HF 418 (LSB 2284YH (6) 91)

HOUSE FILE 418

BY  GOLDING

A BILL FOR

An Act relating to property taxes by modifying the methodology for determining actual value of residential property, certain levy rates, and assessment limitations of certain classes of property, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
RESIDENTIAL PROPERTY ACTUAL VALUATION LIMITATION

    Section 1.  Section 441.21, subsection 1, paragraph a, Code 2025, is amended to read as follows:
   a.  (1)  All property subject to taxation shall be valued at its actual value which shall be entered opposite each item, and, except as otherwise provided in this section, shall be assessed at one hundred percent of its actual value, and the value so assessed shall be taken and considered as the assessed value and taxable value of the property upon which the levy shall be made.
   (2)  For assessment years beginning on or after January 1, 2026, and notwithstanding any provision of law to the contrary, the actual value of each individual residential property, including after adjustments to actual values made as the result of equalization, shall not exceed one hundred percent of the actual value of the property for the immediately preceding assessment year unless the property was not assessed in the immediately preceding assessment year, the property’s boundaries change, there is a change to the property’s classification, or new construction, additions, or improvements have been made to the property other than normal and necessary maintenance or repairs, not amounting to structural replacements or modification.
    Sec. 2.  Section 441.21, subsection 1, paragraph b, subparagraph (1), Code 2025, is amended to read as follows:
   (1)  The Subject to the limitation under paragraph “a”, subparagraph (2), the actual value of all property subject to assessment and taxation shall be the fair and reasonable market value of such property except as otherwise provided in this section. “Market value” is defined as the fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and each being familiar with all the facts relating to the particular property. Sale prices of the property or comparable property in normal transactions reflecting market value, and the probable availability or unavailability of persons interested in purchasing the property, shall be taken into consideration in arriving at its market value. In arriving at market value, sale prices of property in abnormal transactions not reflecting market value shall not be taken into account, or shall be adjusted to eliminate the effect of factors which distort market value, including but not limited to sales to immediate family of the seller, foreclosure or other forced sales, contract sales, discounted purchase transactions or purchase of adjoining land or other land to be operated as a unit.
    Sec. 3.  Section 441.21, subsection 1, paragraph g, Code 2025, is amended to read as follows:
   g.  Notwithstanding any other provision of this section, the actual value of any property shall not exceed its fair and reasonable market value, subject to paragraph “a”, subparagraph (2), except agricultural property which shall be valued exclusively as provided in paragraph “e” and paragraph “a”, subparagraph (2), of this subsection.
    Sec. 4.  Section 441.21, subsection 2, Code 2025, is amended to read as follows:
   2.  In the event market value of the property being assessed cannot be readily established in the foregoing manner, then the assessor may, subject to the limitation under subsection 1, paragraph “a”, subparagraph (2), determine the value of the property using the other uniform and recognized appraisal methods including its productive and earning capacity, if any, industrial conditions, its cost, physical and functional depreciation and obsolescence and replacement cost, and all other factors which would assist in determining the fair and reasonable market value of the property but the actual value shall not be determined by use of only one such factor. The following shall not be taken into consideration:  Special value or use value of the property to its present owner, and the goodwill or value of a business which uses the property as distinguished from the value of the property as property. In addition, for assessment years beginning on or after January 1, 2018, and unless otherwise required for property valued by the department of revenue pursuant to chapters 428, 437, and 438, the assessor shall not take into consideration and shall not request from any person sales or receipts data, expense data, balance sheets, bank account information, or other data related to the financial condition of a business operating in whole or in part on the property if the property is both classified as commercial or industrial property and owned and used by the owner of the business. However, in assessing property that is rented or leased to low-income individuals and families as authorized by section 42 of the Internal Revenue Code, as amended, and which section limits the amount that the individual or family pays for the rental or lease of units in the property, the assessor shall, unless the owner elects to withdraw the property from the assessment procedures for section 42 property, use the productive and earning capacity from the actual rents received as a method of appraisal and shall take into account the extent to which that use and limitation reduces the market value of the property. The assessor shall not consider any tax credit equity or other subsidized financing as income provided to the property in determining the assessed value. The property owner shall notify the assessor when property is withdrawn from section 42 eligibility under the Internal Revenue Code or if the owner elects to withdraw the property from the assessment procedures for section 42 property under this subsection. The property shall not be subject to section 42 assessment procedures for the assessment year for which section 42 eligibility is withdrawn or an election is made. This notification must be provided to the assessor no later than March 1 of the assessment year or the owner will be subject to a penalty of five hundred dollars for that assessment year. The penalty shall be collected at the same time and in the same manner as regular property taxes. An election to withdraw from the assessment procedures for section 42 property is irrevocable. Property that is withdrawn from the assessment procedures for section 42 property shall be classified and assessed as residential property unless the property otherwise fails to meet the requirements of subsection 14. Upon adoption of uniform rules by the department of revenue or succeeding authority covering assessments and valuations of such properties, the valuation on such properties shall be determined in accordance with such rules and in accordance with forms and guidelines contained in the real property appraisal manual prepared by the department as updated from time to time for assessment purposes to assure uniformity, but such rules, forms, and guidelines shall not be inconsistent with or change the foregoing means of determining the actual, market, taxable, and assessed values.
DIVISION II
MODIFICATION OF ASSESSMENT LIMITATIONS

