Report: Iowa commercial property tax relief costly, unnecessary

Researchers claim political justification

George Ford
Published: April 25 2013 | 5:00 am - Updated: 28 March 2014 | 2:28 pm in
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Iowa House and Senate proposals to reduce commercial property taxes are costly to local and state services and would provide an unnecessary financial break for businesses, according to an Iowa City public policy research organization.

The Iowa Fiscal Partnership on Wednesday released a report analyzing the effects of the House and Senate plans on various businesses of different sizes throughout the state.

"We found that big-box stores benefit disproportionately in the House bill, while the Senate bill benefits lower-valued properties — smaller businesses — more than larger, higher-valued properties," said Heather Milway, a research intern who conducted the study.

The House bill applies a rollback to property value in much the same way residential property is treated, while the Senate bill provides a tax credit to achieve reductions.

When fully phased in by fiscal year 2019, the House bill would reduce all businesses’ property tax payments by 22.2 percent. Savings under the Senate bill would vary by the size of the business, the report said.

A business with less than $622,500 valuation in property would receive a bigger break with the Senate bill — up to 42.8 percent — while larger businesses would receive a greater reduction under the House bill.

The report contended that the Senate bill, when fully phased in in fiscal year 2019, would provide owners of business property worth $5 million or more a reduction of less than 3 percent in property taxes. Any small business with $323,000 or less in taxable value would see a 42.8 percent reduction.

Peter Fisher, research director of the Iowa Policy Project and co-author of a policy brief on the issue for the Iowa Fiscal Partnership, said substantial property tax cuts for commercial property are not needed across-the-board.

"The biggest justification for either plan is political — not based on any inherent economic need to reduce commercial property taxes," Fisher said. "The governor's claim that it is needed for competitiveness purposes versus other states is exaggerated because Iowa taxes on business overall are very competitive and even low."

Fisher and Milway contended that more than $1 billion in taxable value in Iowa is owned by seven national retail chains — Target, Walmart, Lowe’s, Home Depot, Menard’s, Kohl’s and Sears.

"No economic reason exists to subsidize these national companies, which know they must locate in Iowa to sell products to Iowans," the researchers argued in their report. "They also compete with local businesses."

The Iowa Fiscal Partnership is a joint public-policy analysis initiative of the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines.

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