Iowa City to lobby against losing tax revenue for multiresidential structures

Nearly two-year old property tax reform legislation is finding new ways to concern local governments.

The Iowa Department of Revenue's proposed rules for the 2013 property tax reform could allow buildings with multiresidential use mixed with commercial or industrial use to be taxed at a strictly multiresidential rate.

The proposed rules are not what area officials interpreted from the legislation during the 2013 general assembly, said Geoff Fruin, Iowa City assistant to the city manager.

'We were certainly caught off guard by the rules, as I think were a number of cities,” Fruin said. 'At no time do we ever recall a discussion in 2013 that would create a scenario where a commercial property was taxed at a multiresidential rate,”

Fruin said it's difficult to know the ultimate impact on the city's roughly $96 million in assessed property valuations that could fall under the new rules, but added that it would easily reach several hundred thousand dollars.

Victoria Daniels, PIO with the Iowa Department of Revenue, said the proposed rules ultimately leave the decision up to local assessors, who will determine the primary use of a building for taxing purposes.

'That may be multiresidential or that may be commercial,” she said. 'They need to determine the primary use of the property based on their normal assessment practices.”

Fruin said the concern with that is local assessors might interpret the rules differently.

'The definition of primary use isn't very specific so you could see assessors across the state approach the primary use provision much differently,” Fruin said. 'We hope that's not the case but it certainly leaves the door open for that.”

Ultimately the concern with multiresidential versus commercial taxes is that the legislation - which starts to phase in July 2015 - also includes rollbacks on multiresidential property taxes that will ultimately bring them down to about 60 percent. Commercial properties also will see rollbacks, but only down to 90 percent.

The state has pledged to backfill commercial property taxes, but so far there has been no mention of property tax relief for multiresidential properties.

Jeff Davidson, economic development administer, said the new rules have the potential to create an issue of fairness - with two similar businesses being taxed differently based on the building they are located in.

The change also has the potential to curb progressive development in the community, particularly in the Riverfront Crossings District, where buildings that blend commercial and residential use are encouraged.

'We're trying to create these great new neighborhoods for people to live in like Riverfront Crossings,” he said. 'The cornerstone of that is mixed-use buildings.”

However, the proposed changes would discourage such development, as shorter, stand-alone commercial properties would net more property taxes than those beneath several floors of apartments.

'It basically becomes a disincentive for us to encourage these kinds of buildings,” Davidson said.

The final rules have not been completed by the Department of Revenue, but Fruin said it's likely area officials and the Iowa League of Cities will have to return to the statehouse to again talk property tax reform.

'It does appear that it's going to require a legislative fix,” he said.