An Introduction to Iowa Property Tax
Property taxes are not determined by a single individual who assesses your property and sends you a bill. The final tax rate is the result of budgets established to provide services, an assessor's assessment, a county auditor's calculations, and laws administered by the Iowa Department of Revenue.
Because property assessment involves a series of events that takes 18 months from start to finish, this information will not be able to answer all your questions. It should, however, be able to explain the basic principles and events involved in calculating the property tax rate.
What is the Iowa property tax?
The Iowa property tax is primarily a tax on "real property," which is mostly land, buildings, structures, and other improvements that are constructed on or in the land, attached to the land, or placed upon a foundation. Typical improvements include a building, house or mobile home, fences, and paving.
The following six classes of real property are evaluated:
- Utilities/Railroad (This class is assessed at the state level)
Who pays property tax?
Home owners pay almost 43% of the property tax collected each year in Iowa. Farmers pay more than 22%, and businesses and industry more than 31%. Utility companies, including railroads, pay more than 3%.
How often is property assessed?
All real property is assessed every two years in odd-numbered years. Railroads and public utilities are assessed every year by the Iowa Department of Revenue.
Which governments collect property taxes?
Property tax supports many different "taxing authorities." Cities, counties, school districts, and townships are the most common. Taxing authorities may also include community college districts, agricultural extension districts, assessor offices, hospital districts, and sanitation districts. In addition, there are associations for fire protection, drainage, and other public needs that levy taxes.
Iowa has more than 2,000 taxing authorities. Most property is taxed by more than one taxing authority.
How is the rate of the property tax determined?
1. The value of property is established.
The assessor (or the Iowa Department of Revenue) estimates the value of each property. This is called the "assessed value."
2. The assessments of all taxable properties are added together.
The assessor totals the assessed value in each classification and reports it to the county auditor.
3. The Department examines total assessed values and equalizes them.
Each assessor sends the reports, called "abstracts," to the Iowa Department of Revenue. The abstract shows the total taxable values of all real property in each jurisdiction by classification of property, not by individual property.
A process called "equalization" is applied every two years to ensure that property values are comparable among jurisdictions and according to law.
In addition, the "assessment limitation" is applied every year. This process is commonly called "rollback" and is used in response to inflation.
4. Budgets are established.
Each taxing authority determines its own budget. The budget includes the cost of providing services, the amount of aid received from the federal and state governments, the amount of money remaining from previous years, and revenue from other charges for services.
Each approved budget is submitted to the county auditor.
5. A tax rate is established.
The county auditor divides the amount of the budget that is not funded by other sources by the taxable value of all the property in the taxing district.
The result is referred to as "dollars per thousand." For example, If the dollars per thousand were $10, the tax on a home valued at $50,000 would be calculated at $10 x 50. The tax on that home would be $500 for that single taxing authority.
Since more than one taxing authority is calculating a tax rate for the property, all the rates are added together, resulting in a single tax levy called a consolidated levy. This consolidated levy is always the result of two or more tax rates established by different government entities.
6. Credits are subtracted.
Credits such as the Homestead Credit are subtracted before a final tax bill is sent to the taxpayer.
Before you ever see your tax bill, two additional steps occur to test and adjust assessments to legal levels.
In Step 3 above, the Iowa Department of Revenue is responsible for "equalizing" assessments every two years. Following is a general explanation of the purpose of equalization.
The Department compares the assessors' abstracts to a "sales assessment ratio study" it has completed independently of the assessors. If the assessment (by property class) is 5% or more above or below the sales ratio study, the Department increases or decreases the assessment. There is no sales ratio study for agricultural and industrial property.
Equalization occurs on an entire class of property, not on an individual property. Also, equalization occurs on an assessing jurisdiction basis, not on a statewide basis.
Equalization is important because it helps maintain equitable assessments among classes of property and among assessing jurisdictions. This contributes to a more fair distribution of state aid, such as aid to schools. It also helps to equally distribute the total tax burden within the area.
More than 20 years ago, residential property values were rising quickly. To help cushion the impact of high inflation, the Legislature passed an assessment limitation law called rollback.
Increases in assessed values for residential and agricultural property are subject to this assessment limitation formula. If the statewide increase in values of homes and farms exceeds 4% due to revaluation, their values are "rolled back" so that the total increase statewide is 4%. Rollback is also available for industrial and commercial property when necessary.
This does not mean that the assessment on your home will increase by only 4%. The rollback is applied on a class of property, not an individual property. This means that the statewide total taxable value can increase by only 4% due to revaluation.
