Wide-ranging Iowa tax relief accord reached
Officials optimistic compromise package passage in Senate, House
DES MOINES – The split-control Legislature and Gov. Terry Branstad reached accord Thursday on a wide-ranging tax relief package that will benefit all property classes, return a share of the state surplus to income taxpayers and provide a break to low-income working families.
Negotiators forged a hybrid compromise of the competing approaches favored by Gov. Terry Branstad, majority House Republicans and Democrats who control the Senate.
“I’d say everybody gave a little bit and everybody got a little bit,” said Senate Majority Leader Mike Gronstal, D-Council Bluffs. “We think with a healthy state treasury we can afford targeted tax cuts in areas that will grow Iowa’s economy. We think this bill reflects that.”
Gronstal said overall price tag of the sweeping multi-year, multi-pronged measure likely would be around $400 million when fully implemented.
“It’s significant, it’s helpful and it’s also something that’s manageable,” said House Speaker Kraig Paulsen, R-Hiawatha, who expected the session’s top-priority measure to pass both chambers en route to the governor’s desk and hasten adjournment of the 2013 session.
Branstad told reporters he “absolutely” would sign Senate File 295 into law.
“It is truly a collaborative effort that’s going to make a difference,” he said. “I’m looking forward to opportunity to sign it. Obviously, it’s been a high priority of mine since I came back as governor and I think it will make a big difference for our state.”
Negotiators on a 10-member House-Senate conference committee on Senate File 295 agreed to place a 3 percent tax assessment growth limitation for residential and agricultural properties retroactive to Jan. 1 instead of the 4 percent growth called for under the current rollback. Branstad had sought to cap those yearly increases at 2 percent.
The compromise also calls for commercial and Industrial properties to be assessed at 95 percent of valuation retroactive to Jan.1, then at 90 percent starting on Jan. 1, 2014 and each year thereafter. Currently, those properties are taxed at 100 percent of valuation. The phase-down falls short of the 20 percent cut Branstad-led GOP forces wanted.
“I’m hopeful maybe we can do more in future years,” Branstad said. “But I think this is the art of what was possible with this General Assembly. I’m pleased with the compromise bill that we’ve got tentative agreement on.”
To accomplishment that reduction, negotiators agreed that the state would appropriate money to local governments to replace their lost revenue. The payments would total $78.8 million in fiscal 2015, grow to $162.8 million in fiscal 2016 and then be $154.1 million for fiscal 2017 and each fiscal year thereafter.
Also included was a Business Property Tax Credit for property taxes due and payable in fiscal year 2015 that Senate Democrats championed. Under that portion of the agreement, the state would appropriate $50 million in fiscal 2015 to cover the new tax credit, with the amount growing to $100 million in fiscal 2016, and then $125 million in fiscal 2017 and each year thereafter.
To file a claim for the tax credit, businesses would obtain a form from the county assessor. Counties will submit lists of properties that are eligible for the credit and the state Department of Revenue will determine the amount of value of the property that is subject to the credit.
When the credit is fully phased in, bill’s architects projected that at least $145,000 of property value on every business would be taxed at the residential rate and almost two-thirds of the businesses receiving the credit would see their entire property value taxed at the residential rate.
On the income tax side, the legislative compromise stipulates that beginning July 1, 2014, a tax credit will be issued to Iowans with tax liabilities when the balance of the Taxpayers Trust Fund exceeds $30 million. The new tax credit pushed by legislative Republicans is not refundable and cannot be carried forward or carried back.
Individual credits will range from $30 to $60 per taxpayer and will be claimed on the state income tax form.
The overall tax relief plan also proposes to double the earned income tax credit for lower-income working families – a priority of legislative Democrats -- from the current 7 percent to 14 percent in tax year 2013 and then to 15 percent in tax year 2014. The state’s fiscal impact for the refundable credit was pegged at $30.8 million in fiscal 2014 and $34.5 million in fiscal 2015.
Also, House and Senate conference committee members agreed to create a new property classification called “multi-residential” that will include apartments, nursing homes, assisted living facilities and certain other rental property. Multi-residential properties eventually will be taxed at the residential rate via a 10-year phased period with a total fiscal impact to local governments of $85.3 million when fully implemented.
