An Iowa business property tax switch-up

Attention Iowa business property owners: Changes are coming.

On May 2, 2022, Gov. Kim Reynolds signed bill HF 2552 into law, converting the previous business property tax credit to an exemption. Unlike the tax credit that required an application each time a property was purchased, switched hands or the deed was recorded, the exemption will instead automatically be applied to the business property. Bill HF 2552 also will alter the state’s reimbursements to local governments.

So, what changed?

Besides switching to an automatic deduction and eliminating the application process, owners of commercial, railroad or industrial properties who did not receive the tax credit before now will qualify for the business property tax exemption and therefore see property tax reductions.

Previously, real property (land and all things attached to it) that was commercial, railroad or industrial could only qualify for the tax credit for an initial portion of the property value or simply just didn’t qualify.

Taxpayers who own properties with values assessed at $150,000 or less will retain their current benefits if they have the previous tax credit on file, seeing no change in property taxes as of now.

Additionally, bill HF 2552 replaces the existing standing general fund appropriation of $125 million (used to fund the old business property tax credit) with a standing general fund of appropriation of up to $125 million. The new standing general fund will be used to reimburse local governments for the tax deductions that businesses now will have due to the business property tax exemption.

Lawmakers believe the new standing general fund will exceed the projected level of claims for fiscal year 2024 through 2029. Then in fiscal year 2030, the local government reimbursement claims will begin being prorated.

Why the switch?

There are a few reasons one could speculate why the business property tax credit was switched to a tax exemption. Most likely the main reason was that many business property owners didn’t know this credit existed or they didn’t qualify for it. Additionally, since the credit required an application process, if property owners didn’t know it existed, there was no way to collect on it, causing almost 10%, or 6 billion, of Iowa’s assessed business properties to miss out on this tax credit.

A few lawmakers also have stated this change is an attempt to make the Iowa Department of Revenue more effective and efficient for taxpayers.

Finally, like most things in life, change is likely on the horizon for Iowa tax laws, so stay tuned.