2004 Property Tax Implementation Committee

Summary of HF 692 from the Legislative Services Bureau

Primary Subject: Taxation

HOUSE FILE 692 - Taxation, Economic Growth and Development, and Other Changes - Liability Reform, Workers' and Unemployment Compensation, and Financing Charges

BY COMMITTEE ON WAYS AND MEANS. This Act makes changes concerning regulatory, taxation and statutory requirements affecting individuals and business relating to taxation of property, income and utilities, liability reform, workers' compensation, financial services, unemployment compensation employer surcharges, and economic development.

Division I - Property Tax

Division I of the Act changes the method by which certain property is assessed and taxed for property tax purposes.

The division provides that, for assessment years beginning on or after January 1, 2006, all taxable structures shall be assessed for taxation on a square-footage basis. The assessed value per square foot is equal to the valuation of the structure as determined for the assessment year beginning January 1, 2005, prior to application of the assessment limitation (i.e., rollback) for that year divided by the total number of square feet of the structure as of January 1, 2005. The division provides that if an existing structure classified as residential, commercial or industrial is purchased after January 1, 2005, the assessed value per square foot shall be the purchase price divided by a cumulative inflation factor, divided by the total number of square feet of the structure as of January 1 of the assessment year. The division allows the assessor to adjust the purchase price to reflect arm's-length transactions and market value. The division further provides that if a structure classified as residential, commercial or industrial is newly constructed after January 1, 2005, the assessed value per square foot of the structure shall be the value of the structure, or of the addition to the structure, as determined by the assessor divided by the cumulative inflation factor, divided by the total number of square feet of the newly constructed structure.

The division defines "annual inflation factor," "cumulative inflation factor," "newly constructed," and "structure."

The division provides that agricultural property, including agricultural structures, will continue to be assessed based on productivity. The productivity value of an agricultural structure is divided by the total square feet of the structure to arrive at a square footage value.

The division strikes provisions relating to percentage assessment limitations. The division provides that equalization of values by the Department of Revenue and Finance shall continue for agricultural property and for property newly constructed or purchased.

The division creates a land tax to be imposed on each taxable acre or portion of acre in each county effective for the fiscal year beginning on or after July 1, 2007. The land tax is allocated to the taxing districts in the county in the same proportion that property taxes levied for the fiscal year beginning July 1, 2006, were allocated to the taxing districts. The division provides that the amount of land tax allocated to a taxing district shall be deducted from the property tax dollars certified by a taxing district before the county auditor computes the tax rate per square foot for taxable structures.

The division provides that statutory provisions relating to assessment and listing of property for property tax purposes, the land tax, and computation of the square footage tax are subject to legislative review every five years, with the first report to be submitted to the General Assembly by January 1, 2010.

The division creates a property tax implementation committee to study the provisions of this division and to devise a system for testing data to be provided by three counties and cities within those counties chosen by the Department of Revenue and Finance in consultation with the Department of Management. The committee is to develop computer hardware and software necessary to enable the three counties and the cities to develop projected budgets and square footage rates and land tax rates based on the provisions of the division. The committee is to study and resolve property tax issues relevant to implementation of the division and is to make recommendations to the General Assembly in reports submitted by October 31, 2003, October 31, 2004, and October 31, 2005.

The section of the division creating the property tax implementation committee takes effect June 19, 2003. The division, however, is repealed effective June 30, 2005, unless the repeal is stricken, in which case the division takes effect July 1, 2005, and applies to assessment years beginning on or after January 1, 2006, and applies to tax collections for fiscal years beginning on or after July 1, 2007.

Additional conforming amendments to the Code of Iowa will be necessary to fully implement the provisions of the division.

Division V - Sales and Use Tax Studies

Division V of the Act requires the Department of Revenue and Finance to establish two study committees. The first is to study the industrial processing exemption under the sales and use tax and report to the General Assembly annually through January 2013. The second is to study the entire sales and use tax law and report to the General Assembly with its recommendations by January 1, 2004. Both study committees are intended to consist of representatives of organizations or businesses with interests in the issues.

Division VI - Grow Iowa Values Board

Division VI of the Act creates a Grow Iowa Values Board consisting of 11 voting members and four ex officio, nonvoting members. The division requires the Grow Iowa Values Board to receive advice and recommendations from the Due Diligence Committee, the Economic Development Marketing Board, and the Grow Iowa Values Review Commission. The Grow Iowa Values Board is also required to assist the Department of Economic Development in implementing programs and activities of the department in a manner designed to achieve economic development goals provided for in the division. The Grow Iowa Values Board has reporting requirements and is required to adopt a strategic plan.

