This page is intended to be a general guide. It is not an all-inclusive discussion of Iowa law regarding the utility replacement tax.
Background
During the 1998 legislative session, the Iowa General Assembly passed and the Governor signed Senate File 2416, the Property Tax Replacement and Statewide Property Tax Act. The bill replaced the property taxes paid by electric and natural gas utilities on their property with an excise tax associated with the generation and delivery of electricity, as well as transmission lines and delivery of natural gas. Later on, this excise tax was applied to the delivery of water as well.
Utility companies are subject to a tax on the generation, delivery, and transmission of electricity, gas, and water under Iowa Code chapters 437A and 437B. These properties may also be subject to the statewide property tax under Iowa Code section 437A.18.
Under Iowa Code section 437A.6(1), a generation tax of six hundredths of a cent per kilowatt-hour (kWh) of electricity generated in a tax year is imposed on every person generating electricity.
The generation tax rate for a hydroelectric generating power plant with a generating capacity of one hundred megawatts or greater is one thousand eight hundred forty-seven ten-thousandths of a cent per kWh generated. Iowa Code § 437A.6(2).
The generation tax rate for an electric company owning a joint interest in an electric power generating plant that has a joint interest in less than five pole miles of transmission lines in Iowa is one thousand ninety-nine ten-thousandths of a cent per kWh generated. See Iowa Code § 437A.6(3).
Electricity generated by certain entities or properties is not subject to replacement generation tax. See Iowa Code § 437A.6(1). Additionally, the number of kWh generated by a generation facility excludes any kWh used to operate the generation facility. Iowa Code § 437A.6(5). If a property associated with the generation of electricity is excepted from the utility replacement tax, it is likely locally assessed.
A. Delivery/Consumption of Electricity
Under Iowa Code section 437A.4(1), a delivery tax is imposed on every person who makes a delivery of electricity to a consumer in Iowa. Under Iowa Code section 437A.4(2), the consumption of electricity that is not subject to the delivery tax is subject to a consumption tax at the same rate as a delivery to a competitive service area.
Delivery rates are set by competitive service area and are published in the Iowa Administrative Bulletin in the last quarter of each year.
Delivery rates are subject to change each year via a process known as threshold adjustments. If the total taxable kWh of electricity delivered or consumed in an electric competitive service area increased or decreased by the threshold percentage (either 8% or 10%), then the delivery rate is recalculated so that the total delivery tax for that service area is 102% or 98% of the previous year’s tax. Iowa Code § 437A.4(8). If the delivery rates are changed due to the threshold adjustment process, the updated rates are published in the Iowa Administrative Bulletin in May.
Certain deliveries are also subject to an electric transfer replacement tax under Iowa Code section 437A.4(1)(b). This tax rate is calculated by the city council and taxpayers subject to the tax file returns with the chief financial officer of each city. Iowa Code § 437A.8(2).
Additionally, some electric deliveries are not subject to utility replacement tax. See Iowa Code § 437A.4(6).
B. Delivery/Consumption of Gas
Under Iowa Code section 437A.5(1), a delivery tax is imposed on every person who makes a delivery of natural gas to a consumer in Iowa. Under Iowa Code section 437A.5(2), the consumption of natural gas that is not subject to the delivery tax is subject to a consumption tax at the same rate as a delivery to a competitive service area. Finally, under Iowa Code section 437A.5(1)(c) a natural gas delivery tax of one and eleven-hundredths of a cent per therm of natural gas is imposed on all natural gas delivered to or consumed by a new electric power generating plant.
Delivery rates are set by competitive service area and are subject to change each year via a process called threshold adjustments described above. The delivery rates are published in the Iowa Administrative Bulletin in the last quarter of each year. If the delivery rates are changed due to the threshold adjustment process, the updated rates are published in the Iowa Administrative Bulletin in May.
Under Iowa Code section 437A.7(1), a transmission tax is imposed on every person owning or leasing transmission lines in Iowa at the following rates:
Five hundred fifty dollars per pole mile of transmission line owned or leased by the taxpayer operating at an electric voltage of at least thirty four and one-half kilovolts and not exceeding one hundred kilovolts.
Three thousand dollars per pole mile of transmission line owned or leased by the taxpayer greater than one hundred kilovolts but not exceeding one hundred fifty kilovolts.
Seven hundred dollars per pole mile of transmission line owned or leased by the taxpayer greater than one hundred fifty kilovolts but not exceeding three hundred kilovolts.
Seven thousand dollars per pole mile of transmission line owned or leased by the taxpayer greater than three hundred kilovolts.
There are different rates for certain municipal utilities, as well as exemptions to the tax. See Iowa Code §§ 437A.7(2) and 437A.7(3).
In addition to the utility replacement tax, there is a statewide property tax of three cents per one thousand dollars of assessed value imposed on all utility replacement tax property (i.e. all property described in Iowa Code sections 437A.16 and 437A.16A). Iowa Code § 437A.18. The statewide property tax is paid by taxpayers to the Iowa Department of Revenue. The Iowa Department of Revenue and the Iowa Department of Management utilize statewide property tax to fund the administration of the utility replacement tax and statewide property tax. Iowa Code § 437A.23.
Utility replacement tax is paid to local governments, not the Department. Utility replacement tax dollars are generally allocated based on the value of utility property by taxing district weighted by the consolidated levy rate for each taxing district. A taxpayer with property subject to the utility replacement tax will have its tax spread across all taxing districts where it has utility property. There are multiple exceptions to this general rule. Iowa Code section 437A.15 sets forth the allocation process for most utility replacement tax. The Department relies on taxpayers to provide complete and accurate information regarding the location and value of their operating property to ensure that utility replacement tax is allocated as required by law.
