Big tax deal details emerge

Lawmakers come now to grace us with details of the big 'ol tax deal:

In the property tax area, the compromise calls for commercial and Industrial properties to be assessed at 95 percent of valuation retroactive to Jan., then at 90 percent starting on Jan. 1, 2014, and then at 90 percent 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.

To accomplishment that reduction, negotiators agreed that the state would appropriate money for replacement of the lost revenue to local governments. The payments would total $78.8 million in fiscal 2015, $162.8 million in fiscal 2016 and $154.1 million for fiscal 2017 and each fiscal year thereafter.

Also included is 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, $125 million in fiscal 2017 and $125 million each year thereafter.

Sounds like the business tax credit would basically mean that the first $145,000 in property value is taxed at the residential rate, and that means that two-thirds of all businesses would be taxed entirely 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 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 will be $30.8 million in fiscal 2014 and $34.5 million in fiscal 2015.

At first glance, this seems like a decent compromise. Everybody gives and gets something. The governor and Republicans don't get the full scope of permanent commercial property tax relief they sought, but they do get some, while accepting the credit model pushed by Dems. One big question going forward, will the state live up to its promise to fund that credit over time? The track record is mixed.

Republicans get a cap on property tax growth, at 3 percent, but not as tight as the 2 percent limit they hoped to get.

Republicans do get to send some of the big surplus back to taxpayers, although the credits look pretty modest. Democrats get a bigger Earned Income Tax Credit, although not as big as the increase approved by the Senate.

I'll be interested to see how local governments react. They could have been hit with a much bigger revenue cut. Most of this tax relief is state-funded.

If this deal holds up, it's a significant accomplishment, especially considering how remarkably far apart the parties are on tax policy. The property tax issue didn't move an inch for months, and I figured they'd throw it overboard and adjourn. But they stuck with it and reached a deal.

It's possible this could get voted on later today. As I said in an earlier post, I'm not keen on ramming stuff like this through before Iowans get a closer look. But there's no stopping a Legislature roaring toward adjournment. They say it sounds like a freight train.

More coverage can be found here and here.

The Gazette's Rod Boshart provides a detailed breakout summary of the deal:

Conference Committee Report for Senate File 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:

o FY 15 $78.8 million

o FY 16 $162.8 million

o FY 17 $154.1 million

o $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.

o Assessment Year 2013 95%

o Assessment Year 2014 90%

o Assessment Year 2015 86%

o Assessment Year 2016 82%

o Assessment Year 2017 78%

o Assessment Year 2018 75%

o Assessment Year 2019 71%

o Assessment year 2020 67%

o Assessment year 2021 63%

o 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:

o 40% on the first $20 million

o 35% on $20 to $55 million

o 25% on $55 to $500 million

o 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