Bill Summary – FastDemocracy

Fiscal Note
                                         Fiscal Services Division
HF 163 – Disabled Veteran Homestead Tax Exemption (LSB1056HV)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 163 expands eligibility criteria for the Disabled Veteran Tax Credit. The eligibility
expansion is phased in over a period of three assessment years. The change allows for a
property tax credit that is equal to the disability rating of the qualified applicant. The phases are
as follows:
• Assessment year (AY) 2023 (FY 2025) — Individuals with a disability rating of 70.0% or
    higher will qualify.
• AY 2024 (FY 2026) — Individuals with a disability rating of 40.0% or higher will qualify.
• AY 2025 (FY 2027) and after — Individuals with a disability rating of 10.0% or higher will
    qualify.
In all instances, the tax credit will equal the individual’s disability rating multiplied by the tax due
on the homestead. Qualified individuals may choose to benefit from the existing Homestead
Credit and Military Service Tax Exemption if the property tax reduction under those programs
offers a higher property tax reduction than the Disabled Veteran Tax Credit.
The changes are effective upon enactment and apply to assessment year 2023 and after.
Background
The Disabled Veteran Tax Credit is funded through the standing unlimited appropriation for the
Homestead Tax Credit. Under current law, a qualified disabled veteran is allowed a property tax
credit equal to 100.0% of the property tax due on a homestead. To qualify under existing law,
the veteran must be one of the following:
• A veteran of any of the military forces of the U.S. who acquired the homestead under
    specified federal veteran assistance programs.
• A veteran (or former member of the National Guard of any state who meets specified service
    requirements) who has a permanent service-connected disability rating of 100.0%.
• A veteran (or former member of the National Guard of any state who meets specified service
    requirements) who has a permanent and total disability rating based on individual
    unemployability that is compensated at the 100.0% disability rate.
• A surviving spouse or dependent child who is receiving federal Survivor’s Dependency and
    Indemnity Compensation.
Assumptions
• The number of qualified veterans at each disability rating was provided by the U.S.
   Department of Veterans Affairs (VA). The numbers were adjusted by the Department of
   Revenue (Department) to account for veterans who are assumed to already qualify under
   existing law.
• The Department estimates that 76.0% of qualified veterans own homesteads. That
   percentage is assumed to be the same for all disability ratings. Based on the count of
   qualified veterans and the assumed home ownership rate, the number of veterans at each
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    disability rating category who will benefit from the expanded credit is listed in Table 1. The
    numbers are assumed to remain constant for the near future.
                                             Table 1
                         Expanded Disabled Veteran Tax Credit
                   Assumed Number of Qualified Veteran Homestead Owners
                  Disability       Veteran           Disability      Veteran
                   Rating        Homeowners           Rating       Homeowners
                    90.0%              1,350           40.0%             2,710
                    80.0%              1,760           30.0%             2,620
                    70.0%              1,970           20.0%             3,070
                    60.0%              2,770           10.0%             7,990
                    50.0%              2,030
                                                         Total           26,270
•   Based on Department records of current Disabled Veteran Tax Credit claims, the average
    disabled veteran home value was $165,433 in AY 2020. The average home value for
    veterans made eligible under this Bill is assumed to be the same.
•   The average home value is assumed to increase 2.9% each assessment year.
•   The residential rollback equals 56.4919% for AY 2022 and is assumed to remain at that
    level for all future years.
•   The statewide average residential property tax rate is $33.65 per $1,000 of taxed value for
    AY 2021 (FY 2023), and this rate is assumed to remain constant for future years.
•   A veteran homestead owner who qualifies for the Disabled Veteran Tax Credit cannot also
    qualify for the Homestead Tax Credit or the Military Service Tax Exemption.
•   The Homestead Tax Credit applies to the property tax due on $4,850 of taxed value. At an
    average residential property tax rate of $33.65 per $1,000, the average tax credit is $163.
    The credit is funded through a standing unlimited General Fund appropriation.
•   For most qualified veterans, the Military Service Tax Exemption exempts $1,852 of taxed
    value from property tax. The State General Fund partially reimburses local governments for
    the exemption. The Military Service Tax Credit covers $6.92 of the property tax rate, while
    the school aid appropriation covers $5.40. At the statewide average property tax rate of
    $33.65, $21.33 per $1,000 of the exemption results in reduced local government revenue.
•   The estimated cost of extending the Disabled Veteran Tax Credit to veterans with disability
    ratings below 100.0% is adjusted for the reduction in the Homestead Tax Credit and Military
    Service Tax Exemption.
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Fiscal Impact
The expansion of the Disabled Veteran Tax Credit is projected to result in State General Fund
appropriation net increases as shown in Table 2. For years beyond FY 2027, the estimate
increases by 2.9% each year.
                                                        Table 2
                            Expansion of the Disabled Veteran Tax Credit
                                                   Dollars in Millions
                                                                         FY 2025           FY 2026      FY 2027
     Newly Qualified Homestead Owners                                        5,085          12,599       26,282
     Disabled Veteran Tax Credit Increase                            $        13.7         $   27.4     $   36.2
     Reduction in Existing Property Tax Appropriations *                      -0.9             -2.3         -4.9
     State General Fund Appropriation Net Increase                   $        12.8         $   25.1     $   31.3
     Local Government Property Tax Revenue Increase                  $          0.2        $    0.5     $    1.0
     * Includes the Homestead Credit, Military Service Tax Credit, and State school aid.
In addition to the increase in State General Fund appropriations, the reduction in the use of the
Military Service Tax Exemption is projected to increase local government property tax revenue
statewide by the amounts listed in the final line of Table 2.
Sources
Department of Revenue Disabled Veteran Tax Credit records
U.S. Department of Veterans Affairs disability rating counts (January 2022)
Residential rollback percentage for AY 2022 (FY 2024)
Department of Management property tax rate and value files
                                                                                   /s/ Jennifer Acton
                                                                                   February 20, 2023
Doc ID 1368891
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
                                                   www.legis.iowa.gov
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Statutes affected: 
Introduced: 425.15, 425.1, 234.1