Eastern Iowa business owners notice new property-tax break

CEDAR RAPIDS - No business owner has a shorter walk to pay a property-tax bill in person than Ken Davidson.

Davidson's Auto Shop, 924 Second St. SW, in Cedar Rapids, sits directly across from the Linn County Public Service Center, where property owners troop into twice a year to pay their property taxes to support the operation of cities, schools, Linn County, Kirkwood Community College and more.

This month, Davidson's property-tax bill for his one-man, two-bay repair shop had shrunk $436, to $2,322 a year - a reduction he now has on the tip of his tongue to talk about after the Iowa Statehouse, following years of talking about property-tax reform for business and industry, finally has delivered.

'I can't complain about taxes,” said Davidson, some of whose customers are county officials from across the street. 'I know it's something you have to pay if you own property. It's part of living. And yes, it usually has gone up.

'But I think it's good that they now can lower commercial taxes. It will bring in companies and small businesses into Cedar Rapids and create jobs. That's great.”

There has been little dispute that the state's property-tax setup needed to change in large part because only about half of the value of a residential property in Iowa is now subject to property taxes - though the percentage has been increasing, little by little, in recent years. At the same time, 100 percent of the value of commercial and industrial properties has been subjected to property taxes.

In 2013, the Iowa Legislature and Gov. Terry Branstad approved a tax reform package that benefits commercial and industrial property owners in two ways starting this month for tax bills paid for the fiscal year that began July 1:

l. All businesses will be taxed on 95 percent of the value of their property, not 100 percent.

2. The state created a new pool of $50 million to provide businesses that submitted applications an additional tax credit to directly cut their tax bills.

A year from now, the 'rollback” will leave only 90 percent of the value of commercial and industrial properties subject to property taxes while the state pool of money for the additional business tax credit will grow to $100 million. A year later, the tax-credit funds will be capped at $125 million a year.

According to the state of Iowa, the rollback on commercial and industrial property will save property owners $78.33 million statewide this year while the tax credit will provide another $49 million in tax savings or $127.33 million in total for the two tax breaks.

For businesses in Linn County, the total of the two tax breaks comes to $9.64 million this tax year. In Johnson County, the total is $6.02 million.

Cedar Rapids City Council member Scott Olson, a commercial Realtor and commercial property owner and a member of the council's Finance and Administrative Services Committee, said this week that he sees the new business tax breaks through two lenses - as a property owner who enjoys tax breaks and as a City Council member who depends on property-tax revenue to pay the city's bills.

As a City Council member, Olson points out that there are two other ingredients that go into the computation of a property owner's property-tax bill in Iowa - the value the city or county assessor places on a piece of property, and the tax rate per $1,000 of property value that is put in place by cities, counties, school districts, community colleges and townships.

Olson and seven partners, who own Hubbard Industrial Park, 1125 Fourth St. NW, actually saw their new property-tax bill increase by $13,216 value to $56,534 because the valuation placed on that property by the City Assessor's Office increased, Olson said.

City Assessor Scott Labus said the tax bills due in September are based on the valuations of property on Jan. 1, 2013, and he said his office conducted an overall revaluation of Cedar Rapids commercial properties at that time. About a third of the commercial properties saw an increase in value, a third dropped and a third stayed about the same, and those valuations are now being factored into the latest property-tax bills along with the state's new tax breaks, he said.

City Council member Olson said the state has told local jurisdictions that it will 'backfill” for lost local property-tax revenue, for now, through 2017.

A more worrisome specter for local jurisdictions, he said, comes in two years as apartment complexes - now considered commercial property and taxed at 100 percent of value - will begin to be classified as residential property with the percentage of their valuation gradually dropping to the residential level over eight years, which is about 50 percent of value. The state hasn't said it will reimburse local jurisdictions for that lost revenue, he said.

'We're jumping all over the map,” Olson said of the changes to business and apartment taxes.

Peter Teahen, president of Teahen Funeral Home, is seeing his property-tax bill decrease by $4,448 this year, to $23,216, as a result of the new state tax breaks for businesses.

'It's always a good deal as a small business to see your taxes go down,” Teahen said. 'We're always willing to pay our fair share. But I'm impressed that they've come back with (the tax help).”

He said the size of the property-tax bill does have an effect on small businesses and their ability to hire and retain employees. Typically, the cost of higher taxes gets passed on to customers, so cutting taxes ends up benefiting the people a business serves, he said.

'It's a value all around,” Teahen said.

Cedar Rapids Assessor Labus said the tax credit provision in the business tax cuts gives businesses large and small about the same piece of the $50 million state pot, which he said was designed to give small, 'mainstreet” businesses some special support. The valuation rollback of 5 percent across the board gives the owners of more valuable property a larger real dollar tax break, he said.

Tom Podzimek, who has moved his small Benchmark Construction Co. into the former Maresh Sheet Metal shop at 907 17th St. NE, is seeing his business property-tax bill increase $334 this year, to $3,000, due largely to improvements he is making and the valuation increase that has resulted.

Podzimek, a former two-term Cedar Rapids City Council member who is running as an independent for a seat on the Linn County Board of Supervisors, looked at his new property-tax bill this week and noted that 40.45 percent of the revenue goes to the Cedar Rapids school district, 39.75 to the city of Cedar Rapids, and 16 percent to Linn County, with the rest going to Kirkwood Community and smaller entities.

'Look at what you're getting,” he said of the tax bill. 'The largest percentage goes to schools. I don't mind that. I don't want to live in a community of dumb people.”

Podzimek is in the process of renovating his shop inside and dressing up the outside, as Mount Mercy University is in the midst across 17th Street NE from him of turning the old Terex industrial site into a new athletic complex.

'It's good for the city,” he said of his investment. 'It's good for neighboring. It's good for business.”