The division creates a Due Diligence Committee consisting of five members with expertise in the areas of banking and entrepreneurship. The committee shall determine whether a proposed project using moneys from the Grow Iowa Values Fund is practical and shall provide recommendations to the Grow Iowa Values Board regarding any moneys proposed to be expended from the Grow Iowa Values Fund.

The division creates a Grow Iowa Values Review Commission consisting of three members and located for administrative purposes within the Office of the Auditor of State. The division requires the commission to analyze all the annual reports of the Grow Iowa Values Board for purposes of determining if the economic development goals and performance measures provided in this division have been met. The commission must submit, by January 1, 2007, a report to the Grow Iowa Values Board, the department, and the General Assembly that includes findings on whether the goals and performance measures were met, recommendations regarding the continuation, elimination or modification of programs, and whether moneys should continue to be appropriated to and from the Grow Iowa Values Fund.

The division creates economic development-related goals and performance measures. The goals are to expand and stimulate the state economy, increase the wealth of Iowans, and increase the population of the state. The division provides that goal achievement shall be examined on a regional basis using Grow Iowa Values geographic regions which are designated in the division. The performance of the regions shall be compared to the performance of the state, the upper Midwest region, and the United States. The division provides various performance measures that are designed to determine if the economic development-related goals are met.

The division creates a Grow Iowa Values Fund consisting of moneys appropriated to the Grow Iowa Values Board. Division VI of H.F. 683 (see Appropriations) provides for multi-fiscal-year appropriations from the fund and for deposits in the fund.

The division creates an Economic Development Marketing Board consisting of seven members. The board shall administer and implement the approval process for selecting a marketing strategy for the Department of Economic Development to administer. The board shall submit a recommendation regarding the marketing strategy to the Grow Iowa Values Board. The Grow Iowa Values Board shall either approve or deny the recommendation. The department is required to implement and administer the marketing strategy approved by the Grow Iowa Values Board.

The division requires, not later than February 1, 2007, the Legislative Services Agency to prepare and deliver to the General Assembly bills that repeal the provisions created in this division of the Act. The division requires expeditious action by the General Assembly in considering the legislation.

Division VII - Value-Added Agricultural Products and Processes Financial Assistance Program

Division VII of the Act amends the Value-Added Agricultural Products and Processes Financial Assistance Program. The division allows the Department of Economic Development, in administering the program, to consult with other state agencies regarding any possible future environmental, health or safety issues linked to technology related to the biotechnology industry. The division provides that the department shall prefer producer-owned, value-added businesses and public and private joint ventures involving an institution of higher learning under the control of the State Board of Regents or a private college or university acquiring assets, research facilities, and leveraging moneys in a manner that meets the goals of the Grow Iowa Values Fund. The department may commit resources to assist agricultural business facilities in the agricultural biotechnology industry, agricultural biomass industry, and alternative energy industry; facilities that add value to Iowa agricultural commodities through further processing and development of organic products and emerging markets; and producer-owned, value-added businesses, education of producers and management boards in value-added businesses, and other activities that would support the infrastructure in the development of value-added agriculture.

Division VIII - Endow Iowa Grants

Division VIII of the Act requires the Department of Economic Development to identify a lead philanthropic entity for purposes of encouraging the development of qualified community foundations in this state. A lead philanthropic entity may receive a grant from the department to use to award Endow Iowa Grants to new and existing qualified community foundations and to community affiliate organizations. The division provides that the grants shall not exceed $25,000 per foundation or organization unless the foundation or organization demonstrates a multiple-county or regional approach. The division allows the grants to be awarded on an annual basis and not more than three grants may be awarded to one county in a fiscal year. The division includes annual reporting requirements.

Division X of H.F. 683 (see Appropriations) creates an Endow Iowa Tax Credit under the program.

This division of the Act takes effect June 19, 2003, and is retroactively applicable to January 1, 2003, for tax years beginning on or after that date.

Division IX - Commercialization of Research Issues

Division IX of the Act requires the State Board of Regents to submit an annual report to the Governor and the General Assembly including information regarding patents, research grants, faculty and staff involvement in start-up companies, grant application for research for start-up companies, agreements entered into by faculty and staff with foundations affiliated with the universities relating to business start-ups, accountings of financial gains received by each university relating to patents sold, royalties received, licensing fees, and any other remuneration received related to technology transfer, and the number of employees who assist in the transfer of technology and research to commercial application.

