Iowa Property Tax
Exemption Report
2012
A Report from the
Governor’s Nonprot
Project
Iowa Property Tax
Exemption Report 2012
1.
T
his report is the work of the Governor’s Nonprot Project. Our goal is to make Iowa a nonprot friendly
state. Our partnership, consisting of the Larned A. Waterman Iowa Nonprot Resource Center, the Iowa
Nonprot Collaborative, and various state agencies, will work to nd eective and ecient collaborative
eorts between state agencies and private nonprots to address Iowa’s community needs.
The Property Tax Exemption Committee of the Governor’s Nonprot Project convened in the summer of 2012.
Our goal was to preserve the tax exempt status for nonprots owning real property in Iowa in the education,
medical and religious categories. Property Tax Exemption Committee members are:
Tami Gilmore Four Oaks
Bill Nutty Leading Age Iowa
Maureen Keehnle Iowa Hospital Association
Richard Koontz Iowa Nonprot Resource Center
Liz Weinstein Elizabeth Weinstein & Associates, Inc.
The Property Tax Exemption Committee of the Governor’s Nonprot Project wishes to thank Governor
Branstad for his support of this study. Additionally, we wish to thank Jerey Boeyink, Chief of Sta, and his sta
for their eorts.
This survey report was authored by Richard Koontz, Director of the Larned A. Waterman Iowa Nonprot
Resource Center, a program at the University of Iowa College of Law.
Introduction
2.
I
owa’s nonprots believe it is crucial that exemption from property taxes, which has been part of Iowa law
for over 150 years, remain Iowa law. Not having to use nonprot funds for property taxes allows nonprots
to deliver more services to fulll its mission to Iowa’s citizens. A number of states have recently altered their
exemption statutes, but Iowa should not pursue this trend.
The Property Tax Exemption Committee also identied education on property tax exemption as an issue to
improve. There must be wider communication on why the exemption exists, how it operates and the resulting
benets to the citizens of Iowa. While the Department of Revenue has some very helpful materials, it is our
hope that further guidelines can be developed and disseminated to assist nonprots in applying for and
maintaining their exemption from property tax.
3.
In Defense, continued next page
I
owa’s charities contribute signicantly to the quality of life in Iowa. Using their resources wisely helps make
that eort ecient and eective. Iowa’s charities deserve the relief of property tax exemption so that their
resources can be used more fully in resolving community problems. Property tax exemption was challenged
in 2012 in Illinois taking property tax exemption from a good number of hospitals.
1
Property tax exemption is often seen as a kind of governmental subsidy for charities providing services that
are benecial to their communities. Charitable tax exemptions are generally justied as relieving “the burdens
of government” by providing goods or services that otherwise would not be provided by government or
society.
2
This raises the issue of whether a nonprot’s assets should even be seen as an important part of the
tax base. Do we tax a church or low income housing so that the money can be used for education? Charities
face budget problems if subject to property tax. A nonprot with real estate, which is often not easily
liquidated, must pay property tax if it did not apply for exemption or its application was denied. For-prot
endeavors are usually able to use real estate to earn income through leasing or other earned income activities.
However, if nonprots engage in this earned income activity, under Iowa law they lose their property tax
exemption. Consequently, nonprots have to pay a property tax while also trying to use their revenues wisely
to fulll their charitable missions. They face the problem of either mortgaging the real estate to obtain some
cash to pay real estate taxes or delivering fewer services to their beneciaries.
Tax exemption is sometimes seen as an avenue for tax abuse. However, the way that the property tax
exemption is structured in Iowa prevents abuse. Only charities that own real estate from which their services
are administered can get the exemption. Charities that rent from for-prot landlords do not get a property tax
exemption. Charities that own real estate not used for their charitable activities do not get an exemption from
property tax on those pieces of property. For example, a charity cannot own an apartment complex operated
at the going rate and get property tax exemption. If the charity owns a signicantly large piece of real estate,
exemption can only be taken for 320 acres.
3
Charities that own real estate and use that real estate to earn
money lose property tax exemption.
4
There are a wide variety of forms of exemption from property tax in Iowa. Property tax exemption is based
on a concept of allowing resources of social structures that aid communities to be used as much as possible
for meeting community needs. Most forms of property tax exemption in Iowa are based on this rationale. For
instance, governmentally owned real estate such as state universities, schools, drainage districts, national
guard posts, etc. are exempt from property tax.
5
Private colleges and schools in Iowa obtain property
exemption to aid the same function as governmental schools and universities in the state of Iowa under
In Defense of Iowa’s Charitable
Property Tax Exemption
1
See http://www.washingtonmonthly.com/ten-miles-square/2011/08/some_illinois_hospitals_losing031596.php
2
Nonprot Cases and Materials, Fishman and Schwarz, 4th ed., Foundation Press 2010
3
Iowa Code 427.1(8). Property must be used “solely for their appropriate objects.”
