If you have a geothermal heating and cooling unit or in-floor heating system in your Iowa residential home, there's a good chance you're being
assessed for it on your property taxes! Especially if you installed a geothermal heat pump or in-floor heat system prior to 2012.
Here's the kicker: The state of Iowa promotes geothermal usage and works to reduce energy imports into the state. On the other hand, local government
will tax you more for having these efficient forms of energy in your homes. Those of us who chose an energy efficient means of heating and cooling prior to 2012, are now beginning
to see their property assessments go up. Local governments are starting to assess homeowners on your property taxes a significant amount for choosing these
environmentally sound heating and cooling systems.
A Little Background History
In 2006 my family built a new home and opted to install a geothermal heating and cooling system.
Although it was more expensive to install, we felt it would be a good choice for both the environment, and over time we'd
recoup our investment due to lower energy bills.
Now, forward to the spring of 2011, and we received an updated property tax assessment from the County Assessor's office.
Our assessment jumped from $339,000 to $364,370; an increase of over 7.48%. This was most puzzling, so one of many questions posed to my local
assessor was "how much does having geothermal (if any) add to my assessment?"
To my astonishment, the assessor communicated the following:
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I changed the computer to show a normal HVAC system and the value shown was
$13,330 lower than with the Geothermal system, so that would be the amount
of value we added in the assessment. |
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More than half my assessment increase was because of a geothermal cost. What seemed like an environmentally sound choice now included an annual
financial tax penalty from the local government.
My Case Study
Why the sudden $13,330 increase in 2011 for the geothermal portion? In short, Dubuque County conducted a county-wide
reappraisal using a mass appraisal software from Vanguard Computer systems in 2011 for all residential properties. Prior to 2011, Dubuque County used the
1998 cost manual, but in 2011 the software used the 2008 new cost manual for reevaluation of property values which included a cost algorithm for
geothermal and in-floor heating systems. This reappraisal was done in accordance with rules and guidelines adopted by the Iowa Department of Revenue.
Why is the assessment amount so much for my Geothermal? Well, this can vary per residential customer. Factors such as home
size, type, grade, depreciation and map factors impact this figure. Per Iowa Department of Revenue guidelines, for geothermal,
the new cost approach applies $4.00 per each square foot. My home is 2584 square feet which computes to $10,336 base cost (2584 x $4.00).
However, my ranch home has a 2+5 grade level (good quality) home. Unfortunately for me, the software based on various parameters rounds this figure up
to $13,330 which becomes my total geothermal property assessment amount.
What does this mean in actual added costs? Of my total assessment increase, more than half was attributed to
the geothermal unit. Using the $13,330 for the geothermal increase, and applying the local levy rates as used on my property tax bill, I computed
an annual tax burden of over $180.00. Please note that the local levy rates will change year to year and this calcuation will vary.
Do higher installation costs and a new annual property tax justify the installation of a geothermal heating and cooling system?
In our case, this annual energy tax I'll call it certainly adds more time to obtain our installation cost breakeven point and does offset a portion
of my energy savings. Fortunately, this tax doesn't offset all my energy cost savings, but it
contradicts some of the justification for putting in these energy efficient systems
which is to save money on energy costs. An added tax definitely impacts those savings and could serve as a disincentive for installing geothermal.
When considering if geothermal is right for you, homeowners would typically obtain a break-even study and an analysis on projected energy savings. They'll also
consider all the rebates, incentives, and tax credits to help get past the higher installation costs. However, ethically, property tax liability should also be disclosed
to a potential customer. With all those factors, then the consumer or homeowner can make an educated decision.
Resources
The following resources were used for more fact finding:
| 1) |
Iowa Real Property Appraisal Manual This cost manual contains figures
and information in computing assessment values. It is a state issued manual which the local assessors are required to use.
The residential section on pages 7-47 and 7-76 state
that a charge per square foot of home is to be applied to your assessment value. For geo-thermal systems, $4.00 p.s.f. and for in-floor heating systems,
$1.50 p.s.f.