Another component provides a partial exemption from taxation for each telephone company on the value of the company’s property, with half in assessment year 2013 and the remainder in assessment year 2014. When fully phased in, the change is projected to have a $16 million impact on local governments.
Not everyone hailed the compromise that was three years in the making as a success.
“It's Christmas for Walmart and McDonald's, which will happily receive property-tax breaks that they don't need, while their low-wage employees receive a better Earned Income Tax Credit,” said Peter Fisher of the Iowa Fiscal Partnership. “This Christmas tree will grow bigger with each passing year, leaving less room in local budgets to respond to needs.”
Iowa Citizens for Community Improvement Action Fund members blasted the deal, contending that state government stands to lose $383.6 million in annual revenue while local governments would lose $115.7 million by 2024 due to the compromise.
Conference Committee Report for SF 295
Property Tax Reform
Division I—Business Property Tax Credit (Based on Senate Democrats plan)
- Focuses the benefit on smaller main street businesses
- 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
- $125 million every year thereafter
- Each person who wishes to file a claim will obtain a form from the County Assessor. The form does not have to be filed again until the property is sold or transferred.
- Counties will submit lists of properties that are eligible for the credit and the Department of Revenue will determine the amount of value of the property that is subject to the credit. That amount is called the “credit base.”
- The credit base amount of the value of the property will be subject to a rollback that is equal to the Residential Rollback in that year.
- 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 will be taxed at the Residential rate; Almost two-thirds will have their entire property value taxed at the Residential rate.
Division II —Property Tax Assessment Limitation and Replacement (Based on Republican plans)
- Changes the property tax assessment growth limitation for residential and agricultural property to 3 percent instead of 4 percent for assessment years beginning on or after January 1, 2013.
- Commercial and Industrial will assessed at 95% of valuation starting January 1, 2013; at 90% starting January 1, 2014; and at 90% 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
- FY 16 $162.8 million
- FY 17 $154.1 million
- $154.1 million -- Same amount as fiscal year 17 thereafter
Division III—Multiresidential Property Classification
- Creates a new property classification: Multiresidential
- Multiresidential will include apartments, nursing homes, assisted living facilities , and certain other rental property
- The existing classifications are Residential, Agricultural, Commercial, Industrial
- Multiresidential properties will eventually be taxed at the Residential rate. This will be phased in over 10 years. Total fiscal impact to local governments is $85.3 million when fully phased in.
- Assessment Year 2013 95%
- Assessment Year 2014 90%
- Assessment Year 2015 86%
- Assessment Year 2016 82%
- Assessment Year 2017 78%
- Assessment Year 2018 75%
- Assessment Year 2019 71%
- Assessment year 2020 67%
- Assessment year 2021 63%
- Assessment year 2022 and thereafter: Residential rate
Division IV —Telecommunications Property
- 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)
- When fully phased in:
- 40% on the first $20 million
- 35% on $20 to $55 million
- 25% on $55 to $500 million
- 20% over $500 million
- Fully phased in fiscal impact to local governments: $16 million
- Department of Revenue is directed to complete a comprehensive study of the telecommunications industry and report recommendations for change to the General Assembly
Division V – Iowa Taxpayers Trust Fund Tax Credit
- Each year, beginning July 1, 2014, the balance of the Taxpayers Trust Fund exceeds $30 million a tax credit will be issued to Iowa taxpayers
- The tax credit will be issued to Iowans with a tax liability
- It is not refundable and cannot be carried forward or carried back
- The amount in the Taxpayers Trust Fund will be divided by taxpayers and the credit will be claimed on the tax form
- Individual credits will range from $30 to $60
Division XX -- Property Assessment Appeal Board
- Five year sunset – July 1, 2018
- Lower 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 XX—Earned Income Tax Credit
- Increases the Earned Income Tax Credit from 7% to 14% in tax year 2013; 15% in tax year 2014
- The credit remains refundable.
- The increase is effective retroactively to January 1, 2013.
- Fiscal impact: $30.8 million in FY 14 , increasing to $34.5 in FY 15