The 2007 session of the Iowa Legislature came to a close with no changes in commercial property taxes. Many commercial property owners were hoping for some type of action on tax relief from this legislative session, because Gov. Culver had created a task force prior to his inauguration to study this issue. The task force came back with several recommendations – none of which were implemented.

Some estimate the cost would be $1 billion of lost revenue to local communities. These lost property tax dollars could be backfilled to local communities from the state. If the state does not backfill this lost revenue, then local governments would either have to raise property taxes on other classes of property or reduce services. Even though leaders throughout the state realize the unfair burden placed on commercial property tax payers, no progress was made.

Apartment property owners were hoping for legislation that would have reclassified apartment properties from commercial property to residential property and have lobbied for this change for many years. Had this bill passed into law, the state would have phased in over a seven-year period the same property tax rollback received by homeowners.

The Senate passed the bill, but the House never debated it, effectively killing the reclassification for another year.

Landlords have argued that this is an unfair tax, because most tenants do not have the means to own their own home. Opponents have argued that there is no guarantee that tenants would receive the benefit from this reduction in property taxes. Landlords counter that over time, market conditions would force apartment property owners to pass along the reduction in expenses to the tenant.

Many apartment developers have shied away from the Iowa market because property taxes in this state are too high.

In some cases apartment property owners have gone so far as to convert their apartment properties to condominiums for the benefit of the reduced taxes, with no intention of selling individual units. They continue to operate the property as an apartment building. Local municipalities have cracked down on this practice by requiring apartment property owners to meet the current condominium building codes in order to convert their properties.

The 2007 bill met resistance from many business groups because it was targeted tax relief for apartment property owners and not comprehensive property tax reform. Local governments opposed the bill because it did not adequately backfill cities, counties and schools for lost revenue.

As business leaders, we would like to see property tax reform in the state of Iowa, but apartment property owners are not willing to wait for comprehensive reform and have taken it upon themselves to try to reclassify what is currently considered commercial property to residential property. We hope the pressure apartment property owners are applying to the Legislature will cause state leaders to address the issue.

Rick Krause is an income property specialist with West Des Moines-based Iowa Realty Commercial.