Senate committee approves commercial property tax relief plan

Portion of bill would divert to fund to provide tax credits for businesses

Democrats on an Iowa Senate committee Thursday moved ahead with plans for a $250 million commercial property tax cut over five years targeted at small and Main Street businesses over GOP objections that the approach – while helpful -- was too limited.

Senate Study Bill 1136, which passed the Senate Ways and Means Committee on a 9-6 party-line vote, would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial entities would have property values above that threshold taxed at the current 100 percent rate.

Under the Democrats’ plan, $50 million a year would go into a new Business Property Tax Relief Fund beginning July 1, 2014, to provide property tax credits for businesses. A permanent, ongoing appropriation would increase by $50 million each year that the state’s revenue rises by at least 4 percent, reaching a maximum of $250 million per year in reduced property taxes.

“It’s cash flow, it’s keeping you afloat and that’s great,” said Sen. Rick Bertrand, R-Sioux City. He said the legislation would benefit “retail, coffee” shop type businesses with about $4,500 in relief, but does not help manufacturing which is the real driver of good-paying jobs in Iowa. He urged majority Democrats to consider a companion bill for manufacturing to “fill that hole” in commercial property tax relief and to eliminate the revenue “trigger” in the bill approved Thursday.

"There is no perfect bill," said Sen. Joe Bolkcom, D-Iowa City, the committee’s chairman.

“We're about doing what we can get done" he told committee members. “We have to start somewhere. We can build on this.”

Sen. Randy Feenstra of Hull, ranking  Republican on the committee, favored a comprehensive approach that would permanently reduces commercial property tax rates rather than awards tax credits.

"This would be just another complication or another Band-Aid to a bigger problem underneath,” he said.

House Speaker Kraig Paulsen, R-Hiawatha, told reporters Thursday that a property tax compromise “needs to be done this session.”

Republicans who control the Iowa House have proposed to provide relief to all property classes by having the state take over the full cost of funding the school aid formula. Currently, the state contributes 87.5 percent of the total cost of the K-12 school aid formula and the rest is funded by local property tax dollars. House File 2 seeks to increase the percentage the state contributes by 2.5 percent annually for five years.

Gov. Terry Branstad has offered a plan that would reduce the percentage to 80 percent over four years. The bill requires that a standing appropriation be made each year by the Legislature in the exact amount of reduced property tax dollars, to be given back to city and county governments. He also seeks to lower the amount that residential and agricultural classes of property could increase -- from 4 percent to 2 percent.

Legislative Service Agency analysts this week pegged the overall relief provided by the governor’s plan at $350 million to $390 million, while the House GOP plan could go as high as $440 million in relief if next school’s allowable growth rate is 2 percent.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said the Senate favors targeted tax relief via the property tax credits and by raising the state’s earned income tax credit on federal taxes from 7 percent to 20 percent to help working poor families.

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