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DES MOINES, Iowa – House and Senate negotiators have reached accord on a tax reform package that will deliver relief to property owners, provide a rebate to state income taxpayers and boost the credit that low-income working families receive.
The compromise package is a hybrid of the competing approaches favored by Gov. Terry Branstad, majority House Republicans and Democrats who control the Senate.
"It's significant, it's helpful and it's also something that's manageable," said House Speaker Kraig Paulsen, R-Hiawatha, who expected the session's top priority measure could see passage in both the House and Senate yet Thursday and be shipped to the governor's desk.
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.
Each business seeking to file a claim for the tax credit will obtain a form from the county assessor. Counties will submit lists of properties that are eligible for the credit and the state Department of Revenue will determine the amount of value of the property that is subject to the credit. The state will use the money appropriated into the Business Property Tax Credit Fund to reimburse local governments the amount of credits issued.
When the credit is fully phased in, drafters project that at least $145,000 of property value on every business would be taxed at the residential rate and almost two-thirds of the businesses receiving the credit would their entire property value taxed at the residential rate.
Negotiators also agreed to place a tax assessment growth limitation for residential and agricultural property to 3 percent instead of the 4 percent for assessment years beginning on or after Jan. 1, 2013. Branstad had sought to cap those yearly increases to 2 percent.
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.
Also, House and Senate conference committee members agreed to create a new property classification called "multi-residential" that will include apartments, nursing homes, assisted living facilities and certain other rental property. Multi-residential properties eventually will be taxed at the residential rate via a 10-year phased period with a total fiscal impact to local governments of $85.3 million when fully implemented.
Another component provides a partial exemption from taxation for each telephone company on the value of the company's property, with half in assessment year 2013 and the remainder in assessment year 2014. When fully phased in, the change is projected to have a $16 million impact on local governments.