Understanding Iowa Property Tax Assessments and the Appeal Process

CALT has recently received several inquiries on the Iowa property tax assessment process, including the process for appealing property classifications. This article provides an overview of how property is classified, provides an overview of several recent administrative cases, and gives information on how landowners can appeal if they believe their land has been misclassified.

Overview: Iowa Property Taxes

County governments collect property taxes from Iowans. These taxes fund various authorities such as cities, counties, and school districts. To determine the amount of property taxes, a county assessor must establish the classification of each property. Each county has its own county assessor’s office. Iowa Code § 441.1. Additionally, there are several rollbacks which reduce the taxable value of homes. There are also tax credits the Legislature has created for different classifications of property. Real estate is assessed every two years; this assessment occurs during odd years. Iowa Code § 428.4

The Iowa Department of Revenue (IDR) creates rules for the classification and valuation of real estate. Iowa Admin. Code r. 701-71.1. Iowa has several different classifications of property. Iowa Admin. Code r. 701-71.1. One of the main duties of the county assessor is to assess the property according to its present use. Iowa Admin. Code r. 701-71.1. Real estate may only have one classification. The classifications include agricultural real estate, residential real estate, multiresidential real estate, industrial real estate, and commercial real estate. Iowa Admin. Code r. 701-71.1.

Property Assessment Appeal Board and the Appeal Process

The Iowa Legislature created an agency called the Property Assessment Appeal Board (PAAB) in 2005. It was created to establish “a consistent, fair, and equitable property assessment appeal process.” Iowa Code § 421.1A. If a taxpayer wishes to contest some part of their tax assessment, they must first appeal to the county board of review. This appeal must be filed between April 2 and April 30. Tax assessments can be appealed on the grounds that the assessment is not equitable as compared to assessments of other like property in the district, that the property is assessed for more than market value, that the property is misclassified, or that there was error, fraud, or misconduct in the assessment. Iowa Code § 441.37(1)(a).

After the county board of review issues a decision, the taxpayer may appeal to PAAB if he or she is not satisfied. Appeals must be filed within 20 days after the date of adjournment of the local board of review or 20 days after May 31 (June 20), whichever is later. Iowa Code § 441.37A(1)(b). If the 20th day falls on a weekend or a holiday, the appeal is timely if filed on the next available business day.

For more information on the appeal process, click here.

Agricultural Real Estate

Agricultural real estate is defined as land and buildings which are used in good faith primarily for agricultural purposes. Agriculture purpose includes growing crops and fruit trees, and raising livestock for profit. Iowa Admin. Code r. 701-71.1(3). However, agricultural land does not include residential buildings primarily intended or used for human habitation. Id. Iowa law forbids an assessor from classifying the land according to its highest and best use. It must be classified according to its present use. Iowa Admin. Code r. 701-71.1(1).

Misclassification Appeals: Agricultural Classification Requires a Profit Motive

PAAB has heard several appeals regarding misclassification of agricultural real estate. Recently PAAB issued a ruling concerning a taxpayer’s property in Dallas County. In Shaw, a taxpayer owned a little over 25 acres. Shaw v. Dallas County Bd. of Review, PAAB Docket No. 2018-025-00091R 2019 (May 30, 2019). The taxpayer had a house, a baseball field, a machine shed, and two livestock sheds on the property. The property comprised more than 10 acres of creek and timber with fenced pastures. Over half of the land was used as hay ground.

The taxpayer also owned two draft horses. One was almost 20 years old and the other was less than five years old. The taxpayer testified that he would like to use the younger horse for breeding one day. He also testified that he would like to purchase livestock as 4-H projects for his children at some point. The county assessor found the primary use of the property was to provide a home for the taxpayer and his family, not for agricultural use intended for profit. Dallas County Board of Review affirmed this decision and the taxpayer appealed to PAAB.

When PAAB heard the case, it agreed there was some agricultural activity occurring on the property. However, it found there was no good faith effort to pursue agricultural activity with intent to profit. Currently, the horses provide no monetary benefit to the taxpayer. Neither does the hay ground because it is used to feed the taxpayer’s own horses rather than to sell for a profit. Because the taxpayer could not present any evidence that demonstrated the current use of the property was for profit, it was correctly classified as residential. In this case, future intent to profit was insufficient to demonstrate a profit motive.

