Plan for Iowa Real Property Tax Reductions
February 20, 2020 | Josh Malancuk, CPA, CMI
If you've seen an Iowa property tax bill recently, you might have wondered if your taxes are too high. Well, your business sense is right on point. Odds are, they probably are too high because about 80% of the time, we find that companies are paying inaccurate property tax levels by as much as 20%-30%!
As an Iowa business manager, Iowa’s property tax likely represents one of your largest tax burdens and it is highly likely that you are paying far above the fair, accurate and equitable amount. So, what’s the best approach to tackle the issue head-on? We will start by discussing some basics about the state’s property tax, then how a proactive planning process looks for reducing overages, and conclude with our suggestions about how you can best manage your ongoing business property tax levels starting with this year’s assessment cycle.
About Iowa Property Taxation
Iowa assessors place property tax values, also known as ad valorem tax, on real property (i.e., land, buildings, structures and other improvements constructed on or in the land, attached to the land or placed upon a foundation). Commercial and industrial properties assessments are determined at their actual or market value, which is typically based on land size, square footage, type of construction, age, quality and location, as well as other factors.
In general, property is subject to assessment as of a January 1 valuation date at 100% of its market value and statewide reassessments occur every odd-numbered year. However, property can be reassessed in either even or odd years due to new construction.
Based upon prior caselaw, the sales comparison approach is the preferred method for estimating the market value for Iowa real property. This approach is an appraisal technique that involves identifying and researching recent transaction/sales of properties that are similar to the property being appraised and then, through a comparison analysis, making adjustments to the sales for key differences such as size, age, location and timing of the sale.
Iowa Property Tax – A Burden to Business
According to the Des Moines Register, state officials projected that the sweeping tax reform would save commercial and industrial taxpayers $218 million in 2019. At that time, Iowa was ranked among the 10th highest property tax states. The reform had a marginal effect to business owners as documented with a subsequent survey.
According to a 2020 Tax Foundation State Business Tax Climate publication, Iowa has still ranked as the 8th highest overall corporate tax states and among the 15th highest property tax states. There is widespread belief that recent legislation has not gone far enough to help elevate Iowa’s business climate ranking with other states and so lowering business taxes, including property taxes, remains a top agenda item for Iowa’s Governor.
On the bright side, 2017-year property tax legislation made it somewhat easier for Iowa taxpayers to manage their property tax levels through ongoing protests. This favorable legislation improved assessor accountability during the tax protest process through the following changes:
- Removal of assessor for misconduct related to engaging in assessment practices that are contrary to Iowa law
- For a misconduct claim, if found, then a taxpayer’s legal, appraisal and witness fees are paid as assessment expense
- Assessor restrictions for requesting and utilizing contract rent and actual expenses on income producing property
- Easing of burden of proof rules on taxpayers (two appraisals no longer required to shift the burden to an assessor)
- Full grounds of protest may be used in odd and even years (even year assessments were historically more difficult to challenge due to requirements for proving a downward market value between reassessment years)
- New appeal grounds may be taken to Iowa PAAB or District Court (i.e., both appeal avenues are de novo hearings)
For now, it’s up to Iowa’s leading businesses to individually review assessment notices for errors and bring their property tax levels down to reality. However, evaluating Iowa real property tax assessment methods and computations is complicated. Developing a credible analysis requires specialized knowledge and skillsets with a strong understanding of property taxation, including valuation, property accounting and Iowa protest procedural rules; most accountants or attorneys do not possess this expertise. Leveraging specialist experience can make all the difference with effectively managing and reducing business property tax levels.
Planning to Lower Iowa Property Tax Burden
Typically, Iowa assessment notices are sent during the month of March. If a property owner disagrees with an assessor’s estimate of the market value, they have the right to appeal their property tax assessment by filing a protest with the local Board of Review between April 2 and April 30 of each year. The Board typically meets annually in May to consider protests. Property owners can further their appeal to the Iowa PAAB or District Court (in both odd and even years) if they aren’t satisfied with the local Board’s decision.
