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Industrial Property Partial Tax ExemptionTHE CITY OF DUBUQUE Masterpiece no the Mississippi Dubuque All-American City 2007 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Amending City of Dubuque Code of Ordinances Section 43-21; Partial Exemption for Value Added to Industrial Real Estate by New Construction and Acquisition or Improvements to Certain Machinery or Equipment. DATE: August 27, 2008 Economic Development Director Dave Heiar is recommending an amendment to the Industrial Property Tax Exemption ordinance. The Industrial Property Tax Exemption Ordinance was adopted in 1976 to make improvements to industrial property eligible for a partial tax exemption. The structure of the exemption is a decreasing exemption for a period of five years. The following is the structure of the tax exemption; (1) For the first year, seventy-five (75) percent. (2) For the second year, sixty (60) percent. (3) For the third year, forty-five (45) percent. (4) For the fourth year, thirty (30) percent. (5) For the fifth year, fifteen (15) percent. The current ordinance is unclear as to the intent in granting the Industrial Property Tax Abatement for a specific project. Currently, if a business would like to receive the abatement, they would need to apply through the City Assessor. The ordinance is written currently that they may need to have an ordinance specifically written for the project. The amendment being proposed will make the language more clear but will not change the intent of the ordinance. As rewritten, all industrial expansion projects are eligible for the abatement, but if the developer would like an additional assurance that the project will receive the benefit, an ordinance could be written for the specific project prior to construction. concur with the recommendation and respectfully request Mayor and City Council approval. Michael C. Van Milligen MCVM/ems Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager David J. Heiar THE CITY OF DUBUQUE Masterpiece on the Mississippi Dubuque All-American City 2007 TO: Michael Van Milligen, City Manager FROM: David J. Heiar, Economic Development Director ~ . SUBJECT: Amending City of Dubuque Code of Ordinances Section 43-21; Partial Exemption for Value Added to Industrial Real Estate by New Construction and Acquisition or Improvements to Certain Machinery or Equipment. DATE: August 25, 2008 INTRODUCTION This memorandum presents for City Council an amendment to Ordinance Section 43-21 BACKGROUND The Industrial Property Tax Exemption ordinance was adopted in 1976 to make improvements to Industrial property eligible for a partial tax exemption. The structure of the exemption is a decreasing exemption for a period of five years. The following is the structure of the tax exemption; (1) For the first year, seventy-five (75) percent. (2) For the second year, sixty (60) percent. (3) For the third year, forty-five (45) percent. (4) For the fourth year, thirty (30) percent. (5) For the fifth year, fifteen (15) percent. DISCUSSION The current ordinance is unclear as to the intent in granting the Industrial Property Tax Abatement for a specific project. Currently, if a business would like to receive the abatement, they would need to apply through the City Assessor. The ordinance is written currently that they may need to have an ordinance specifically written for the project. The amendment being proposed will make the language more clear but will not change the intent of the ordinance. As rewritten, all industrial expansion projects are eligible for the abatement, but if the developer would like an additional assurance that the project will receive the benefit, an ordinance could be written for the specific project prior to construction. RECOMMENDATION/ACTION STEP recommend that the City Council approve amending the attached ordinance to clarify the Industrial Property Tax Exemption. F:\USERS\DHeiar\Spec Builiding Ordinance\20080825 Council Memo amending 43-21 Industrial Exemption.doc Prepared by: Barry A. Lindahl, Esq. 300 Main Street Suite 330 Dubuque IA 52001 563 583-4113 ORDINANCE NO. 55 -08 AMENDING CITY OF DUBUQUE CODE OF ORDINANCES SECTION 43-21 PARTIAL EXEMPTION FOR VALUE ADDED TO INDUSTRIAL REAL ESTATE BY NEW CONSTRUCTION AND ACQUISTION OR IMPROVEMENTS TO CERTAIN MACHINERY OR EQUIPMENT. Section 1. City of Dubuque Code of Ordinances § 43-21 is amended to read as follows: Sec. 43-21. Partial exemption for value added to industrial real estate by new construction and acquisition or improvements to certain machinery or equipment. (a) Scope; .applicability. Pursuant to Chapter 4276 of the Code of Iowa, a partial exemption from property taxation of the actual value added to the industrial real estate by the new construction of industrial real estate, research- service facilities, warehouses, distribution centers and the acquisition of or improvement to machinery and equipment assessed as real estate pursuant to Section 427A.1(1)(e) of the Code of Iowa, shall be conditioned as follows: (1) New construction, as referred to herein, means new buildings and structures, and includes new buildings and structures which are constructed as additions to existing buildings and structures. New construction does not include reconstruction of an existing building or structure which does not constitute complete replacement of an existing building or refitting of an existing building or structure unless the reconstruction of an existing building or structure is required due to economic obsolescence and the reconstruction is necessary to implement recognized industry standards for the manufacturing and processing of specific products and the reconstruction is required for the owner of the building or structure to continue to competitively manufacture