4
Iowa Code 427.1(8). Property must “not leased or otherwise used… with a view to pecuniary prot.”
5
Iowa Code 427.1(1) and (2).
4.
the general charitable provisions.
6
A library, art gallery or museum owned by the government is exempt
under one code section,
7
but privately owned libraries etc. (while accomplishing the same function in the
community) are exempt under another.
8
We want to meet the needs of veterans of wars, and Iowa’s statute
allows veterans associations
9
and homes for disabled soldiers
10
to have property tax exemption on real estate
owned by these groups. Other kinds of charities that meet needs of veterans (food, education, medical,
etc.) get exemption under the general charitable provision. Any strategy to balance budgets by removing
exemption for charities’ real estate, but not other kinds of organizations working for community needs, is a
lopsided deprivation of charitable resources, a strategy short-sighted and unfair. We should not deal with the
problems of economically slow times by placing the burden solely on the backs of charities.
One of the kinds of charities that receives tax exemption for its real estate is religious organizations. Churches
are not without assets; a compilation of Iowa exempt organization values for property tax purposes was done
in 2011, with a total value of Iowa churches at $2,755,504,122.
11
Some writers have cited Biblical sources for
reasons not to tax churches.
12
The U.S. Congress early in our history exempted churches from taxation. And
the U.S. Supreme Court has considered the constitutionality of taxation of churches.
13
In one case, Walz v.
Tax Commissioner, the Supreme Court noted that the church’s “uninterrupted freedom from taxation” has
“operated armatively to help guarantee the free exercise of all forms of religious belief.” On the other hand,
proponents of taxing churches say it violates the Constitution’s Establishment Clause by singling out churches
for freedom from taxation.
14
Whichever way the constitutionality of taxing churches is decided, it is dicult to
imagine that the people of Iowa will be comfortable with property taxation of churches. Given this dilemma, it
puts an even greater burden on other kinds of charities if the property tax exemption is kept for churches and
denied for other charities.
While all revenues are important to governmental entities in Iowa these days, the portion of real property
held by charities is relatively small. The total assessed value of property subject to Iowa taxation in 2010 was
$218,992,539,370.
15
The total assessed value of all property with exemption from property tax in the same tax
year was $9,570,779,595, with $3,655,313,289 held by charities. In other words, nonprots have a little less
than 1.7% of the real property subject to property tax in Iowa.
In Defense, continued
6
Iowa Code 427.1(8) (and (9)
7
Iowa Code 427.1(2)
8
Iowa Code 427.1(7) or (8)
9
Iowa Code 427.1(5).
10
Iowa Code 427.1(10).
11
See Iowa Department of Revenue website at http://www.iowa.gov/tax/locgov/propreports.html. Total value
of all religious properties is $3,758,486,585.
12
See Genesis 47:26 (Pharaoh not taxing priests’ lands) and Ezra 7:14.
13
Walz v. Tax Commission of the City of New York, 397 U.S. 664 (1970).
14
See http://taxthechurches.org/
15
See Iowa Department of Revenue, Property Tax Division, “2010 Property Valuation Report” at http://www.
iowa.gov/tax/locgov/PropValReport2010.pdf (Ag Land and Structures $38,062,377,455; Ag Dwelling Realty
$10,374,686,921; Residential $124,532,360,575; Commercial $34,668,843,221; Industrial $6,937,283,186; and
Utilities $4,416,988,012)
Before making changes to its property tax exemption structure, Iowa needs to study the economic
impact of doing so. Iowa has done some review of its property tax practices. In 2004 the Iowa Property
Tax Implementation Committee was created by House File 692.
16
A 2007 study group looked to outside
consultants to, among other things, “identify and review alternative sources of local government revenue by
other states… [for] persons and entities who own property that is exempt from property taxation because
the property is used for religious, educational, or charitable purposes.”
17
The importance of these eorts is
acknowledged, but there has not been a systematic study showing that increasing property tax on charities
will have a signicant impact on increasing Iowa’s economic outlook.
On the other hand, Iowa’s charities are clearly an important economic factor for stimulating Iowa’s economy.
Increasing their property tax exemption will impede this economic force. A 2005 report from the Iowa
Nonprot Resource Center and Iowa Workforce Development stated that Iowa charities in 2004 had $20.7
billion in assets, spent more than $8.3 billion, and employed 8.9% of Iowa’s workforce.
18
Imposing a property
tax on Iowa nonprots would impede the economic stimulus provided by its nonprot sector.
