Relating to forest and fruit-tree reservations by establishing a program fee and including contingent effective date provisions

Description

Senate File 633 establishes a fee structure for forest and fruit-tree reservations beginning January 1, 2026. Each acre of qualifying reservation land will be subject to a fee, payable annually to the county treasurer where the property is located and is deposited into the county general fund. The Bill as amended categorizes the fees as follows:

• $2 per acre for reservations located in the county where the owner maintains a homestead.
• $3 per acre for reservations located in a county contiguous to the homestead county.
• For all other reservations, including those within city limits, a per-acre fee calculated using a formula based on the average agricultural property tax rate and corn suitability rating in the county with the most exempt acres.

Beginning on January 1, 2027, all fees will be subject to an increase based on the percentage of the Annual Inflation Factor established in this Bill.

The Department of Management is tasked with determining and communicating the calculated rate by July 1 of each year. This Bill takes effect for assessment years beginning on or after January 1, 2026, and all fees would be due annually on September 1 to the county treasurer where the reservation is located. Fees collected in 2026 and 2027 are to be used for any county general fund purpose. Amounts collected after September 1, 2028, shall be used for property tax relief for fiscal years beginning on or after July 1, 2029. This Bill’s effective date is contingent on the passage of 2025 Iowa Acts, Senate File 651 (Property Tax Rates, Credits, and Exemptions Bill).

Background

Current Iowa Code chapter 427C defines forest and fruit-tree reservations, and Iowa Code section 441.22 establishes the property tax exemption. Under current law, forest reservations are fully exempt from property tax and fruit-tree reservations are exempt for eight years after planting.

A property tax preference for forest and fruit-tree property was first enacted in 1906 Iowa Acts, chapter 52 (Encourage the Planting of Forest and Fruit Trees Act). Qualified property was not fully exempt under the 1906 legislation but instead limited to a taxable valuation of $1 per acre. The qualifications for an area to be considered a forest or fruit-tree reservation are substantially the same today as originally enacted in 1906.

Since 1906, several changes to the preferential taxation of forest and fruit-tree reservations have been enacted:

• 1933 Iowa Acts, chapter 121 (Assessed and Taxable Value the Same Act) — Assessed value of forest and fruit-tree reservations was raised to $4 per acre.
• 1974 Iowa Acts, chapter 1231 (Valuation of Property Act) — Assessed value of forest and fruit-tree reservations was raised to $14.82 per acre.
• 1982 Iowa Acts, chapter 1247 (Natural Resources Exemption and Assessment Act) — Rural forest reserve property was made fully exempt from property tax, while urban forest reserve property was to be assessed at market value. Fruit-tree reservations were assessed at $20 per acre.
• 1984 Iowa Acts, chapter 1222 (Fruit-Tree and Forest Reservations Act) — Forest and fruit-tree reservation property was made fully exempt from property tax. The fruit-tree eight-year limit after planting remains.

The current annual value of the tax exemption to landowners is estimated to average $15.39 per acre statewide, although there is a significant variation in this amount among benefiting properties.

For forest and fruit-tree reservations not located in the same or contiguous counties, or those located inside the corporate limits of a city, the annual fee per acre is based on a formula that adjusts the average property tax per acre of farmland in the county with the most land in this exemption program by a factor that reflects how productive the farmland is in that county using the corn suitability rating. This formula multiplies the average property tax per acre by 13 divided by the county’s average corn suitability rating.

Assumptions

• A total of 841,200 acres with a combined assessed value of $843.8 million will be affected by the forest and fruit-tree property tax exemption for assessment year (AY) 2024 (FY 2026).
• The number of impacted parcels will remain constant.
• The number of acres in the program will increase at the current average annual rate of 1.2%, while exempt value will increase at the current average annual rate of 11.6%.

Fiscal Impact

The fiscal impact of SF 633 is unknown. It is not possible to estimate the total number of acres that will be assigned to each of the three fee classes. If all forest and fruit-tree reservations were assigned to the minimum $2 per acre fee, an additional $1.7 million would be generated for local governments.

The Department of Management may incur minimal administrative costs to compute and distribute the annual calculated rate.

Sources

• Department of Management
• Department of Natural Resources
• Department of Revenue
• Legislative Services Agency analysis