The division amends the University-Based Research and Economic Development Act to require the State Board of Regents, as part of its mission and strategic plan, to establish mechanisms for the purpose of commercialization of research at the three Regents universities and to work with the Department of Economic Development and other state agencies and the private sector to facilitate the commercialization of research.

Division X - Iowa Economic Development Loan and Credit Guarantee Fund

Division X of the Act requires the Department of Economic Development, with the advice of the Loan and Credit Guarantee Advisory Board, to establish and administer a Loan and Credit Guarantee Program. The division provides that the department, pursuant to agreements with financial institutions, shall provide loan and credit guarantees or other forms of credit guarantees for qualified businesses and targeted industry businesses for eligible project costs. The division allows the department to purchase insurance to cover defaulted loans meeting the requirements of the program. The division provides that eligible project costs include expenditures for productive equipment and machinery, working capital for operations and export transactions, research and development, marketing, and such other costs as the department may so designate.

The division provides that a loan or credit guarantee or other form of credit guarantee provided under the program to a participating financial institution for a single qualified business or targeted industry business shall not exceed $1 million in value. The division provides that loan or credit guarantees or other forms of credit guarantees provided to more than one participating financial institution for a single qualified business or targeted industry business shall not exceed $10 million in value.

The division allows the department, with the advice of the Loan and Credit Guarantee Advisory Board, to adopt loan and credit guarantee application procedures that allow a qualified business or targeted industry business to apply directly to the department for a preliminary guarantee commitment.

The division allows the department, with the advice of the Loan and Credit Guarantee Advisory Board, to establish fees and other terms for participation in the program.

The division creates the Loan and Credit Guarantee Advisory Board, consisting of seven members, to provide the department with technical advice regarding the administration of the program and to review and provide recommendations regarding all applications under the program.

Division VIII of H.F. 683 (see Appropriations) creates a Loan and Credit Guarantee Fund for purposes of the program.

Division XI - Economic Development Assistance and Data Collection

Division XI of the Act requires the Department of Economic Development to provide information through an Internet web site and a toll-free telephone service to assist persons interested in establishing a commercial facility or engaging in a commercial activity.

Division XII - Cultural and Entertainment Districts

Division XII of the Act requires the Department of Cultural Affairs to establish and administer a Cultural Entertainment District Certification Program to encourage the growth of communities through the development of areas within a city or county for public and private uses related to cultural and entertainment purposes. Two or more cities or counties may apply jointly for certification of a district that extends across a common boundary. The division requires the department to encourage development projects and activities located in certified cultural and entertainment districts through incentives under cultural grant programs and any other grant programs.

Division XIII - University-Based Research Utilization Program

Division XIII of the Act requires the Department of Economic Development to establish and administer a University-Based Research Utilization Program for purposes of encouraging the utilization of university-based research, primarily in the area of high technology, in new or existing businesses. The division provides that a new or existing business that utilizes a technology developed by an employee at a university under the control of the State Board of Regents may apply to the department for approval to participate in the program.

An approved business and the university employee responsible for the development of the technology utilized by the approved business shall be eligible for a tax credit. The tax credit shall be allowed against personal and corporate income tax liability. The division prohibits the transfer of the tax credit and any tax credit in excess of the taxpayer's liability for the tax year may be credited to the taxpayer's tax liability for the following five years or until depleted, whichever occurs first. The division provides that a tax credit shall not be carried back to a previous tax year.

The division provides that if, after reviewing tax-return-related information of the approved business, the department determines that the business activities of the applicant are not providing the benefits to Iowa employment and economic development projected by the approved business, the department shall not issue tax credits to the approved business or the university employee and shall determine that any related university share to be equal to zero for that year. If the projected benefits are being met, the department shall issue a tax credit certificate to the approved business and the university employee and determine the university share which is equal to the value of 30 percent of the tax liability of the approved business, not to exceed $225,000 per year per technology utilized. For each technology utilized, the aggregate university share over a five-year period shall not exceed $600,000. The division limits the amount of tax credit certificates that may be issued during a particular fiscal year. For an approved business, the amount of a tax credit certificate shall equal 30 percent of the tax liability of the approved business, not to exceed $225,000, with a total aggregate value of the certificates issued over a five-year period not to exceed $600,000. For an employee, the amount of a tax credit certificate shall equal 10 percent of the tax liability of the approved business, not to exceed $75,000, with a total aggregate value of the certificates issued over a five-year period not to exceed $200,000.

Division IX of H.F. 683 (see Appropriations) establishes a standing appropriation for purposes of the program.