In Defense, continued
16
See Iowa Department of Revenue website at http://www.iowa.gov/tax/taxlaw/PTCLegRep1.html
17
See Iowa Department of Revenue website at http://www.legis.state.ia.us/Contracts/PropertyTaxStudy/RFP.
pdf
18
See http://www.iowaeconomicdevelopment.com/downloads/char_giving_report_FINAL-02-01-2007.pdf
5.
Changes in Property Tax Exemption in
Surrounding States
T
here have been alterations in property tax exemption rules for nonprots in two states neighboring
Iowa, and these changes have made Iowa nonprots quite concerned about the stability of their nancial
positions if such a change were made to the Iowa law of property tax exemption.
Illinois’ Property Tax Reform and Relief Task Force completed a report to the Illinois General Assembly on the
property tax exemption in 2009.
19
In 2010, the Illinois Supreme Court ruled that Provena Covenant Medical
Center in Urbana must pay local property taxes.
20
As a result of this decision, a number of other Illinois
hospitals’ property tax exemptions were denied. By summer of 2012, Illinois’ legislature had enacted a new law
setting standards for hospitals seeking property tax exemption (SB2194).
Minnesota’s constitution has provisions about private charities not being subject to property tax.
21
What
constitutes a “charity” for purposes of this constitutional provision has been debated, and a 2007 appellate
decision, Under the Rainbow Childcare Ctr., interpreted it broadly.
22
But this was followed by an amendment to
the property tax statute in 2011, setting forth six factors needed to establish charitable status for the purpose
of the exemption from property tax.
23
Iowa charities believe that the current statutory provisions in Iowa allowing charitable property tax exemption
ought to remain unchanged.
6.
19
Illinois Property Tax Reform and Relief Task Force, Report to the General Assembly (2009)
20
Provena Covenant Medical Center v. Illinois Department of Revenue, 236 Ill. 2d 368 (Ill. Sup. Ct. 2010).
21
Minn. Const. art. X, sec. 1.
22
Under the Rainbow Childcare Ctr. V, City of Goodhue, 741 N.W.2d 880 (Minn. 2007)
23
Minn. Stat. sec. 272.02(7). For an in-depth account of the statutory changes, see Minnesota Council of Non-
prots at http://www.minnesotanonprots.org/mcn-at-the-capitol/past-successes/charitable-property-tax-
exemption-redened
Educating Iowa on Property Tax Exemption
I
t is important for Iowa’s citizens, and nonprots especially, to have access to information about the
charitable property tax exemption. There are currently some good sources, but even more are needed.
Iowa Department of Revenue
There is currently a substantial amount of information on the property tax exemption in Iowa. Iowa’s statute
on property tax exemption for nonprots is available both in print and online.
24
The Iowa Department of
Revenue has numerous helpful resources which include “An Introduction to Iowa Property Tax,”
25 “
Property
Tax Credits and Exemptions,”
26
and the “Application for Property Tax Exemption for Certain Nonprot and
Charitable Organizations.”
27
Going beyond the exemption, there are other helpful pieces on property tax on
the DOR website, such as several years of property tax newsletters,
28
property tax opinions,
29
and contact
information for sta at the Property Tax Division.
30
The DOR’s Property Tax Division is involved in continuing education for county assessors. One of its listed
tested courses is “Credit and Exemption workshop (T-0154-15).”
Iowa County Assessor’s Oces
Another source for guidance on property tax exemption is county assessor’s oces. It is at the county
assessor’s oce where the property is located that the application for exemption is originally led. For
example, the Madison County Assessor’s oce has a brief portion of its website on property tax credits and
exemptions that begins:
Iowa law provides for a number of credits and exemptions. It is the property owner’s
responsibility to apply for these as provided by law. It is also the property owner’s responsibility
to report to the Assessor when they are no longer eligible for any credit or exemption they have
applied for. Following is a list of several credits and exemptions available in Iowa.
31
Often the assessor’s oce focuses on exemptions for private landowners – Homestead Tax Credit, Military
Service Exemption and Family Farm Credits. But there is usually a link to the application for charitable
exemption on county assessors’ webpages. Other examples of county assessors that provide helpful
information on some property tax exemptions are Henry County,
32
Greene County,
33
and Emmet County.
34
24
See http://coolice.legis.iowa.gov/Cool-ICE/default.asp?category=billinfo&service=IowaCode&ga=83&inp
ut=427.
25
See http://www.iowa.gov/tax/educate/78573.html.
26
See http://www.iowa.gov/tax/taxlaw/PropertyTaxCredits.html
27
See http://www.iowa.gov/tax/forms/54269.pdf
28
See http://www.iowa.gov/tax/locgov/propnews.html
29
See http://www.iowa.gov/tax/locgov/proppolicies.html
30
See http://www.iowa.gov/tax/contact/propdiv.html
31
See http://www.madisoncoia.us/oces/assessor/assessortaxes.htm
32
See http://www.henrycountyiowa.us/oces/assessor/index.htm
33
See http://www.co.greene.ia.us/assessor/assessor.htm
34
See http://www.emmetcountyia.com/assessor.html
7.
