Sunday, April 23, 2006

Fiscal Advice for Iowa

I don’t often offer unsolicited advice to a state, but after spending the past week in Iowa there was one piece of information that I learned that shocked me about Iowa and I’m going to suggest that they look at how they tax business in the state. In particular their property tax on business is completely backward when compared to the services received.

As I travel around the USA touring towns (current count is over 200 towns in 40 states), I do a quick calc of the property tax on a new $5 million building. The calc has consistently been in the $190,000 to $220,000 range in Iowa compared to an average of around $140,000 for the rest of the nation, with some towns being as low as $60,000. Last week, in my tour of four Iowa towns I learned why Iowa is consistently in the upper 10% on this property tax calculation.

In Iowa the state legislature has decreed that farmland should only be assessed at 30% of its fair market value, while homeowners are assessed at 40% and business at 100%. This flies in the face of the research we found that shows that for every $1 of property tax paid, business only gets back 27 cents in services compared to $1.17 in services for residents. Iowa has their calc backwards and it is going to take a strong willed legislature to correct their error.

They also might want to look at having the 2nd highest state income tax percentage at 9% of income.

In today’s environment, where companies and knowledge workers can vote with their feet, we are going to have to not only provide quality of life attributes but also fiscal reasons why they will land in our towns or state.

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