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The Deyoe Dispatch: Historic Tax Relief

Since this past Legislative session ended on May 23, I turned my focus to catching up on farm work and other errands that had been put off. We finally got done planting, but there are many neighbors that still have a lot more to do. Hopefully we will get dryer weather and everyone can finish soon.

By now, most of you have heard that we passed the first major property tax reform since the 1970s. The bill also contains some income tax relief. Overall, it is the largest tax cut in dollars in Iowa history.

The bill was truly bipartisan, with the House Republicans, Senate Democrats and the governor all achieving key policy goals. The bill was signed by the governor on June 12. Below is a summary of each division of the bill.

Division I - Business Property Tax Credit (Based on Senate Democrats’ plan)

• Creates a business property tax credit for property taxes due and payable in fiscal year 2015.

• $50 million is appropriated in fiscal year 2015 to the Business Property Tax Credit Fund; $100 million is appropriated in fiscal year 2016; $125 million is appropriated in fiscal year 2017 and $125 million every year thereafter.

• The state will use the money appropriated into the Business Property Tax Credit Fund to reimburse local governments the amount of credits issued.

• When fully phased in, at least $145,000 of property value on every business would be equal to the residential rollback.

Division II - Property Tax Assessment Limitation and Replacement (Based on House Republican plans)

• Assessment growth limitation moves from 4 percent to 3 percent on ag and residential immediately.

• Commercial and industrial was assessed at 95 percent of valuation starting last January; at 90 percent starting Jan. 1, 2014; and is frozen at 90 percent thereafter.

• The State will appropriate money for replacement of the lost revenue. Payments will be made by IDR to county treasurers: FY 15 - $78.8 million (includes multi-residential), FY 16 - $162.8 million (includes multi-residential) and FY 17 - $154.1 million (does not include multi-residential, and capped at this level going forward).

Division III - Multi-residential Property Classification

• Creates a new property classification: Multi-residential.

• Multi-residential will include apartments, nursing homes, assisted living facilities and certain other rental property.

• The existing classifications are Residential, Agricultural, Commercial, Industrial.

• Multi-residential properties will eventually equal the residential rollback after 10 years.

• Total fiscal impact to local governments is $85.3 million when fully phased in.

Division IV - Telecommunications Property

• Determining the taxable value of each company stays the same.

• Each telephone company will receive a partial exemption from taxation on the value of the company’s property. This is phased in, with half in assessment year 2013 (FY 15), and the remainder being added in assessment year 2014 (FY 16).

• Department of Revenue is directed to complete a comprehensive study of the telecommunications industry and report recommendations for change to the General Assembly: Assessed value $0-$20 million - 40 percent; $20-$55 million - 35 percent; $55-$500 million - 25 percent and over $500M - 20 percent.

Total fiscal impact to local governments is $16 million when fully phased in. This brings telecommunications companies closer to what other commercial business pays.

Division V – Iowa Taxpayers Trust Fund Tax Credit

• Beginning July 1, 2014, for each year that the balance of the Taxpayers Trust Fund exceeds $30 million, a tax credit will be issued to Iowa income taxpayers.

• The tax credit will be issued to Iowans with an income tax liability.

• $60 million is the maximum amount that can flow into the taxpayer trust fund each year (this is from surplus revenue).

• $60 million equals a $27 credit per filer; $120 million would equal $54.

Division VI - Property Assessment Appeal Board

• This extends the sunset on an existing board.

• Five year sunset – July 1, 2018, lowers salaries, adding another appraiser to the board (replacing the finance profession with state and local tax policy experience, allowing for a speedier hearing process).

Division VII - Earned Income Tax Credit

• Increases the Earned Income Tax Credit from 7 percent to 14 percent of the federal credit in tax year 2013 and to 15 percent in tax year 2014.

• The credit remains refundable.

• The increase is effective retroactively to Jan. 1, 2013.

• Fiscal impact: $30.8 million in FY 14, increasing to $34.5 in FY 15.

This bill was one of three major reform bills that were passed this year (the others being education and health care). I plan on writing about each of those in future columns.

(If you have any questions or concerns, please contact me. Home phone: 515-382-2352; E-mail: Dave.Deyoe@legis.iowa.gov.)

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