I
t is not easy to nd signicant amounts of information about a nonprot’s real estate and whether it
is exempt from property tax. Sources to consider are the Form 990, the DOR Property Tax Exemption
databases, and the county assessor’s oce website.
A. Form 990
Any nonprot that has a Form 990 ling is listed on guidestar.org’s website. Nonprots that own real estate
must report the asset on the balance sheet on Part X of the Form 990, line 10. (For smaller nonprots using
Form 990-EZ, this is completed on Part II, line 23.) Line 10 includes both investment real estate (which cannot
get property tax exemption) and real estate used for the exempt purposes (which can get property tax
exemption).
Finding Information About a Nonprot’s
Tax Exemption
8.
a
Finding Information, continued next page
Finding Information, continued
This information must also be reported on Form 990, Schedule D, Part VI. Schedule D allows you to break out
the land owned from other assets reported on the core Form 990, part X, line 10.
If the nonprot pays real estate taxes that amount would be reported on line 24 of Part IX of the core Form
990.
9.
B. Iowa Department of Revenue
The Iowa Department of Revenue has a Property Tax Division. Property tax treatment of individual nonprot
properties is not available from this source, but reports on exemption by county are available on this division’s
website at http://www.iowa.gov/tax/locgov/propreports.html
Finding Information, continued
10.
C. Iowa County Assessors’ Oces
Iowa Property Tax Exemption is primarily administered through the county assessor’s oce of the county
where the real estate is located. Most if not all assessors’ oces have a parcel-by- parcel search function on
their home pages to see which parcels are exempt. A list of county assessors’ websites and property search
links can be found at the Iowa Assessor and Property Tax Records Directory online at http://publicrecords.
onlinesearches.com/Iowa-Assessor-and-Property-Tax-Records.htm
An example of this is the Grundy County Assessor’s Oce. Below is the Grundy County Assessor’s oce search
tool for properties located there. You reach the search page by going to the primary Grundy County Assessor’s
Oce page at http://www.grundycounty.org/DEPARTMENTS/ASSESSOR/tabid/244/Default.aspx and then
clicking on the “Property Search” tab on the right of the screen.
Finding Information, continued
11.
Finding Information, continued
Below is the Grundy County Assessor’s oce record for the Methodist Church of Conrad. It shows a Gross
Assessed Value of $270,959, and an Exempt Value for the same amount. It is given a “class” of Ex – Exempt
Parcels.
12.
The Iowa State Association of County Auditors is working on a Real Estate Statewide Search that would
consolidate the counties’ information into one search engine.
35
35
See http://www.iowaauditors.org/real_estate_search/index.html
W
hen property tax exemption is denied by the county, the decision can be appealed rst to the board
of review (Iowa Code 441.31), and then to the District Court (Iowa Code 441.38). Finally there can be
an appeal to the appellate court.
While these sources provide some information about property tax exemption of nonprots, a more
consolidated system would help. For larger nonprots that administer services in multiple counties, and own
real estate in multiple counties, there is not a single source to bring together the records of real estate exempt
in these various counties. In addition, nonprots could use more assistance in understanding the exemption
application process, in remaining in compliance with the law during the period of exemption.
Property Tax Exemption Appeals
13.
Recommendation: There should be a long-standing Iowa Nonprot Committee that continues to review
issues central to the complex nonprot world, including those of property tax exemption. The committee
would cooperate with state government by providing helpful information from the nonprot sector, proposed
solutions to nonprots on issues, and advice on proposed legislation concerning nonprots.
Recommendation: The current structure for property tax exemption for nonprot charities in Iowa is fair and
reasonable and should not be altered.
Recommendation: There should be broader and more readily available educational resources on property tax
exemption. If the Department of Revenue’s Property Tax Division could do an annual training for nonprots,
it would be a signicant step forward. This could be a workshop that is part of the Iowa Nonprot Summit.
In addition, the Property Tax Division and the Iowa Nonprot Collaborative and/or Iowa Nonprot Resource
Center, could collaborate on a guidebook for Iowa nonprots on applying for and/or sustaining their property
tax exemption. It would also be extremely helpful if county assessors had a fuller explanation of charitable
property tax exemption on their websites.
Property Tax Exemption Committee
Recommendations
14.
For more information contact:
The Larned A. Waterman
Iowa Nonprot Resource Center
130 Grand Avenue Court
Iowa City, IA 52242
Telephone: 319-335-9765 or 866-500-8980 (toll free)
Web: http://inrc.continuetolearn.uiowa.edu
Email: law-nonpro[email protected]