Corresponding property tax bills are paid 18 and 24 months in arrears. For instance, the January 1, 2020 assessment taxes will be due for payment in March 2021 and September 2022. By the time a property owner/manager has sticker shock from seeing their skyrocketing property tax bills, it’s going to be too late for corrective action through starting a tax protest unless this was initiated a year or two prior to the corresponding bill payment deadlines. For this reason, it’s incumbent on company management to pay particular attention to their property tax assessment notices, which will be mailed later this year.
Best Practices for Managing Iowa Property Taxes
The real key to successfully reducing an Iowa property tax assessment is to plan diligently and uncover any overages prior to annual appeal deadlines to build solid footing with appeal support documentation. Unfortunately, many companies miss the chance to reduce their Iowa property taxes because they do not put a review process in place ahead of local protest dates.
We have found that Iowa commercial and industrial property owners are typically paying inaccurate property tax levels by as much as 20-30%, so we suggest embracing the following property tax management steps ahead of future tax appeal protest periods:
- Assess preliminary real property tax reduction opportunities through initial market analysis.
- Verify findings through interviews with operational personnel.
- Identify and calendar statutory local and state appeal deadlines.
- Implement findings through appeals and established evidentiary support.
- Validate secured savings through revised property tax statement review.
When financial controllers or company CFOs spearhead a property tax appeal request, they typically have little valuation or advocacy experience, including leading public hearings with local or state government assessing officials. With such little experience, how would they cover all bases or even recognize a fair settlement? You have heard the saying, “knowledge means power.” In the case of property tax assessment negotiation, that is entirely the case.
When a company realizes that they cannot cover all bases for tax appeal, hiring an expert becomes a prudent decision. Some examples where property tax experts typically add a lot of value are:
- Knowing the state and local process for administrative review procedures and evidentiary rules to increase the likelihood of a successful outcome for reduction
- Uncovering assessment errors (i.e., physical features, personal property assessed as realty, etc.) that may not be readily apparent can help strengthen a company’s appeal merits
- Qualifying appraisal experts to ensure that they possess requisite to be effective during upcoming hearings.
- Reviewing third-party appraisals from the county to develop rebuttal arguments and hearing questions.
- Providing a quality control review of supporting third-party appraisals to help bolster support and overall credibility of the company’s appeal.
- Implementing a calendar for key action dates to ensure full compliance with future appeal deadlines and the petition hearing and discovery plan.
- Lending their experience and insight for evaluating appeal settlement offers that are made ahead of PAAB or District Court hearings. Noteworthy is that a seasoned property tax advocate will be able to “benchmark” settlement offers against their experiences with hundreds to thousands of prior negotiations, which is where the concept of “knowledge is power” comes into play.
For these reasons, adding the value-added capabilities of an expert to your project can make a dramatic difference through achieved tax reductions. The following Iowa property tax examples, that included our seasoned experts, illustrate this point:
- An Iowa meat processor successfully appealed their ongoing property taxes, saving $500,000 to-date.
- During a multi-year property tax appeal, an Iowa company headquarters achieved $400,000 in benefit on its commercial property holdings.
- A heavy manufacturer enjoyed $180,000 in benefit once their appeals were settled after a tax protest.
- A comprehensive property tax review initiative achieved $2.1 million in tax savings for a leading food processor after their ongoing appeals were resolved.
- Resolving several years of ongoing property tax appeals yielded $350,000 to a major property REIT.
Properly managing business property tax levels goes well beyond just paying and then forgetting about annual property tax bills. Meaningful reductions are only achieved by implementing a disciplined process and pursuing tax appeals to bring company assessments in line with reality. Hundreds of thousands $$$ to millions $$$ in property tax cost savings can be achieved, which can then be redirected to other areas of greater company priority.
A word to the wise: Don’t go at it alone–let an expert help you and your company navigate the property tax review and protest process. Your company’s annual profit statement will thank you in the end!
Josh Malancuk, CPA, CMI is president of JM Tax Advocates, a service organization that advocates for property tax reductions and maximum level incentives for leading Iowa manufacturers and other major employers. JM Tax Advocates currently serves ABI members as an endorsed Buy ABI provider. Josh can be contacted directly at firstname.lastname@example.org or at 317.674.8390x100.