30-Second Summary:

Ankeny, the largest city in Iowa without a Local Option Sales Tax (LOST), will once again ask voters whether to adopt the 1% tax during this September’s special election. Before casting their ballots, voters should understand how the tax is collected, how the revenue is distributed among local governments, and what the city’s commitment to use a portion of the revenue for “property tax relief” could mean in practice.

The vote is notable because not only is Ankeny the only city in Polk County without a LOST, but it’s one of only a handful of Iowa’s nearly 940 cities that does not currently levy the tax.  This also marks at least the third time in the past decade that the proposal has been under serious consideration.  The City Council in May 2024 voted against setting a special election for a 1% sales tax, and 53% of Ankeny voters were against the sales tax in a March 2018 referendum.

Local Option Sales Taxes Are Common Across the Country

Local sales taxes are not unique to Iowa. Forty-five states impose a statewide sales tax, and 38 states also allow local governments to levy an additional local sales tax (including Alaska, which has no statewide sales tax).

Iowa’s statewide sales tax rate is 6%, with one penny of that tax dedicated to the SAVE program to fund school infrastructure projects. Through voter approval, cities and counties may adopt an additional 1% Local Option Sales Tax.  Cities and counties do not each impose their own separate local sales tax. As a result, some cities or unincorporated areas within a county may have the tax while others do not.

Because most Iowa communities have adopted the tax, the state’s average combined state and local sales tax rate is 6.94%, ranking Iowa 29th highest nationally. Like the statewide sales tax, the LOST applies to taxable goods and services, while exemptions such as groceries, prescription drugs, and many professional services also apply to the local tax.

How Local Option Sales Tax Revenue Is Distributed

Once collected, LOST revenue acts as a county-level tax and is distributed according to a formula established in Iowa law. The allocations within each county are based on:

• 75% population
• 25% historic property tax levies

The 75% population factor attempts to distribute the revenue relative to how many people live in a given community, while the 25% historic factor recognizes that every local government has historically utilized property taxes in their own unique ways.

During Fiscal Year 2025, Polk County cities (with the exception of Ankeny) received nearly $100 million in Local Option Sales Tax distributions. According to city estimates, Ankeny would receive approximately $12 million annually if voters approve the measure. 

Will It Lower Property Taxes?

Before a Local Option Sales Tax can be approved by voters, the ballot must identify the purposes for which the revenue may be spent.

According to Ankeny’s ballot language, one-half of the revenue would be dedicated to property tax relief, while the remaining half would fund capital projects, including:

• Street improvements
• Parks and trails
• Recreational facilities
• Public infrastructure
• Public safety equipment
• Public facilities
• Debt retirement

Although the ballot dedicates half of the revenue to property tax relief, Iowa law does not provide a precise definition of what qualifies as “property tax relief.” As a result, local governments have flexibility in how they interpret and apply that requirement.

For example, a city could use sales tax revenue to pay for projects that otherwise would have been funded with property taxes and consider the forgone property tax increase to be property tax relief. Under that approach, property tax bills might not actually decrease, even though the city has complied with the ballot language.

According to Ankeny officials, the city’s property tax levy would increase from $9.90 to $10.35 per $1,000 of taxable value without the additional sales tax revenue. If voters approve the measure, city officials have pledged to reduce the levy to $9.30 per $1,000 of taxable value beginning in Fiscal Year 2028.  If that rate reduction is implemented, the taxable valuation of any given property will still play a factor in determining a resident’s property tax bill from the city.

Ultimately, Ankeny voters will decide whether to adopt the Local Option Sales Tax. Before casting their ballots, voters should understand how the tax is collected, how the revenue is distributed, and what the city’s commitments regarding property tax relief will mean in practice.