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Iowa Department of Revenue (IDR) This agency is responsible for the
Iowa Real Property Appraisal Manual.
Mr. Cary Halfpop, Chief Appraiser of the Iowa Department of Revenue within the Property Tax Division in an email wrote:
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"The Iowa Dept of Revenue approves the contents.
The manual was a contracted project with Vanguard Appraisals of Cedar Rapids.
The manual is required to be used by the assessors and provided by IDR."
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Vanguard Appraisals This company was responsible for putting together the 2008
version of the cost manual described above. Mr. Bob Ehler, President of Vanguard provided background materials on the manual. In an email he wrote in part:
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The Iowa Real Property appraisal Manual has been used by Iowa assessors since 1973
(It has it’s root in another manual that dates back to the 1950’s).
It is updated approximately once every 10 years.
Under contract with the IDR I was the lead person on the 1998 and 2008 updates.
During each update we add the new construction techniques and materials used in the marketplace to the cost manual.
Geo-thermal heating was added during the 2008 update.
4 experts were consulted to gather cost information on Geothermal heating. This research was conducted in 2007.
It was concluded that an adjustment of $4.00 PSF was necessary to allow for Geo thermal heating.
Base heating systems (forced air) do not have an adjustment in the manual because the price for this item is built into the base price.
The manual is basically a cost manual to assist the assessor in calculating a replacement cost for each structure.
The user should price all the components found in each structure (for example, the base prices of a dwelling includes one full bathroom,
therefore, each additional bathroom is an adjustment). Once all the components are totaled the entire structure is given a grade adjustment.
This grade is tied to the grade multiplier which is multiplied to the total cost of all components.
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Iowa Geothermal Association (IGA) This non-profit Iowa trade association focuses on
advancing geothermal heating and cooling systems within Iowa and the Midwest. This organization is also working with legislators to make it easier for
customers like me to implement geothermal. This organization helped move the House File 635 (HF635) bill
and House File 2447 (HF2447) forward in the Iowa State Capital.
Thanks to the IGA for their hard work with the advancment of geothermal and their involvement with lawmakers to help grow the industry.
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Iowa House Representatives During my research and attempts to voice my
discontent, I was privileged to testify at a Ways and Means subcommittee meeting on the HF635 bill
at the Iowa State Capital. My testimony simply informed
the committee of new tactics being levied against geothermal home owners at local levels of government. My experiences with my geothermal assessment
provided a practical illustration as to why the legislation is needed. This web page is my continued attempt
to educate the citizens of Iowa on these property assessment taxes. The HF635 and
HF2447
bills were later passed as the
SF 2342. See an excerpt towards to bottom of this web page.
Special thanks to Iowa House Representatives Pettengill, Kajtazovic, and Taylor who were among those who worked for passage of this bill
on behalf of their Iowa constituents.
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Who could this affect?
Any residential home owner with a geothermal or in-floor heating system. Fortunately, the new SF 2342 law will ease the pain
for new installations of geo units and in-floor systems starting in 2012.
These customers won't have to worry about any tax for 10 years. However, after that period, unless more legislation can be passed,
those customers will begin to be assessed for geothermal or in-floor heating on their property taxes as I am experiencing today.
Potentially, these taxes could impact anyone involved in the geothermal field. Salesman and dealers of geothermal systems,
installers, contractors, drillers, excavators, etc could be impacted. It depends on what a potential homeowner feels about this property tax assessment.
Such a tax could be a consumer disincentive to install geothermal or in-floor heating and hence reduce the number of units sold, or jobs to install.
Like most taxes, it could be a job killer in many areas.
What's this all mean?
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Unfortunately for those Iowa residential customers who invested in these new
technologies before 2012, we are now beginning to pay extra in property taxes. Please note: I say "beginning to pay".
It's possible that not all Iowa counties have yet moved to the new Appraisal manual or
software that includes th 2008 appraisal manual calculation. My county used it as stated above for the 2011 reassessment.
