1839-1910

Iowa’s territorial legislature enacted the first revenue act in 1839, creating a tax levy on real and personal property. This form of taxation continued after statehood and was the primary source of revenue for both the state and local governments.

An Iowa property tax statement from 1861.

In 1872, Iowa’s first major tax reform made changes to taxation on railroads and assessments. Both historians and academics have considered Iowa’s revenue system to have been a failure over the next 50 years, and its property tax system became one of the most burdensome in the nation.

The 1910 Census exposed Iowa as the only state in the nation that had lost population since 1900, and its growth in manufacturing and commerce was noticeably less than in other states. The consensus view was that the tax environment was to blame.

1911-1936

The most comprehensive tax legislation in the State of Iowa to date passed in 1911. Many of the special tax levies we still have today, such as for roads and bridges, appeared that year, and responsibility for assessments switched from townships to the counties, creating the role of county assessor. Providing evidence that the tax changes worked, Iowa’s municipal population increased by 21%, or 234,631 people, soon thereafter.

Between 1910 and 1921, Iowa’s property tax levy increased annually by 11.7%, mostly due to the economic prosperity of the time. Per capita personal income nearly doubled, and inflation, urbanization, and changing technology added significantly to government expenditures. Nevertheless, Iowans’ displeasure with their property taxes continued, and people continued to find inequities and problems with it. The tax’s collections accounted for 80% of all tax revenue during this time.

In the late 1920s, Iowa farmers banded together to promote the idea of consolidating the rural one-room schoolhouses as a fix for the unequal burden of property taxation. More than 2,000 one-room schools were closed across rural areas of the state, and in their place, 385 consolidated schools were established, largely on a regular high-school basis. Even then, many believed the solution to property tax challenges, particularly in the rural districts, lay in the field of school finance reform.

The Great Depression was a catalyst for great change in Iowa property taxes at both the state and local levels. 

In the early years of the Depression, Iowa lawmakers permitted counties’ sale of bonds to pay for unemployment relief, which doubled the county tax levy during this time. When lawmakers realized that property taxes could no longer be their primary source of revenue, the state enacted a new revenue law on March 1, 1934, creating a personal income tax, a corporate income tax, and a sales tax.

The proceeds from these new taxes were intended to be used to support state government, pay the administrative costs of collecting the new revenue, and finance an emergency poor relief program. The remainder would go to the counties based on their assessed property valuations. Specifically, the sales tax was created to finance emergency relief measures and, at the same time, furnish some tax relief to the owners of property. The state abolished its tax on tangible property, yet the $6-per-thousand state levy (the mill rate) on intangibles remained. Iowa also created a homestead law, providing a rebate on a portion of the property tax paid by homeowners.

These new taxes, although intended to serve as partial replacements for burdensome property tax levies, did not remedy the weaknesses and inequalities of the property tax system. Critics felt state legislators missed an opportunity to enact constructive legislation relating to the administration of the property tax, such as having the state centralize control over property assessments and the appointment of local assessors, who would be responsible to the state board of assessment and review.

1936-1970

With the new taxes, property tax collections dropped to 55% of all tax revenue, and from 1936 through 1944, the average annual levy increase was only 2.7%. However, in the post-war period, from 1944 to 1960, the property tax collections rebounded to an average annual increase of 8.8%. Iowans continued to complain of property tax burdens, and the State Legislature enacted more reforms, including distribution of state funds for education in an inverse relationship to property wealth and the creation of the agricultural land property tax credit.

1971-2012

The 1970s brought another big push for property tax reform. In 1971, the General Assembly of the Iowa Legislature passed a bill, House File 654, creating an education funding formula with a uniform mill rate set at $20, with a state aid target set at 70% of the cost per pupil. Shortly thereafter, in 1973, the state repealed the personal property tax, and the property tax credit for the elderly and disabled was expanded. In 1978, the state divided property into different classes and implemented a complex system of statewide assessment limitations, also known as rollback provisions.

While continuing to collect more property taxes per capita than the national average, the state legislature did relatively little to change property taxes over the next few decades. School funding stayed relatively the same until 1986 when the minimum uniform school levy rate changed to $5.40 per $1,000 of assessed value, which was then followed by a complete restructuring of the school funding formula in 1990. In 1995, the state revamped how it paid for mental health services, with the aim of lowering the county’s property tax rates, and in 2003, the legislature considered a reform of the property tax system but failed to enact it.

2013-2022

In 2013, the legislature enacted a comprehensive property tax reform measure directed at providing commercial property tax relief. Some of the major reforms of the legislation included: 

• Establishing a new property tax credit for commercial, industrial, and railroad property classifications and creating a new multi-residential classification. 
• Reforming the property tax rollback for residential and agricultural property from 4 percent to 3 percent, while reforming the rollback for commercial, industrial, and railroad property (95 percent for assessment year 2013 and 90 percent for 2014 and after). 
• In fiscal year 2015 (FY15), the General Fund would “backfill” lost revenue from commercial property tax. Since FY17, this has been limited to $152 million directed back to cities and counties. 

While the 2013 property tax reform was extensive, it failed to address local government spending or property taxes associated with public education, the largest component of property tax bills. Furthermore, local governments engaged in “revisionist history” regarding the backfill, which was never intended to be permanent, arguing that it was an obligation of the state that could not repealed or phased out. The legislature in 2021 enacted a phase-out, but analysis demonstrated that many cities and counties did not even need the money because property tax revenue was escalating. 

The second most significant property tax reform legislation arrived in 2019. Responding to concerns over rising and complicated property taxes, the legislature passed a property tax accountability and transparency measure. Unlike the 2013 reform, this law attempted to deal with local government spending, creating a 2 percent “soft cap” that would apply to city and county budgets. 

The other pillars of the law included measures to increase accountability and transparency by: 

• Requiring cities and counties (not school districts) to pass resolutions identifying the maximum amount of property tax dollars they would collect in the next fiscal year and holding a public hearing on that resolution. 

• Calling for local elected officials to justify property tax increases with a specific explanation of their need for more funding. 
• Giving local taxpayers the opportunity to submit objections to proposals at the public hearing. 

The law also required local governments to publish their budget notices. However, these notices often were not only difficult to find on city or county websites, but also very complicated. Similarly, although local governments were required to provide notice of their budget hearings, very few taxpayers attended them.  

While the property tax accountability and transparency law was well-intentioned, it failed to provide property tax relief. The 2 percent “soft cap” only takes a two-thirds majority vote of a city council or county supervisor board to override. In addition, the failure to include school districts made the reform ineffective. In terms of transparency, it failed to simplify the complexity of the property tax system, and the budget notices are too complex for most taxpayers to understand.  

Finally, the law failed to address local governments’ ability to take advantage of assessment windfalls. Too often, taxpayers are told that the rates are going down, only to find that they are paying more in property taxes. This creates an “honesty gap” between local governments and the taxpayer.  

In 2021, as part of a larger tax reform measure, the legislature not only phased out the backfill but also eliminated the county mental health property tax levy. Iowa was the only state funding mental health through property taxes. Although some proponents assumed taxpayers would see relief with the elimination of this levy, 49 out of the 99 counties failed to pass along the savings to taxpayers.

2023

A wide-ranging package of property tax reforms was passed in 2023 and is estimated to deliver $100 million in direct tax relief while providing additional transparency and enhanced taxpayer protections:

The Future

It is imperative that the next round of property tax reform further attacks the source of high property taxes, local government spending, with a strong budget or spending limit that would be applied to the entire local government budget.