Iowa wineries' ag designation means thousands in tax breaks
Wineries have quintupled in Iowa in the past decade
Spurred by Napa Valley fantasies and paid for, in part, with property tax breaks, wineries have quintupled in Iowa in the past decade.
The Gazette investigated these tax breaks to find out how much Iowa is losing in taxes and whether the incentives still are needed in an industry that boasts about 100 wineries and 300 vineyards statewide. The findings include:
-- Of the 10 Iowa wineries that wholesaled the most wine in fiscal 2011, the eight that had an agricultural designation saved more than $100,000 in combined property taxes.
-- Jasper Winery, a 2.8-acre “urban winery” in Des Moines, saved $54,000 this year by being classified as agricultural. The property, which has only one acre of grapes, competes with other event-reception venues that pay higher commercial taxes.
-- Tax breaks are applied unevenly, with some Iowa counties requiring minimum acres of vines and others not granting agricultural designation to tasting rooms and other buildings.
-- Iowa is unusual in granting tax breaks for winery buildings. Seven other Midwestern wine-producing states tax tasting rooms, reception venues and processing facilities at full commercial value.
Iowa levied taxes on $4.5 billion in assessed property in fiscal 2011 to pay for schools, cities, counties and hospitals, among other things.
Commercial property owners are taxed on the full value of the property, whether that’s a gas station, department store or manufacturing plant. Residential and agricultural property owners get tax breaks of varying sizes, depending on which tax district they’re in.
Providing tax breaks to a given group — as Iowa lawmakers considered during the 2012 session for commercial property owners — is like squeezing a balloon, said Dave Ellis, chief deputy Linn County assessor.
“If you squeeze that balloon on one end — agricultural — it pops out on the other side, and that’s residential,” Ellis said.
It started a firestorm
Summerset Winery, one of Iowa’s first native wineries, was still new in 2001 when its 12-acre vineyard and $300,000 winery building near Indianola were reclassified from agricultural to industrial.
Ellis, who was then assessor in Warren County, made the switch based on his belief that Iowa’s agricultural rollback was not intended for facilities that processed a raw commodity — grapes — into a finished product — wine.
“It created a little bit of a firestorm,” Ellis said.
The winery sued Warren County and asked Steve Richardson, then a Democratic state representative, to draft legislation specifically including wineries as agricultural properties.
“Allowing these smaller mom-and-pop operations to move to an agricultural classification would allow them to produce on-site without being taxed as a commercial entity,” said Richardson, who retired from the Legislature in 2002.
Since the law passed, Iowa wine production has grown from about 50,000 gallons in 2002 to 350,000 gallons in 2011, according to Iowa State University Extension.
Iowa’s cold winters don’t allow for the same varieties that flourish in other states, which means Iowa winemakers still import about half their grapes or juice from other places, said Michael White, a viticulture specialist for ISU Extension.
“California may spill more wine in a day than we’re producing in a year,” White said.
Buildings also get agricultural rollback
This includes everything from a lean-to for roadside wine sales to a million-dollar facility with a tasting room, sales area and reception hall.
Iowa assessors complain the law is vague, allowing for broad interpretation.
Tama County Assessor Jerry Witt does not classify winery buildings as agricultural. “I don’t give the ag factor to the building itself, until the Legislature tells me I need to,” Witt said.
Dubuque County has six state-licensed wineries. County Assessor Dave Kubik requires a winery to have at least 10 acres of vines and have the intent of making a profit by selling wine.
Jasper Winery has less than three acres, nestled into a hollow just southwest of downtown Des Moines. The one acre of vines shows signs of a hard frost this spring, but tiny green grapes are visible on the fledgling vines.
Jasper’s modern building with an indoor-outdoor fireplace, cozy barrel room and banquet hall is the site for events of up to 150 people, live music and tastings.
Paul and Jean Groben opened the winery in 2008 after growing grapes and producing wine on their property near Newton since 2000. The Des Moines parcel was classified as industrial until 2009, when it switched to agricultural.