    Sec. 5.  Section 441.21, subsection 4, Code 2025, is amended to read as follows:
   4.  For valuations established as of January 1, 1979 2025, the percentage of actual value at which agricultural and residential property shall be assessed shall be the quotient of the dividend and divisor as defined in this section determined under this subsection.
   a.  (1)  The percentage of actual value at which agricultural property shall be assessed shall be the quotient of the dividend and divisor as defined in this paragraph.  The dividend for each class of property shall be the dividend as determined for each class of agricultural property for valuations established as of January 1, 1978 2024, adjusted by the product obtained by multiplying the percentage determined for that year by the amount of any additions or deletions to actual value, excluding those resulting from the revaluation of existing properties, as reported by the assessors on the abstracts of assessment for 1978 2024, plus six three percent of the amount so determined.
   (2)  However, if the difference between the dividend so determined for either class of property and the dividend for that class of property for valuations established as of January 1, 1978, adjusted by the product obtained by multiplying the percentage determined for that year by the amount of any additions or deletions to actual value, excluding those resulting from the revaluation of existing properties, as reported by the assessors on the abstracts of assessment for 1978, is less than six percent, the 1979 dividend for the other class of property shall be the dividend as determined for that class of property for valuations established as of January 1, 1978, adjusted by the product obtained by multiplying the percentage determined for that year by the amount of any additions or deletions to actual value, excluding those resulting from the revaluation of existing properties, as reported by the assessors on the abstracts of assessment for 1978, plus a percentage of the amount so determined which is equal to the percentage by which the dividend as determined for the other class of property for valuations established as of January 1, 1978, adjusted by the product obtained by multiplying the percentage determined for that year by the amount of any additions or deletions to actual value, excluding those resulting from the revaluation of existing properties, as reported by the assessors on the abstracts of assessment for 1978, is increased in arriving at the 1979 dividend for the other class of property.
   (3)  For valuations established for assessment years beginning on or after January 1, 2022, the calculation of the dividend for residential property under this subsection shall exclude the value of all property described in subsection 14, paragraph “a”, subparagraphs (2), (3), (4), (5), and (6), and the property described in subsection 14, paragraph “a”, subparagraph (7), that contains three or more separate dwelling units.
   b.  (1)  The divisor for each class of property shall be the total actual value of all such agricultural property in the state in the preceding year, as reported by the assessors on the abstracts of assessment submitted for 1978 2024, plus the amount of value added to said total actual value by the revaluation of existing properties in 1979 2025 as equalized by the director of revenue pursuant to section 441.49. The director shall utilize information reported on abstracts of assessment submitted pursuant to section 441.45 in determining such percentage.  For valuations established as of January 1, 2026, and each assessment year thereafter, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which agricultural property shall be assessed shall be calculated in accordance with the methods provided in this paragraph.
   (2)  For valuations established for assessment years beginning on or after January 1, 2022, the calculation of the divisor for residential property under this subsection shall exclude the value of all property described in subsection 14, paragraph “a”, subparagraphs (2), (3), (4), (5), and (6), and the property described in subsection 14, paragraph “a”, subparagraph (7), that contains three or more separate dwelling units. 
   c.  (1)  For valuations established as of January 1, 1980, and each assessment year thereafter beginning before January 1, 2013, the percentage of actual value as equalized by the director of revenue as provided in section 441.49 at which agricultural and residential property shall be assessed shall be calculated in accordance with the methods provided in this subsection, including the limitation of increases in agricultural and residential assessed values to the percentage increase of the other class of property if the other class increases less than the allowable limit adjusted to include the applicable and current values as equalized by the director of revenue, except that any references to six percent in this subsection shall be four percent.
   (2)  For valuations established as of January 1, 2013, and each assessment year thereafter, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which agricultural and residential property shall be assessed shall be calculated in accordance with the methods provided in this subsection, including the limitation of increases in agricultural and residential assessed values to the percentage increase of the other class of property if the other class increases less than the allowable limit adjusted to include the applicable and current values as equalized by the department of revenue, except that any references to six percent in this subsection shall be three percent.
   b.  (1)  For valuations established for the assessment year beginning January 1, 2025, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be fifty-five percent.
   (2)  For valuations established for the assessment year beginning January 1, 2026, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be sixty percent.
   (3)  For valuations established for the assessment year beginning January 1, 2027, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be sixty-five percent.
   (4)  For valuations established for the assessment year beginning January 1, 2028, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be seventy percent.
   (5)  For valuations established for the assessment year beginning January 1, 2029, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be seventy-five percent.
   (6)  For valuations established for the assessment year beginning January 1, 2030, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be eighty percent.
   (7)  For valuations established for the assessment year beginning January 1, 2031, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be eighty-five percent.
   (8)  For valuations established for the assessment year beginning January 1, 2032, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be ninety percent.
   (9)  For valuations established for the assessment year beginning January 1, 2033, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be ninety-five percent.
   (10)  For valuations established for the assessment year beginning January 1, 2034, and each assessment year thereafter, the percentage of actual value as equalized by the department of revenue as provided in section 441.49 at which residential property shall be assessed shall be one hundred percent.
    Sec. 6.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2025, for assessment years beginning on or after that date.
DIVISION III
PROPERTY TAX LEVY RATES