Division XIV - Future Repeal

Division XIV of the Act provides that Divisions VI through XIII are repealed effective June 30, 2010.

Division XV - Liability Reform

Division XV of the Act permits the state or any of its political subdivisions to request the district court upon a showing of good cause to stay all the proceedings under the order or judgment being appealed from and waive the requirement that the state or any of its political subdivisions file a supersedeas (appeal) bond upon appeal to the Iowa Supreme Court.

Division XVI - Workers' Compensation

Division XVI of the Act makes several changes to laws relating to workers' compensation.

The division amends Code Section 86.12 to provide that the Workers' Compensation Commissioner may require any employer to file a report required under Code Section 86.13 or required by agency rule; may impose an assessment of $1,000 for each failure to comply with Code Section 86.12 within 30 days, payable into the Second Injury Fund; and may seek judgment upon the order in district court if the assessment is not paid within 30 days. The division also provides that an insurance carrier that possesses the information necessary to file a required report has the same responsibilities as an employer does.

The division adds a new Code Section 86.13A requiring the Workers' Compensation Commissioner to monitor the compliance rate of each employer and insurer with the statutory requirements relating to the commencement of voluntary weekly workers' compensation payments. The division provides that, commencing in any fiscal year after June 30, 2005, the commissioner may impose, for failure to comply with these requirements, an assessment upon an employer or insurer, pursuant to a statutory formula, which is payable to the Second Injury Fund. The assessment shall not be imposed if an employer or insurer commences voluntary weekly compensation benefits in a timely manner for more than 75 percent of the injuries reported by the employer or insurer. The Workers' Compensation Commissioner may waive or reduce an assessment under certain circumstances.

Division XVII - Financial Services

Division XVII of the Act modifies several Code provisions related to financial transactions. Code Section 537.2502 is amended to provide that, with respect to a consumer credit transaction that is not pursuant to an open-end credit arrangement and other than a consumer lease or consumer rental agreement, a delinquency charge on a current paid-in-full installment associated with a precomputed transaction shall not be collected, even if a delinquency on an earlier installment exists. By limiting the provision's applicability to precomputed transactions, the division allows a delinquency charge to be collected on an installment not part of a precomputed transaction, where the current installment due is paid in full within 10 days after its scheduled or deferred installment due date but an earlier maturing installment or a delinquency or deferral charge on an earlier installment has not been paid in full. The division, with respect to such transactions, eliminates the requirement that payments be applied first to a current installment and then to delinquent amounts.

The amendment likewise provides that with respect to delinquency charges related to an open-end credit transaction, a delinquency charge could be collected on a payment associated with a transaction other than a precomputed transaction where the current payment due is paid in full on or before its scheduled or deferred due date but where an earlier maturing payment or a delinquency or deferred charge on an earlier payment has not been paid in full. The division, with respect to such transactions, eliminates the requirement that payments be applied first to a current payment and then to delinquent amounts.

Code Section 537.2601 is amended to provide that for transactions other than consumer credit transactions, the parties may contract for any charge permitted by law.

Division XVIII - Unemployment Compensation Surcharge

Division XVIII of the Act extends the repeal of the employment security administrative surcharge from July 1, 2003, to July 1, 2006. In addition, the Act sets the target revenue to be collected from the surcharge in calendar years 2004 and 2005 at the calendar 2003 limit of $6.525 million and reduces this amount to $3.2625 million for calendar year 2006. The division takes effect June 19, 2003.

Division XIX - Targeted Economic Development

Division XIX of the Act relates to site preparation for targeted economic development and coordination of regulatory assistance.

The division provides that a city, county, or region formed by two or more counties, subject to the approval of the property owner, may designate an area within the boundaries of the city, county or region for a specific type of targeted economic development. The type of targeted economic development shall be manufacturing, light industrial, warehouse and distribution, office parks, business and commerce parks, or research and development. The division provides that a city, county or region that designates an area may apply to the Department of Economic Development (IDED) for purposes of certifying the area as a preapproved development site. The division also provides that, prior to a specific project being developed, a city, county or region designating the area may apply for and obtain appropriate licenses, permits and approvals for the type of targeted economic development project desired for the area.

The division also requires IDED to coordinate all regulatory assistance for the state. Each state agency with regulatory programs for businesses is to designate a regulatory coordinator to work with the department. The department is to submit an annual report to the General Assembly regarding the provision of regulatory assistance by state agencies.

