Bill Summary – FastDemocracy

Fiscal Note
                                       Fiscal Services Division
SF 548 – Forest and Fruit-Tree Reservations (LSB2020SV)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
Senate File 548 limits the property value that may benefit from the existing forest and fruit-tree
reservation property tax exemption. The exemption is limited under the Bill to the per-acre
assessed property value that for assessment year (AY) 2024 exceeds 25.0% of the per-acre
assessed valuation for all agricultural property within the county. For AY 2025 and after, the
exemption threshold is increased to 50.0%.
Background
Current Iowa Code chapter 427C defines forest and fruit-tree reservations, and Iowa Code
section 441.22 establishes the property tax exemption. Under current law, forest reservations
are fully exempt from property tax and fruit-tree reservations are exempt for eight years after
planting.
A property tax preference for forest and fruit-tree property was first enacted in 1906 Iowa Acts,
chapter 52 (Encourage the Planting of Forest and Fruit Trees Act). Qualified property was not
fully exempt under the 1906 legislation, but instead limited to a taxable valuation of $1 per acre.
The qualifications for an area to be considered a forest or fruit-tree reservation are essentially
the same today as originally enacted in 1906.
Since 1906, several changes to the preferential taxation of forest and fruit-tree reservations
have been enacted:
• 1933 Iowa Acts, chapter 121 (Assessed and Taxable Value the Same Act) — Assessed
   value of forest and fruit-tree reservations was raised to $4.00 per acre.
• 1974 Iowa Acts, chapter 1231 (Valuation of Property Act) — Assessed value of forest and
   fruit-tree reservations was raised to $14.82 per acre.
• 1982 Iowa Acts, chapter 1247 (Natural Resources Exemption and Assessment Act) — Rural
   forest reserve property was made fully exempt from property tax, while urban forest reserve
   property was to be assessed at market value. Fruit-tree reservations were assessed at
   $20.00 per acre.
• 1984 Iowa Acts, chapter 1222 (Fruit-Tree and Forest Reservations Act) — Forest and fruit-
   tree reservation property was made fully exempt from property tax. The fruit-tree eight-year
   limit after planting remains.
The current annual value of the tax exemption to landowners is estimated to average $15.14 per
acre statewide under current law, although there is likely a significant variation in this amount
among benefiting properties.
Assumptions
• A total of 730,300 acres with a combined assessed value of $635.2 million benefited from
   the forest and fruit-tree property tax exemption for AY 2014 (FY 2016).
• A total of 829,600 acres with a combined assessed value of $659.8 million will benefit from
   the forest and fruit-tree property tax exemption for AY 2022 (FY 2024). The number of
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    acres in the program increased at an average annual rate of 1.6% while exempt value
    increased at an average annual rate of 0.5% from AY 2014 through AY 2022.
•   Department of Revenue records showing exempt forest and fruit-tree value and acres by
    property class for each county were utilized, along with the rural average FY 2023 property
    tax rate by property class and county and AY 2022 rollback percentages by property class,
    to determine the FY 2023 value of the current property tax exemption in terms of the
    reduction in property taxes owed by landowners. The FY 2023 property tax reduction
    calculates to $12.5 million statewide. The school aid basic property tax levy ($5.40 per
    $1,000 of taxed value) backfilled $2.6 million of the tax reduction, and the remainder
    ($9.9 million) represents reduced local government property tax revenue.
•   To calculate the impact of the AY 2024 exemption limitation contained in the Bill, 25.0% of
    the per-acre productivity value for agricultural property was subtracted from the average per-
    acre exempt forest and fruit-tree value for each property class for each county. For the
    AY 2025 (and after) calculation, 50.0% was subtracted. For both calculations, if there was a
    positive remainder, that remainder was assumed to be the per-acre exemption value for that
    property class and county that would continue as exempt value under the Bill.
•   Assessed property value, rural property tax rates by property class and county, and 2022
    rollback percentages by property class were assumed to be constant. No adjustment for
    annual growth in the amount of assessed value utilizing the forest and fruit-tree exemption
    was made. Rural average property tax rates have been declining slightly in recent years,
    and over the past six years, exempt value under the program has increased at an average
    annual rate of 0.5%. These two recent trends are assumed to offset.
•   The calculations completed under the previous three assumption bullets result in a reduction
    in the statewide value of the forest and fruit-tree exemption to property owners of 42.4% for
    AY 2024 (FY 2026) and 66.3% for AY 2025 (FY 2027).
Fiscal Impact
The limitations contained in the Bill on the existing forest and fruit-tree property tax exemption
are projected to result in the following FY 2026 impacts compared to current law:
• A $5.3 million increase in property taxes owed on forest and fruit-tree property.
• A $1.1 million decrease in the State appropriation for school aid.
• A $4.2 million increase in local property tax revenue.
For FY 2027 and after, the estimated impacts compared to current law are as follows:
• An $8.3 million increase in property taxes owed on forest and fruit-tree property.
• A $1.7 million decrease in the State appropriation for school aid.
• A $6.6 million increase in local property tax revenue.
Sources
Department of Revenue (property exemption, county per-acre agricultural value, and property
class rollback reports)
Department of Management (FY 2023 property tax rates)
Legislative Services Agency analysis
                                                                               /s/ Jennifer Acton
                                                                                March 15, 2023
Doc ID 1370774
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: 427C.1