Property Tax Levied in FY09
$4,032,683,985 was levied in Iowa in fiscal year 2009 by the following taxing authorities:
- K-12 Schools: $1,689,996,652
- Cities: $1,200,421,085
- Counties: $874,947,996
- Hospitals: $80,645,416
- Merged Area Schools: $86,109,361
- Assessors: $46,080,227
- Townships: $23,944,034
- Agricultural Extension District: $15,479,248
- Miscellaneous: $15,059,966
As stated in the introduction, the assessment cycle is a lengthy one. The cycle required each time property is assessed is outlined below.
Iowa Property Tax Assessment Cycle
|1.||January 1||Assessment date|
|2.||April 1||Assessors complete assessments and notify taxpayers.|
|3.||April 2 - 30||Taxpayers may appeal assessments to local boards of review.|
|4.||May 1 - May 31||Local boards of review consider appeals. This time may be extended to July 15 by the Iowa Department of Revenue Director.|
|5.||June 15||Local boards of review submit reports to the Director.|
|6.||July 1||Assessors submit abstracts of the assessments to the Director.|
|7.||August 15||The Director issues tentative equalization notices to county auditors.|
|8.||September||The Director holds equalization hearings, which are held for public input.|
|9.||October 1||The Director issues final equalization orders to county auditors.|
|10.||October 2 - 12||Assessing jurisdictions may apply for alternative methods of implementing equalization orders.|
|11.||October 2 - 15||The county auditor publishes notices of the final equalization order.|
|12.||Oct. 15- Nov. 15||Local boards of review meet to hear equalization protests.|
|13.||October 9 - 31||Taxpayers may protest the final equalization order to local boards of review.|
|14.||November 1||The Director certifies assessment limitation percentages to county auditors.|
|15.||November 15||Local boards of review submit a report about the equalization protests to the Department.|
|16.||Dec. 1 - Feb. 28||The taxing authorities adopt the budgets based on the valuations.|
|17.||March 1||The county board of supervisors levies the taxes.|
|18.||July 1||The county treasurer receives authorization to collect taxes.|
|19.||September 30||First half of taxes are due.|
|20.||March 31||Second half of taxes are due.|
What causes taxes to increase?
Basically, three variables must interact to decrease or increase your property taxes:
- The combined budgets of the taxing authorities
- The total value of all the property in the taxing unit
- The value of your property
Your taxes increase if...
- The budgets increase and the value of all properties remain the same.
- The budgets and value of property in the entire government unit remain the same but the value of the individual's property increases.
- The budgets and value of the individual's property remain the same but the value of the property in the entire government unit decreases.
Your taxes decrease if...
- The budgets decrease and the values of all properties remain the same.
- The budgets and value of property in the entire government unit remain the same but the value of the individual's property decreases
- The budgets and value of the individual's property remain the same but the value of the property in the entire government unit increases
Why might you pay higher taxes than your neighbor?
The value of a house depends on land size, square footage, type of construction, age, quality, location, story height, and condition, but that's not all. Your neighbor's property may be taxed by different taxing districts than you are. For instance, districts are often divided by highways. If your neighbor's property is across the highway, it may be taxed by different districts than you are.
Also, credits and exemptions such as Homestead, Ag Land, and Military could make a difference.
What if you disagree with the assessed value of your property?
Property owners who disagree with the assessor's estimate of the market value of their property should ask themselves, "Could I sell this property for that amount today?" If the answer is yes, then the value is probably correct. However, every property owner has the right to appeal an assessment.
Property owners may appeal their initial assessments to local boards of review by filing a written protest between April 2 and April 30 of each year. These boards meet annually in May to consider the protests.
In a reassessment year a property owner may protest an assessment for one or more of the following reasons:
- The assessment is not comparable to others with similar properties.
- The property is assessed at more than its actual value.
- The property is exempt from taxation.
- There is an error in the assessment.
- The assessment is fraudulent
A property owner may appeal the protest to the Property Assessment Appeal Board, if not satisfied with the board of review's decision. If dissatisfied with a property assessment appeal board decision, the decision may then be appealed to the district court. In the alternative, property owners may still file appeals directly with the district court and forego filing with the property assessment appeal board. Contact your assessor's office for more information.
What property is exempt?
