Bill Summary – FastDemocracy

Fiscal Note
                                                 Fiscal Services Division
SF 181 – Residential Assessment Limitations (LSB1566SV.1)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – Final Action
Description
Senate File 181 relates to property taxes and income taxes. Division I relates to the calculation
of the assessment limitation (rollback) for residential property. The Division specifies that
property that was classified as multiresidential property (apartments, nursing homes, mobile
home parks, etc.) prior to January 1, 2022, and that has been included within the residential
property classification on and after January 1, 2022, shall not be considered in the calculation
that determines the residential rollback for assessment year 2022 and after.
Division I also delays local government budget process timelines to allow local governments
time to adjust proposed FY 2024 budgets.
The Bill also makes two technical changes related to income taxes:
• Division II specifies that for the purposes of the Employer Child Care Tax Credit, the
   amount of qualified employer expenditures related to child care that may be used in
   calculating the tax credit is limited so as to include only qualified expenditures made in Iowa.
   The change is effective upon enactment and applies retroactively to the date of initial
   availability of the tax credit (January 1, 2023).
• Division III relates to income tax withholding on pension income. Beginning January 1,
   2023, most pension and other retirement income received by Iowa taxpayers is exempt from
   Iowa income tax. The Bill specifies that income tax withholding is only required if the
   pension or other retirement income is subject to Iowa income tax.
Background
Rollback — The growth in the aggregate taxable value of all Iowa residential property,1 due to
the revaluation of property that existed in the previous assessment year, is restricted by Iowa
law to no more than 3.0% per year. To limit annual residential taxable value growth to no more
than 3.0%, the Department of Revenue (Department) each year calculates a percentage that is
referred to as a rollback. In simplest form, the residential rollback for an assessment year is
calculated by dividing the allowed aggregate taxable value of all residential property in Iowa as
restricted by the 3.0% growth limit by the total aggregate actual value (as determined by the
assessor) of the same properties. For any given property’s actual value, a higher rollback
percentage will result in a higher taxable value.
An example rollback of 55.1234% means that 55.1234% of the actual value of a property is
subject to taxation by relevant local governments, so a property with an actual value of
$1,000,000 would have a taxable value of $551,234. In recent years, the rollback percentage
for residential property has fluctuated between 54.1302% and 56.9391%.
School Finance — Iowa school funding (for kindergarten through grade 12) is funded primarily
through a combination of property tax revenue and financial aid provided by the State through
1   Rollbacks are also computed separately for other classes of property.
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the school aid formula. As part of the formula, all taxed property value within the State is
subject to a school finance basic tax levy equal to $5.40 per $1,000 of taxed value. All else
being equal within the formula, additional taxed value increases the property tax portion and
reduces the State aid portion of school finance by the amount raised by the $5.40 basic levy.
Division I relates to the residential rollback calculation. 2013 Iowa Acts, chapter 123 (Taxation
of Property and Income Act), created a new property classification called multiresidential. That
new classification encompassed properties that were used for human habitation but did not
qualify under the definition of residential property. In addition to establishing the new property
classification, the Act also initiated a process whereby properties within the multiresidential
classification would benefit from a declining rollback percentage through assessment year (AY)
2021, after which the classification would be assigned the calculated residential rollback each
year.
The multiresidential provisions of the 2013 Act were amended in 2021 Iowa Acts, chapter 20
(Taxation of Property Act), by eliminating the separate property classification of multiresidential
property and folding the properties from the previous multiresidential classification into the
residential classification, with the class combination first occurring with AY 2022.
When implemented through an annual order by the Department in October 2022, the
combination of the previously separate property classes within the residential rollback
calculation resulted in an AY 2022 residential rollback percentage that was higher than would
have been the case had the 2021 legislation not been enacted. The Department calculated that
the AY 2022 residential rollback with the multiresidential and residential property classes
combined within the calculation equals 56.4919%. The LSA has determined, and the
Department has confirmed, that had the two classes remained separate, the residential and
multiresidential rollback percentages for AY 2022 would equal 54.6501%. The difference
means that for a residential property with an actual value of $200,000, the taxable value would
be $3,684 higher than without the implementation of the 2021 Act. For a $500,000
multiresidential property, the increase in taxable value calculates to $9,209. The unintended
increase also applies to all future assessment years.
Assumptions
Division I, Residential Rollback Calculation:
• AY 2022 assessments apply to property taxes due in the fall of 2023 and the spring of 2024
   (FY 2024).
• For AY 2022, the aggregate actual value of all residential and multiresidential property in
   Iowa totals $214.905 billion. At a rollback of 56.4919%, the aggregate taxable value of
   residential property equals $121.404 billion, while at a rollback of 54.6501%, the total would
   be $117.446 billion.
• The difference between the two rollback calculations results in an increase in taxable value
   statewide of $3.958 billion and that amount of taxable value subject to the school finance
   $5.40 levy would result in a $21.4 million increase in property taxes paid by residential and
   multiresidential property owners and a $21.4 million reduction in State aid to schools. Due
   to the nature of the rollback calculation, the shift to property tax from State school aid is
   annual and permanent.
• For calculating the potential maximum property tax increase associated with the 2021 Act,
   the FY 2023 average residential property tax rate of $33.65 per $1,000 of taxed value,
   minus the $5.40 basic levy is used ($28.25).
• Iowa property tax law provides that every commercial, industrial, or railroad property unit
   benefits from the residential rollback on the first $150,000 of property value. The
   implementation of the 2021 Act also caused an increase in the taxable value of properties
   within those three classes. The annual aggregate impact on the three classes is projected
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    to be much smaller in aggregate than the impact on residential and multiresidential
    properties. Due to data source limitations, the actual impact on those classes cannot be
    estimated at this time.
Division II (Employer Child Tax Credit) and Division III (Pension and Other Retirement
Withholding) are technical and clarifying changes that do not impact the underlying fiscal impact
implications of the original enacting legislation.
Fiscal Impact
The implementation of 2021 property tax legislation inadvertently increased the contribution of
property tax to Iowa school finance by an estimated $21.4 million per year, beginning with
FY 2024, and decreased the State aid appropriation by the same annual amount. The
provisions of Division I of this Bill related to the calculation of the residential rollback will
reverse the 2021 legislation’s fiscal impact on property taxpayers and the State school aid
appropriation.
Beyond the school basic levy impact, the 2021 legislation also likely increased the taxes owed
for FY 2024 and after by residential and multiresidential taxpayers through an increase in the
taxable value of their properties above what would have been the case without the legislation.
The impact on those two classes of properties is a projected maximum annual property tax
increase of $111.8 million each year (excludes the $5.40 impact discussed above). The actual
property tax increase will be lower than this maximum, since the extra taxable value will in some
cases result in lower property tax rates. This Bill will also eliminate this additional potential
increase in property taxes due to the 2021 Act.
Sources
Department of Management property tax value and tax rate files
Department of Revenue rollback calculations
Legislative Services Agency analysis
Iowa League of Cities
                                                                               /s/ Jennifer Acton
                                                                                 May 16, 2023
Doc ID 1374174
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: 441.21, 533.329
Reprinted: 441.21, 533.329
Enrolled: 441.21, 441.45, 533.329