Iowa businesses want new formula for property tax code

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By Dan Gearino | Thursday, December 28, 2006 1:11 AM CST | () comments

DES MOINES — Bill Keck, owner of a long-term parking lot at the Des Moines airport, says the equation is simple: Property tax increases for             businesses cut into profits and lead to higher prices for customers.

“As the property tax goes up, our rates have to go up,” Keck said.

He hopes the Legislature and governor will take action beginning next month to slow the growth of property taxes, but he is not counting on it.

The problem is that the money has to come from somewhere, and nobody wants to be on the losing end of a tax reform plan.

Against formidable obstacles, Governor-elect Chet Culver has appointed a special panel to recommend ways to lower property taxes for businesses. He has said high property taxes are a growing threat to the economy. The panel held its first meeting in mid-December and will have a report ready by           mid-January.

But before Culver can recommend a solution, he needs to get his fellow Democrats to agree on the problem. Key Democrats, such as Sen. Joe Bolkcom, D-Iowa City, disagree with the premise that businesses are overtaxed.

All this adds up to slim odds that the Legislature will make headway on property taxes.

Iowa’s property tax code treats businesses far more harshly than it does houses and farms. Lawmakers passed a property tax plan in the late 1970s that limited the annual growth of taxes for houses and farms, while placing no limit on the growth for businesses.

This tax discount, called the rollback, has led to a snowball effect, with businesses paying an ever-increasing share of the property tax burden. Today, homeowners pay taxes on 46 percent of the assessed value of their property, while businesses pay taxes at, or near, 100 percent of the value. Unless the system is changed, the tax burden will continue to shift to businesses.

“This is the No. 1 issue for (businesses), the rising cost of property taxes,” said Debi Durham, president of the Siouxland Chamber of Commerce.

Local governments — the main recipients of property taxes — are placed in the uneasy position of knowing that any tax increase will hit businesses twice as hard as homeowners.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said the disparity created by the rollback cannot be fixed quickly or easily.

“It took us 28 years to dig ourselves into the hole we’re in,” he said. “We’re probably not going to dig ourselves out in two or three years. It’s going to need to be a long-term approach.”

One idea is to freeze the rollback at its current level of 46 percent, so the problem does not get worse in the years it will take to agree on a more comprehensive plan.

Few legislators know the difficulty of tinkering with property taxes as well as Rep. Jamie Van Fossen, R-Davenport. He was chairman of the House Ways and Means Committee before Democrats took the House majority in the last election.

Van Fossen said the problem will not get solved until most Iowans agree that there is a problem. The chief beneficiaries of the current system are homeowners, a group that far outnumbers business owners.

“I’ve kind of become convinced after working on this for six years that people may just like the system we have now, as much as people on either side aren’t willing to make changes,” Van Fossen said.

The two main groups that oppose the current system — business owners and local governments — have radically different ideas about how to fix it.

Many business owners want to see the rollback expanded to include businesses. This would reduce the disparity in tax burdens.

But local governments — which depend on property taxes to provide basic services — oppose an expansion of the rollback. They say an expansion would make a bad system even worse.

Amid this disagreement, some lawmakers think it’s misleading to single out property taxes for revision, rather than look at the whole tax code.

Bolkcom, the chairman of the Senate Ways and Means Committee, said businesses may pay high property taxes, but their overall tax burden — including income taxes, sales taxes and fees — is within acceptable levels.

“We’re in a competitive place,” he said. “I don’t believe Iowa businesses are overtaxed.”

Bolkcom thinks the most important element of tax policy is making sure there is enough money to run the government and balance the budget. He said the Legislature has failed to do this in recent years by approving narrowly tailored tax cuts for certain industries.

“There’s going to be a more cautious approach than sort of the hit parade of special-interest tax cuts Republicans have shepherded through the Legislature over the last 10 years,” he said. “Every special interest group in the state has come forward and had their way with the tax code.”

Suffice it to say, Bolkcom doesn’t expect this to be the legislative session where property taxes get overhauled.

Dan Gearino can be reached at (515) 243-0138 and dan.gearino@lee.net.

Roll with punches

A rollback, which was passed by Iowa lawmakers in the late 1970s, has businesses paying an ever-increasing share of the property tax burden.

Today, homeowners pay taxes on 46 percent of the assessed value of their  property, while businesses pay taxes at, or near, 100 percent of the value.

Major issues in the Legislature

The 2007 session of the 82nd Iowa General Assembly convenes Monday, Jan. 8. Over the next several days, the Quad-City Times Des Moines Bureau reports on the major issues the Legislature is expected to address.

Tuesday The minimum wage, health insurance for Iowans

Wednesday Economic development

Today Property taxes

Friday Tobacco issues

Saturday Hog lots

Sunday Ethanol