Taxpayers subject to the utility replacement tax are required to file a utility replacement tax return (formerly known as Form A and/or Form B) with the Department on or before March 31 of each year indicating the taxpayer’s taxable kilowatt hours, therms, and/or transmission lines generated, delivered, consumed, and/or owned during the tax year.
Also on or before March 31 of each year, a taxpayer is required to file a statewide property tax return with the information required by Iowa Code section 437A.21(1). At the time of filing the return, the taxpayer is required to remit payment of the statewide property tax to the Department.
Additionally, utility replacement tax taxpayers are required to file a Form C with the Department on or before May 1 indicating the book value of the taxpayer’s property described in Iowa Code section 437A.19(1).
Finally, certain taxpayers may be required to file a Midyear Major Addition and/or Estimated Replacement Tax return with the Department as described in Iowa Code section 437A.19(2)(e).
Learn more about filing returns and making statewide property tax payments in GovConnectIowa for Property Tax - Utilities.
Common Questions
Iowa Code section 437A.3.
Under Iowa Code section 437A.16, all operating property and all other property that is primarily and directly used in the production, generation, or delivery of electricity or natural gas subject to replacement tax . . . is exempt from taxation except as otherwise provided by [chapter 437A].
“Operating property” is a statutorily defined term that means “all property owned by or leased to an electric company, electric cooperative, municipal utility, or natural gas company, not otherwise taxed separately, which is necessary to and without which the company could not perform the activities of an electric company, electric cooperative, municipal utility, or natural gas company.” Iowa Code § 437A.3(23). “Electric company”, “Electric cooperative”, “Municipal utility”, and “Natural gas company” are all statutorily defined terms under Iowa Code section 437A.3.
If the property is “operating property” or is primarily and directly used in the production, generation, or delivery of electricity or natural gas that is subject to replacement tax, it is exempt from local property taxation. This exemption from local assessment or unit valuation by the Department under Iowa Code section 437A.16 does not extend to taxes imposed under chapters 437, 438, and 468, taxpayers described in Iowa Code section 437A.8, subsection 6, or facilities or property described in Iowa Code section 437A.6, subsection 1, paragraphs “a” through “f”, and Iowa Code section 437A.7, subsection 3.
When a property is subject to utility replacement taxation under Iowa Code chapter 437A, whether the land underneath or near by such property is locally assessed or subject to utility replacement tax should be analyzed on a case-by-case basis. If such land is used exclusively as utility property, the Department expects that the land is likely either “operating property” or primarily and directly used in the production, generation, or delivery of electricity subject to replacement tax. In that case, the land would be exempt from local assessment.
However, if the land is utilized for some other purpose, such as for crops, livestock grazing, or greenhouses, additional analysis may be required. In this instance, the Department asks assessors and taxpayers to share as many facts as possible regarding a particular property so that we may make a determination regarding whether such property should be subject to local assessment or utility replacement tax.
The year in which the property first generates or delivers taxable kWhs or therms, or taxable transmission lines are first in service. Alternatively, if the property is “operating property” or is primarily and directly used in the production, generation, or delivery of electricity or natural gas that is subject to replacement tax, it is exempt from local property taxation.
Local assessors with utility projects in their jurisdictions should maintain contact with the Department to ensure the transition from local assessment to utility replacement tax.
Generally, the Department expects utility-scale solar projects to be subject to utility replacement tax. However, as described above, if the land underneath solar property is utilized for some other purpose, it is possible that the land could be subject to local assessment.
Some solar projects could qualify for the exceptions to the replacement generation tax under Iowa Code section 437A.6(1)(a)-(f). If any of these exceptions apply, the property will be locally assessed as required by Iowa Code section 437A.16.
Iowa Code section 441.21(8) applies to the local assessment of solar property. Iowa Code section 441.21(8)(b) mandates a five year exclusion of the value of the solar energy system property from the assessment value of the property. Iowa Code section 441.21(8)(d) applies only to buildings, and permanently excludes from the assessment value any increase in market value of the building attributed to the fact that the building contains a solar energy system. Therefore, after the five years has expired, the actual value of the solar energy system property must be included in the assessment value of the overall property. However, the market value added to a building due to the fact that the property contains a solar energy system shall not be included in the assessment value at any time.
To estimate utility replacement taxes, take the taxable units multiplied by the applicable rate and allocate the tax as described above. The Department does not know the taxable units nor the value of utility by taxing district for a particular utility property before returns are filed. Additionally, the Department is unable to share confidential return information regarding any existing utility property that could be similar.
Low capacity factor electric power generating plant” means, for any tax year, an electric power generating plant, with the exception of an electric power generating plant owned or leased by an electric company, an electric cooperative, or a municipal utility, which operated during the preceding calendar year at a net capacity factor of twenty percent or less. “Net capacity factor” means net actual generation during the preceding calendar year divided by the product of nameplate capacity times the number of hours the plant was in the active state during the preceding calendar year. Upon commissioning, a plant is in the active state until it is decommissioned. “Net actual generation” means net electrical megawatt hours produced by a plant during the preceding calendar year. Iowa Code § 437A.3(17).
Low capacity factor electric power generating plants are not subject to the replacement generation or replacement delivery taxes.