Division XX - Utility Sales Tax Exemption

Division XX of the Act freezes the sales and use tax on residential electricity, gas and fuel at 3 percent from July 1, 2003, through June 30, 2008. The rate then decreases to 2 percent from July 1, 2008, through June 30, 2009; to 1 percent from July 1, 2009, through June 30, 2010; and to zero percent from July 1, 2010, indefinitely. Present law set the rates at 3 percent for the 2003 calendar year, 2 percent for the 2004 calendar year, 1 percent for the 2005 calendar year, and 0 percent for the 2006 calendar year and beyond.

Division XXI - Effective Date

Division XXI of the Act provides that, unless otherwise noted, the Act takes effect July 1, 2003.

THE GOVERNOR ITEM VETOED THE FOLLOWING:

1. 1. Division II of the Act, which would have reduced the individual income tax rates for the 2004, 2005 and 2006 tax years from the rates existing for the 2003 tax year. Each of the nine rates would be reduced nearly the same percentage for each tax year. The reductions are between: 2.8 percent and 3.0 percent of the 2003 tax year rates for the 2004 tax year, 5.2 percent and 5.6 percent of the 2003 tax year rates for the 2005 tax year, and 9.7 percent and 11.1 percent of the 2003 tax year rates for the 2006 tax year.

2. Division III of the Act, which would have reduced the rates existing for the 2003 tax year by between 13.9 percent and 14.1 percent for the 2007 tax year. These rates would continue indefinitely.

3. Division IV of the Act, which would have rewritten the state individual income tax by reducing the rates on taxable income to 1.85 percent on the first $8,000; 4.75 percent on the next $92,000; and 4.99 percent on that over $100,000. The brackets will be adjusted by an inflation factor. Most adjustments to federal adjusted gross income would be eliminated. However, deductions for a portion of social security benefits and pensions received would be maintained. In arriving at the taxable income, the standard deduction and itemized deductions allowed for federal tax purposes would be maintained. The standard deduction amounts would be adjusted by an inflation factor. The present personal credit would be kept. The deduction for federal income taxes paid would be eliminated. The alternative minimum tax would be eliminated. The division also would retain the present credits that are allowed except for the minimum tax credit which is eliminated beginning with the 2010 tax year.

4. The division would have repealed Division III of this Act and would have been contingent upon the passage of a constitutional amendment by January 1, 2007, requiring a 60 percent vote in order to enact legislation that increases the individual income tax rate or rates.

5. From Division IX, a requirement that the governor appoint a director of technology to serve within the Office of the Governor.

6. From Division XI, a requirement that the Department of Economic Development collect data about businesses that considered locating in Iowa but decided to locate elsewhere and businesses that closed major operations in the state or dissolved the business' corporate status.

7. From Division XV, certain provisions that would have limited the liability of an assembler, designer, supplier of specifications, distributor, manufacturer, or seller under a theory of civil conspiracy unless the person knowingly and voluntarily entered into an agreement to participate in a common scheme or plan with the intent to commit a tortious act upon another, and would have provided that a plaintiff seeking punitive damages in a civil case meet a clear and convincing standard of proof in demonstrating that the plaintiff's harm was the result of actual malice. "Actual malice" would have been defined to mean either conduct which is specifically intended by the defendant to cause tangible or intangible serious injury to the plaintiff or conduct that is carried out by the defendant both with a flagrant indifference to the rights of the plaintiff and with a subjective awareness that such conduct would result in tangible serious injury.

8. From Division XVI, a section relating to workers' compensation laws and compensation for permanent partial disabilities, to provide that an employer is not liable for that portion of an employee's present disability caused by a prior work-related injury or illness sustained while the employee was employed by a different employer. The section also would have provided that any portion of an employee's present disability caused by a prior work-related injury or illness sustained while the employee was employed by the same employer that was previously compensated by the employer could be deducted from the employer's obligation to pay benefits for the employee's present disability, and that if an employee's present disability was reduced in this manner, the employee would receive compensation for the remaining disability, plus an additional 10 percent of the amount of the increase in disability.

9. Division XX of the Act, which would have frozen the sales and use tax on residential electricity, gas and fuel at 3 percent from July 1, 2003, through June 30, 2008. The rate then would decrease to 2 percent from July 1, 2008, through June 30, 2009; to 1 percent from July 1, 2009, through June 30, 2010; and to zero percent from July 1, 2010, indefinitely. Present law set the rates at 3 percent for the 2003 calendar year, 2 percent for the 2004 calendar year, 1 percent for the 2005 calendar year, and 0 percent for the 2006 calendar year.

HF692