The Grobens would be paying more than $60,000 a year in property taxes if the land was classified as industrial, compared with $5,800 for an agricultural parcel, said Randy Ripperger, deputy Polk County assessor. The Grobens have received additional tax breaks because the land is in an urban revitalization zone, he said.
The Jasper tax break is the largest among the top 10 wholesaling native wineries in Iowa. Eight of those 10 are classified as agricultural.
Cedar Ridge Vineyards, Winery and Distillery, near Swisher, saved more than $17,000 this year by being classified agricultural as compared with industrial, Johnson County Assessor Bill Greazel said. Cedar Ridge opened a new event center this spring that can hold live music, wedding receptions or corporate events for up to 200 people.
Wineries bring economic benefits
Whatever cities, counties and schools are losing in property taxes from wineries, the state is making up in other economic benefits, Cedar Ridge owner Jeff Quint said.
The estimated economic impact of Iowa’s wine and vineyard industry in 2008 was $234 million, according to a study commissioned by the winegrowers association. Iowa produced 186,700 gallons of wine in 2008 for a total of $7.6 million in retail value.
Regionally, Iowa has one of the highest excise taxes on native wine at $1.75 per gallon wholesaled. With sales of nearly 189,000 gallons in fiscal 2011, Iowa brought in about $330,500. Most of that went back into the industry, with $100,000 allocated to ISU’s Midwest Grape and Wine Industry Institute and the rest to the Iowa Beer and Wine Promotion Board.
“We’ve had some really nice laws that have helped wineries,” said Jean Groben, whose son, Mason, pushed for a 2009 law change that allows him to serve as Jasper’s winemaker and as head brewer for Madhouse Brewing Co. in Newton.
Lawmaker, others open to changing law
Of eight Midwestern wine-producing states, Iowa is the only one that classifies winery buildings as agricultural properties.
“A vineyard is clearly ag land,” said Susan Hofer, spokeswoman for the Illinois Department of Revenue. “A tasting room with the ability to sell wine would be carved out from ag and treated as commercial.”
Indiana, Michigan, Missouri, Wisconsin, Minnesota and Nebraska do not classify winery buildings as agricultural.
Even without the tax breaks, wineries would have flourished in Iowa because people like the idea of making and selling wine, said Sen. Joe Bolkcom, D-Iowa City.
Bolkcom, who is chairman of the Senate Ways and Means Committee, said now may be time to stop the tax breaks for winery buildings.
“The question whether the processing facilities or entertainment venues should get the same kind of tax treatment is worth taking some time and reviewing,” Bolkcom said.
Richardson agreed tweaks may be needed to the law he drafted. One idea would be limiting the agricultural designation just to wineries that make most of their money from growing and selling wine, not holding events, he said.
Dave Cushman Jr., owner of Park Farm Winery in Dubuque County and former president of the Iowa Wine Growers’ Association, said he has events, because they get people out to the vineyard to taste and purchase his wine.
Just because there are 100 wineries doesn’t mean they are all thriving, he said, but he doesn’t like the idea of people planting just a few grapes to call themselves a winery and get tax breaks.
“Maybe there is some reasonable discussion to be had there,” Cushman said.
Trees also save big green
At least two acres plus 200 trees per acre = no taxes.
This, in a nutshell, is Iowa’s forest reserve property tax exemption.
The exemption, put into law in 1906, allows landowners to pay no taxes on forested land. To get the break, a landowner can’t allow livestock on the land, can’t lease it out for hunting and must maintain the trees for at least 10 years. Landowners can get income from “forest products,” such as Christmas trees, as long as they maintain the 200 trees per acre. No buildings are allowed on the tax-free land.
Landowners planting fruit trees also can get free taxes on up to 10 acres if they plant at least 40 apple trees or 70 other fruit trees per acre.
Reports of abuse over the years have included urban developers who plant seedlings for the tax break, but don’t intend to create a forest, assessors said.Licensed Iowa Wineries