Misclassification Appeals: Agricultural Equipment Storage Can Be an Agricultural Purpose

This year, PAAB heard two other cases which concerned the misclassification of agricultural land. Both cases involved farmers who lived in Humboldt County. In Jensen v. Humboldt County Bd. of Review, a farmer owned a little over one-acre tract of land which he used in conjunction with his grain operation. PAAB Docket No. 2017-046-00204C (May 9, 2019). This small parcel had a building which was used to store his farm equipment, but the classification was changed from agricultural to commercial during the 2015 assessment. The taxpayer testified that storing his equipment indoors allowed him to better protect his equipment from the elements. He also stated that because the building was closer to implement dealers he was able to keep his equipment in better condition and avoid costly delays. The taxpayer testified that the building saved him between $15,250 to $18,750 each year. The farmer also operated a commercial drainage and excavation business.

Photographs showed the building contained a skid loader, 7310 Case tractor, a combine, a 16-row seed planter, and excess lumbar which were used for various farm projects. The taxpayer admitted that he did allow his siblings to store their boats in the shed, as well as his father’s antique tractor. However, he estimated that 75 percent of the items stored in the building were directly used in his farm operation.

The County Assessor testified that because the surrounding area changed, she felt the classification needed to be changed to commercial. She believed the land was not used for agricultural purposes, but did not provide any examples of why she believed the land classification should be changed from agricultural to commercial. The assessor also testified that in a conversation with the Administrator of the Property Tax Division of the Department of Revenue, the Administrator told her it did not matter what was stored in the building but it was commercial. The Administrator likely believed this because of the property’s small size and its proximity to town.

The Humboldt County Board of Review claimed the land was not in good faith used for agricultural purposes because it did not meet the factors set forth in Colvin v. Story County Board of Review, 653 N.W.2d 345 (Iowa 2002). However, PAAB rejected the use of the factors because no court has adopted those factors as more than guidelines. Additionally, one specific factor would violate the Iowa Administrative Code regarding considering the property’s highest and best use. However, PAAB agreed a landowner’s intent should be considered when determining whether a landowner is using the property in good faith for agricultural purposes. In Farwell v. Des Moines Brick Mfg. Co., a man bought land with the intent to develop it for urban purposes. 66 N.W. 176, 177 (Iowa 1896). The Iowa Supreme Court found that while he used the land for agricultural purposes, this was only temporary until he could sell it in small tracts. Because this was not used for agricultural purposes in good faith, the land could not be classified as agricultural.

The farmer here was a fourth generation farmer who farmed several hundred acres. PAAB found that “a building primarily used for storage and repair of agricultural machinery and equipment, as part of a farming operation, qualifies as an agricultural use.” Jensen, p. 11. Therefore, the land should be classified as agricultural.

Myers v. Humboldt County Board of Review involved similar facts including a small parcel of land used in conjunction with a farm operation. In 2017, the Humboldt county assessor changed the taxpayer’s land classification from agricultural to commercial. Myers v. Humboldt County Bd. of Review, PAAB Docket No. 2017-046-00199C (May 9, 2019). In this case, the farmer owned a .94 acre plot with a metal building to store farm equipment. He also owned approximately 560 acres in the country which he used for his row crop operation. Because of the location of the building, this farmer was able to perform mechanic work himself and save a substantial amount of money each year.

Similar to the farmer in the Jensen case, Myers had off-farm income. At one point, the taxpayer used the metal building to build custom toys for his special needs child. However, this was not a profit motivated endeavor. He also stored a service vehicle in the building which was primarily used for his farm operation, but he would occasionally use it to transport his special needs child.  

With a nearly identical analysis and conclusion as that in the Jensen case, PAAB found that while the land was used for some non-agricultural activity, its primary purpose was agricultural. Additionally, there was no evidence farming was a temporary endeavor for the taxpayer. Therefore, PAAB ruled the land should be classified as agricultural.

Conclusion

Property tax assessments appeals have a specific process which must be followed. Landowners who believe their land should be classified agricultural must follow this process. There are several factors which can assist an assessor in determining whether a landowner has the intent to use the property for agricultural purposes. However, if the land is used in good faith primarily for agricultural purposes with intent to profit, it must be classified as agricultural.