Property Taxes

Look West to Find a Golden Property Tax Solution

By John Hendrickson, Policy Director for ITR Foundation, and
Rusty Cannon, President of the Utah Taxpayers Association

After looking at real estate in Utah, an Iowa couple was shocked at Utah’s low property taxes and declared, “Iowa should do whatever Utah is doing!” They are correct. Iowa should fix its broken property tax system with the solution that has worked in Utah for almost four decades: Truth-in-Taxation.

Utah is a state that is governed by fiscal conservatism, and it is a national leader as an example of pro-growth economic policies. Iowa has also implemented fiscally conservative policies, most recently the largest tax cut in state history. Under the leadership of Governor Kim Reynolds, Iowa is also committed to prudent budgeting and keeping control on spending. However, Iowa’s property taxes are out-of-control, while Utah has the most taxpayer-friendly property tax law in the nation. Utah’s Truth-in-Taxation law is the gold standard for property tax reform.

The Tax Foundation’s 2022 State Business Tax Climate Index ranks Utah with the seventh lowest property tax burden in the nation, while Iowa is ranked 39th in the nation. Utah’s ranking has improved, while Iowa’s has fallen. High property taxes are not just harmful to individuals and families, but they also discourage economic growth. This is especially true for small businesses and burdensome property taxes can serve as a deterrent to entrepreneurs who wish to start a business.

Property tax reform is difficult in Iowa because it is exclusively a local issue. In 2019 the Iowa legislature passed a property tax accountability and transparency law. The 2019 law is often referred to as a “truth-in-taxation” measure and even though the measure did increase transparency and accountability, it should not be compared to Utah’s law. Utah’s Truth-in-Taxation law is considered one of the most taxpayer-friendly property tax laws in the nation. The Truth-in-Taxation law is a revenue-based limitation, which means as valuations increase, property tax rates decrease.

Utah’s Truth-in-Taxation law guarantees that each taxing entity receives the same property tax revenues as the previous year including new growth. This prevents local governments from getting a windfall because valuations have increased. Truth-in-Taxation works to prevent local governments from benefitting from increased assessments. If assessments increase by 10 percent, it does not mean that local government budgets should increase by 10 percent.

If a local government wants to exceed the certified tax rate, it then requires a Truth-in-Taxation hearing that is accompanied by an extensive direct notification and public hearing process. Truth-in-Taxation also forces local government officials to take recorded votes to approve an increase in tax collections.

Through the Truth-in-Taxation process, local governments must justify why they want to increase taxes for additional spending, forcing them to be more transparent as to why they need additional tax revenue. A crucial aspect of Utah’s law is a direct notification requirement, where notices are sent to taxpayers, providing information on the proposed tax increase and how much their tax bill will increase. It also includes the date, time, and location of the Truth-in-Taxation budget hearing. This extensive public notification and hearing process has been successful, and taxpayers in Utah actively participate in Truth-in-Taxation hearings.

Kansas has followed Utah’s example and passed a strong Truth-in-Taxation law. The law is similar to Utah except that new growth is not permitted. Currently 29 counties are not increasing property tax this year.  Dave Trabert, CEO of the Kansas Policy Institute, describes the law as solving the “honesty gap” problem in property taxes. Under the Kansas law every local entity’s mill levy is reduced each year so new valuations bring in the same dollar amount of property tax. If they want more tax revenue, local officials must notify taxpayers of their intent, hold a public hearing on the proposed increase, and then vote to create a public record.

Just as with Utah, elected officials in Kansas can no longer claim to be holding the line on property tax while reaping big gains from valuation increases. This is the crucial element of Truth-in-Taxation. By requiring that local governments receive the same amount of revenue as the previous year, it holds the line on spending and if elected officials want to increase spending they must go through the Truth-in-Taxation process. The direct notification provides more clarity and transparency for the taxpayer.

Iowa taxpayers are tired of excuses and want a solution for property tax relief. Truth-in-Taxation is a proven solution that will provide property tax relief for all taxpayers.