Relating to the disabled veteran homestead tax credit and including effective date and retroactive applicability provisions

Description

House File 2287 expands eligibility criteria for the Disabled Veteran Tax Credit. The eligibility expansion is phased in over a period of three assessment years. The change allows for a property tax credit that is equal to the disability rating of the qualified applicant. The phases are as follows:

• Assessment year (AY) 2022 (FY 2024) — Individuals with disability ratings of 70.0% or higher will qualify.
• AY 2023 (FY 2025) — Individuals with a disability rating of 40.0% or higher will qualify.
• AY 2024 (FY 2026) and after — Individuals with a disability rating of 10.0% or higher will qualify.

In all instances, the tax credit will equal the individual’s disability rating multiplied by the tax due on the homestead. Qualified individuals may choose to benefit from the existing Homestead Credit and Military Service Tax Exemption if the property tax reduction under those programs offers a higher property tax reduction than the Disabled Veteran Tax Credit. The changes are effective upon enactment and apply to assessment year 2022 and after.

Background

The Disabled Veteran Tax Credit is funded through the standing unlimited appropriation for the Homestead Tax Credit. Under current law, a qualified disabled veteran is allowed a property tax credit equal to 100.0% of the property tax due on a homestead. To qualify under existing law, the veteran must be one of the following:

• A veteran of any of the military forces of the U.S. who acquired the homestead under specified federal veteran assistance programs.
• A veteran (or former member of the National Guard of any state who meets specified service requirements) who has a permanent service-connected disability rating of 100.0%.
• A veteran (or former member of the National Guard of any state who meets specified service requirements) who has a permanent and total disability rating based on individual unemployability that is compensated at the 100.0% disability rate.
• A surviving spouse or dependent child who is receiving federal dependence and indemnity compensation.

Assumptions

• The number of qualified veterans at each disability rating was provided by the U.S. Veterans Administration (VA). The numbers were adjusted by the Department of Revenue (Department) to account for veterans who are assumed to already qualify under existing law.
• Combining Department records of current claimants and VA records of Iowa veterans at each disability rating, the Department estimates that 68.6% of qualified veterans own homesteads. That percentage is assumed to be the same for all disability ratings. Based on the count of qualified veterans and the assumed homeownership rate, the number of veterans at each disability rating category who will benefit from the expanded credit is listed in Table 1. The numbers are assumed to remain constant for the near future. Table 1
• Based on Department records of current Disabled Veteran Tax Credit claims, the average disabled veteran home value was $154,417 in AY 2019. The average home value for veterans made eligible under this Bill is assumed to be the same.
• The average home value is assumed to increase 2.0% each fiscal year.
• The residential rollback equals 54.1302% for AY 2021 and is assumed to remain at that level for all future years.
• The statewide average residential property tax rate is $34.08 per $1,000 of taxed value for AY 2020 (FY 2022), and this rate is assumed to remain constant for future years.
• A veteran homestead owner who qualifies for the Disabled Veteran Tax Credit cannot also qualify for the Homestead Tax Credit or the Military Service Tax Exemption.
• The Homestead Tax Credit applies to the property tax due on $4,850 of taxed value. At an average residential property tax rate of $34.08 per $1,000, the average tax credit is $165. The credit is funded through a standing unlimited General Fund appropriation.
• For most qualified veterans, the Military Service Tax Exemption exempts $1,852 of taxed value from property tax. The State General Fund partially reimburses local governments for the exemption. The Military Service Tax Credit covers $6.92 of the property tax rate, while the school aid appropriation covers $5.40. At the statewide average property tax rate of $34.08, $21.76 per $1,000 of the exemption results in reduced local government revenue.
• The estimated cost of extending the Disabled Veteran Tax Credit to veterans with disability ratings below 100.0% is adjusted for the reduction in the Homestead Tax Credit and Military Service Tax Exemption.

Fiscal Impact

The expansion of the Disabled Veteran Tax Credit is projected to result in State General Fund appropriation net increases as shown in Table 2. For years beyond FY 2026, the estimate increases by 2.0% each year.Disability Veteran Disability Veteran

Rating Homeowners Rating Homeowners

90.0% 1,220 40.0% 2,440 80.0% 1,590 30.0% 2,370 70.0% 1,780 20.0% 2,770 60.0% 2,500 10.0% 7,210 50.0% 1,840 Total 23,720

Expanded Disabled Veteran Tax Credit

Assumed Number of Qualifed Vetean Homestead Owners Table 2 In addition to the increase in State General Fund appropriations, the reduction in the use of the Military Service Tax Exemption is projected to increase local government property tax revenue statewide by the amounts listed in the final line of Table 2.

Sources

• Department of Revenue Disabled Veteran Tax Credit records
• U.S. Veterans Administration disability rating counts (January 2022)
• Residential rollback percentage for AY 2021 (FY 2023)
• Department of Management property tax rate and value files