State rollback changes for business properties after new law goes into effect

House File 2552, approved by the Legislature in May, converted the previous Business Property Tax Credit into a permanent and automatic rollback reduction on the first $150,000 of property tax valuation for all commercial, industrial and rail properties.

The “rollback” is defined as the percentage of assessed property valuation that taxes are applied to. It is calculated by the total assessed value multiplied by the rollback percentage, which results in the taxable value.

The annual assessment limitation order, released earlier this fall by the Iowa Department of Revenue, will raise the percentage of residential and agricultural property used for taxing purposes in 2023.

Residential property, currently taxed based on 54.1% of assessed value, will be taxed based on 56.5%. That is a 2.4% tax hike if local governments maintain current rates.

Agricultural property, currently taxed at 89% of assessed value, will be tax based on 91.6% of assessed value. This is a 2.6% increase.

As a result of the new law, commercial, industrial and railroad realty assessed at less than $150,000 will be taxed at 56.5%. Those properties that are assessed at more than $150,000 will be taxed at the current rate, which is 90%.

Cities, counties and school districts will adopt property tax rates in early 2023.

The annual assessment limitation law is essentially designed to limit the growth of any class of property to an annual inflationary amount. The statewide value of residential and agricultural property through reassessment is not allowed to exceed 3% each year, so the rollback is adjusted to prevent that from happening.