    Sec. 7.  NEW SECTION.  444.25  Maximum property tax levy rates —— adjustments.
   1.  For purposes of this section:
   a.  “Base year total taxable value” is the statewide total assessed value for all property tax classifications used to calculate taxes for the fiscal year beginning July 1, 2025.
   b.  “Budget year total taxable value” is the statewide total assessed value for all property classifications used to calculate taxes due and payable in the fiscal year beginning during the calendar year in which a budget is certified, excluding value attributable to new construction.
   c.  “Rate-limited property tax levy” includes any ad valorem property tax levy limited by law to a specific maximum property tax levy rate per one thousand dollars of assessed value used to calculate taxes.
   2.  For each fiscal year beginning on or after July 1, 2026, each rate-limited property tax levy shall, by operation of this section, be limited to a levy rate that is equal to a percentage of the maximum specified levy rate or the actual maximum levy approved at election, whichever is less and if applicable, as follows:
   a.  For the property taxes due and payable in the fiscal year beginning July 1, 2026, and each fiscal year thereafter beginning before July 1, 2036, a percentage equal to the quotient, expressed as a percentage, of the base year total taxable value divided by the budget year total taxable value.
   b.  For the property taxes due and payable in fiscal years beginning on or after July 1, 2036, a percentage equal to the percentage applicable for the fiscal year beginning July 1, 2035.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to property taxation by modifying the methodology for determining actual value of residential property, assessment limitations of certain classes of property, and certain levy rate limitations.
   DIVISION I —— RESIDENTIAL PROPERTY ACTUAL VALUE LIMITATION.  Under Code section 441.21, all property subject to taxation shall be valued at its actual value and, except as otherwise provided by law, shall be assessed at 100 percent of its actual value, and the value so assessed shall be taken and considered as the assessed value and taxable value of the property upon which the levy shall be made. Actual value is generally required to be the fair and reasonable market value. “Market value” is defined as the fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and each being familiar with all the facts relating to the particular property, but excluding certain abnormal sales.
   The bill provides that for assessment years beginning on or after January 1, 2026, the actual value of each individual property, including after adjustments to actual values made as the result of equalization, shall not exceed 100 percent of the actual value of the property for the immediately preceding assessment year unless the property was not assessed in the immediately preceding assessment year, the property’s boundaries change, there is a change to the property’s classification, or new construction, additions, or improvements have been made to the property other than normal and necessary maintenance or repairs, not amounting to structural replacements or modification.
   The bill also makes conforming changes to other provisions of law relating to the valuation of property.
   DIVISION II —— MODIFICATION OF ASSESSMENT LIMITATIONS.  Code section 441.21(4) establishes the calculation for assessment limitations (rollback) for residential property and agricultural property. The bill strikes the calculation of the residential property assessment limitation for assessment years beginning on or after January 1, 2025, and strikes the provision within the agricultural property assessment limitation calculation that limits growth of residential or agricultural property to the growth in the other classification (ag-residential tie). The bill establishes a schedule of assessment limitations for residential property that increases each assessment year from the assessment year beginning January 1, 2025, until the assessment limitation reaches one hundred percent for assessment years beginning on or after January 1, 2034. By operation of the scheduled increases to the residential property assessment limitation, the assessment limitation applicable to that portion of commercial, and industrial property that is equal to or less than $150,000 is also increased.
   This division of the bill applies retroactively to assessment years beginning on or after January 1, 2025.
   DIVISION III —— PROPERTY TAX LEVY RATES. The bill establishes a reduction for rate-limited property tax levies that corresponds with the increase of assessment limitations under the bill. The bill defines “rate-limited property tax levy” to be any ad valorem property tax levy limited by law to a specific property tax levy rate per $1,000 of assessed value used to calculate taxes.
   For each fiscal year beginning on or after July 1, 2026, each rate-limited property tax levy shall, by operation of the bill, be limited to a levy rate that is equal to a percentage of the maximum specified levy rate or the actual maximum levy approved at election, whichever is less and if applicable, as follows: (1) for the property taxes due and payable in the fiscal year beginning July 1, 2026, and each fiscal year thereafter beginning before July 1, 2036, a percentage equal to the quotient, expressed as a percentage, of the base year total taxable value divided by the budget year total taxable value; and (2) for the property taxes due and payable in fiscal years beginning on or after July 1, 2036, a percentage equal to the percentage applicable for the fiscal year beginning July 1, 2035.
   The bill defines “base year total taxable value” as the statewide total assessed value for all property tax classifications used to calculate taxes for the fiscal year beginning July 1, 2025, and “budget year total taxable value” as the statewide total assessed value for all property classifications used to calculate taxes due and payable in the fiscal year beginning during the calendar year in which a budget is certified, excluding value attributable to new construction.