Iowa offers a variety of total and partial exemptions and credits to the property tax. It is the property owner's (or renter's) responsibility to apply for these. Contact your assessor for information on the following:
- Agricultural land
- Art galleries
- Barn and one-room schoolhouse
- Cattle facility
- Data center
- Disabled veterans homestead
- Educational institutions
- Family farm credit
- Forest cover
- Forest reservations
- Fruit tree reservations
- Governments: state, cities, counties, townships
- Historic property rehabilitation
- Homestead credit
- Impoundment structures
- Industrial partial (427B)
- Industrial machinery and equipment and computers first assessed in Iowa for 1995 and thereafter
- Libraries/literary societies
- Low-income tax credit for elderly, disabled
- Low-income rent reimbursement for elderly, disabled
- Low-rent housing
- Methane gas conversion
- Military exemption
- Mobile home reduced rate for low income
- Native prairies
- Open prairies
- Personal property
- Pollution control and recycling
- Public grounds
- Recreational lakes
- Religious, charitable, benevolent associations
- Rivers and streams
- River and stream banks
- Special assessments for elderly, disabled, low income
- Speculative shell buildings
- Urban revitalization
- War veterans associations
- Web search portal
- Wildlife habitats
- Wind energy conversion
The Homestead Credit is available to residential property owners. Iowans will save $100,658,781 in property taxes in fiscal year 2010. The credit is an actual reduction in the amount of property tax owed; it is not a refund.
To qualify for the credit, the property owner must be a resident of Iowa and actually live on the property on July 1 and for at least six months of every year. The only exceptions are persons in the military and nursing homes who otherwise qualify.
Sign-up for the credit is at the assessor's office by July 1 of the year the credit is first claimed. Once a person qualifies, the credit continues until the property is sold or until the owner no longer qualifies.
Military veterans who (1) served on active duty and were honorably discharged or (2) members of reserve forces or Iowa National Guard who served at least 20 years qualify for this exemption. The veteran must apply with the local assessor. Once accepted, the exemption is ongoing.
Ag Land Credit
The Agricultural Land Tax Credit was originally established in 1939 to help offset higher farm taxes. The credit is available to all owners of agricultural land of 10 acres or more if the use is for agricultural or horticultural purposes. Land owners do not actually file a claim. The county auditor determines the amount of the credit for each taxpayer.
Family Farm Credit
Legislation was enacted in 1990 to provide $10 million for the Family Farm Tax Credit. The purpose was to give an additional property tax credit to those individual land owners who were actively engaged in farming the land. One application is required unless the ownership or a designated person changes.
Land used for agricultural or horticultural purposes in tracts of 10 contiguous acres or more qualify for this credit. Buildings and other structures do not. The application may be filed any time; however, a claim signed after November 1 is considered a claim filed for the following year.
County and city assessors are not employees of the State or of the Iowa Department of Revenue.
How many are there?
- Counties: Each of Iowa's 99 counties has one assessor.
- Cities: Eight Iowa cities have their own assessors. Any city with a population of more than 10,000 people may elect to have its own assessor.
What do they do?
An assessor's primary duty is to assess all real property, which includes residential, commercial, industrial, and agricultural. The Iowa Department of Revenue assesses public utilities and railroads.
What don't they do?
- Collect taxes
- Calculate taxes
- Determine the tax rate
How does someone become an assessor?
County assessors are appointed by a conference board composed of the county board of supervisors, the mayors of all incorporated cities, and a board member from each school district who lives in the assessor's jurisdiction.
City assessors are appointed by a conference board composed of the county board of supervisors, members of the city council, and all members of each school board.
Assessors are appointed to 6-year terms. To be eligible, they must have a high school diploma or GED and pass an examination administered by the Iowa Department of Revenue. To be reappointed, they must successfully complete a continuing education program equal to 150 hours of classroom instruction during their 6-year terms.
How does an assessor value property?
Residential, commercial and industrial real estate is assessed at 100% of market value.
The assessor must determine the fair market value of the property. To do this, the assessor generally uses three approaches.
- Market Approach: Find properties sold recently that are comparable to yours. Analyze sales of similar properties that were recently sold. Determine the most probable sales price of the property being appraised.
- Cost Approach: Estimate how much money at current labor and material prices it would take to replace the property with one similar to it. This is useful when no sales of comparable properties exist.
- Income Approach: If the property produces income, such as with an apartment or office building, estimate its ability to produce income.
Agricultural real estate is assessed at 100% of productivity and net earning capacity value.
The assessor considers the productivity and net earning capacity of the property. Agricultural income as reflected by production, prices, expenses, and various local conditions is taken into account.
What is the role of the Iowa Department of Revenue?
The Iowa Department of Revenue assists local governments in making property tax assessments fair and in compliance with the law. It does not collect or use property taxes.
- It administers an examination which would-be assessors and deputy assessors must pass.
- It issues equalization orders to county auditors every two years for classes of property.
- It provides technical assistance and educational programs for assessors and members of boards of review.
- It issues regulations on assessors, conference boards and boards of review.
- It assesses all utility and railroad properties.
- It administers credits and exemptions to property owners.
- It has general supervisory authority over the operation of the assessors offices and the boards of review.