort, but one that might have limited effect on their industry.
The legislation, which is expected to be signed into law by Gov. Terry Branstad, will save taxpayers significant dollars and, by the same token, once it is fully implemented will drain nearly $178 million a year from local governments which rely on property taxes for most of their revenue.
Taxpayers also will be called on to backfill the difference between the $561 million and the $178 million. Click here for the most recent fiscal note from the Legislative Services Agency.
For the first time, owners of commercial and industrial properties will receive a rollback on the formula used to calculate their taxes.
At present, those properties' taxes are based on 100 percent of valuation. Under the new law, the taxes ultimately will be assessed on 90 percent of valuation. In addition, the majority of commercial properties, primarily those housing small businesses, will receive a significant rollback currently applied to residential properties on the first $145,000 of valuation. Homeowners pay taxes on slightly more than 50 percent of the value of their property.
The legislation also changes taxes on multifamily housing, which have been classified as commercial properties. Under the bill, the properties will be classified as residential. That segment of the legislation will be worked in over 10 years.
Kris Saddoris, vice president of development for Hubbell Realty Co., said the commercial classification has stymied the construction of multifamily housing in Iowa, particularly projects that rely on equity stakes from national investors. Click here to read a related story from Wednesday's Commercial Real Estate Weekly.
Another major change in the property tax structure is a reduction of the annual statewide average increase in valuation to 3 percent from its present 4 percent.
Click here to read an analysis of the legislation from the Legislative Services Agency.