The tax also depends on when you put these technologies into your home.
The painful reality is that having a geothermal or in-floor heating system is considered by the new appraisal cost manual as an increase
in the market value of your home. Once it gets in to the assessment, this ultimately impacts your wallet.
An appraiser or assessor will tell you, they aren't so concerned with the single component charges, but the overall replacement cost of the
home. Well, the devil is in the details. Bottom line: the geothermal component is being taxed on our property taxes.
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What can we do to change this assessment?
Well, you can argue with your assessor until you are blue in the face but it's a losing proposition with your local property
assessor and the Property Assessment Appeals Board (PAAB).
In my opinion it's bad public tax policy which lacks good judgement. It seems to contradict my understanding of the Iowa energy policy and strikes
directly against these new and proven energy technologies by making them less desireable for consumers.
To see geothermal grow within our state, taxation will only hurt that cause.
The only recourse is for all Iowa citizens (home owners, salesman, technicians, installers, builders, etc)
to petition our Iowa State Representatives with hopes they can pass more
laws to make geothermal systems and in-floor hot water systems EXEMPT from ANY state and local property taxes permanently.
Only continued legislation can stop this assessment!
The Iowa House switchboard number is 515-281-3221. I urge you to leave your name, phone number and message about this issue. Hopefully our leaders will continue
to work for a tax free geothermal environment. |
NO Taxation Without Representation! |
Another option is to contact the Iowa Geothermal Association.
This organization promotes the use of these technologies, and works closely with legislators
in making it better for homeowners to get on board with geothermal and other forms of efficient heating and cooling.
I should note that the Iowa Department of Revenue lists tax exempt property.
The Iowa Department of Revenue could certainly help us by adding geothermal and in-floor heat systems to this list and save all of us a lot of grief.
Some Legislation has been passed
Senate File 2342
On May 25, 2012, Iowa Governor Terry Branstad signed SF 2342 into law
which enacted a series of Iowa tax incentives for residential geothermal incentives.
Here's a current snippet of the legislation.
NEW SUBSECTION. 38. Geothermal heating and cooling system.
a. The value added by any new or refitted construction or
installation of a geothermal heating or cooling system on or
after July 1, 2012, on property classified as residential.
The exemption shall be allowed for ten consecutive years.
The exemption shall apply to any value added by the addition
of mechanical, electrical, plumbing, ductwork, or other
equipment, labor, and expenses included in or required for the
construction or installation of the geothermal system, as well as
the proportionate value of any well field associated with the system and attributable to the owner.
b. A person claiming an exemption under this subsection shall obtain the appropriate forms from the assessor.
The forms shall be prescribed by the director of revenue. The claim shall be filed no later than February 1 of the first assessment year the exemption
is requested and shall contain information pertaining to all costs and other information associated with construction and installation of the system...
You can also access the Iowa Geothermal Association website for any other legislation regarding
geothermal systems.
My Summary
I'm an advocate of geothermal heating and cooling. I enjoy the comfort of geothermal heating and of course the lower utility bills
despite the highter installation costs and long term payback period.
However, the property tax assessment increases my payback period and reduces my overall energy savings annually.
The State of Iowa advocates the use of these greener, environmentally friendly alternatives of energy. Tax credits, incentives, and rebates
are offered to consumers to choose these alternatives, only later to see another branch of government raise our property taxes for making that choice.
To reverse this property taxation will require many voices to lobby our elected leaders.
In my view, Iowa residents who have made
an investment in an efficient, environmentally friendly energy source should be allowed to experience the rewards of lower utility costs
without being punished with higher property taxes.
Please let your voice be heard and lets work at eliminating this energy tax buried in the property tax assessment process.
Perhaps then, Iowa can become a real leader in environmental energy sources including geothermal heating and cooling. Thank you.
Contact Information
Author of this webpage
Iowa Legislators - Senate
Iowa Legislators - House
Last updated: 12/27/2012