or process those products, which determination shall receive prior approval from the city council upon the recommendation of the Iowa Development Commission. (2) The exemption shall also apply to new machinery and equipment assessed as real estate pursuant to Section 427A.1, Subsection 1, Paragraph e, of the Code of Iowa, unless the machinery or equipment is part of the normal replacement or operating process to maintain or expand the existing operational status. (3) Research-service facilities means a building or group of buildings devoted primarily to research and development activities, including, but not limited to, the design and production or manufacture of prototype products for experimental use, and corporate-research services which do not have a primary purpose of providing on-site services to the public. (4) Warehouse means a building or structure used as public warehouse for the storage of goods pursuant to Chapter 554, Article 7 of the Code of Iowa, except that it does not mean a building or structure used primarily to store raw agricultural products or from which goods are sold at retail. (5) Distribution center means a building or structure used primarily for the storage of goods which are intended for subsequent shipment to retail outlets. Distribution center does not mean a building or structure used primarily to store raw agricultural products, used primarily by a manufacturer to store goods to be used in the manufacturing process, used primarily for the storage of petroleum products, or used for the retail sale of goods. (6) A property tax exemption under this section shall not be granted if the property for which the exemption is claimed has received any other property tax exemption authorized by law. (b) Application, information to be provided, prior approval of new construction proposals. An application shall be filed for each project resulting in actual value added for which an exemption is claimed. The application for exemption shall be filed by the owner of the property with the local assessor by February first of the assessment year in which the value added is first assessed for taxation. Applications for exemption shall be made on forms prescribed by the director of revenue of the State of Iowa and shall contain information pertaining to the nature of the improvement, its cost and other information deemed necessary by the said director. A person may submit a proposal to the city council to receive prior approval for eligibility for a tax exemption on new construction. The city council, by ordinance, may give its prior approval of a tax exemption for new construction if the new construction is in conformance with the zoning plans for the city. The prior approval ordinance shall not be enacted until not less than thirty (30) days after a public hearing held in accordance with Section 362.3 of the Code of Iowa. Prior approval does not entitle the owner to exemption from taxation until the new construction has been completed and found to be qualified real estate. However, if the tax exemption for new construction is not approved, the person may submit an amended proposal to the city council to approve or reject. (c) Amount of exemption. The actual value added to industrial real estate for the reasons specified in this section is eligible to receive a partial exemption from taxation for a period of five (5) years. However, if property ceases to be classified as industrial real estate or ceases to be used as aresearch-service facility or a warehouse or distribution center, the partial exemption for the value added shall not be allowed for subsequent assessment years. "Actual value added," as used in this section, means the actual value added as of the first of the year for which the exemption is received, except that "actual value added by improvements to machinery and equipment" means the actual value as determined by the assessor as of January first of each year for which the exemption is received. The amount of actual value added which is eligible to be exempt from taxation shall be as follows: (1) For the first year, seventy-five (75) percent. (2) For the second year, sixty (60) percent. (3) For the third year, forty-five (45) percent. (4) For the fourth year, thirty (30) percent. (5) For the fifth year, fifteen (15) percent. However, the granting of the exemption under this section for new construction constituting complete replacement of an existing building or structure shall not result in the assessed value of the industrial real estate being reduced below the assessed value of the industrial real estate before the start of the new construction added. (d) Duration, repeal of exemption. The partial exemption shall be available until such time as this section is repealed by the city council. When, in the opinion of the city council, continuation of the exemption granted in this section ceases to be of benefit to the city, the city council may repeal this section, but all existing exemptions shall continue until their expiration. Section 2. This Ordinance shall take effect on publication. Passed, approved and adopted the 2nd day of September, 2008 Roy D. Buol, Mayor Attest: Jeanne F. Schneider, CMC City Clerk EFFECT OF AMENDMENT Sec. 43-21. Partial exemption for value added to industrial real estate by new construction and acquisition or improvements to certain machinery or equipment. (a) Scope; applicability. Pursuant to Chapter 4276 of the Code of Iowa, a partial exemption from property taxation of the actual value added to the industrial real estate by the new construction of industrial real estate, research-service facilities, warehouses, distribution centers and the acquisition of or improvement to machinery and equipment assessed as real estate pursuant to Section 427A.1( , of the Code of Iowa, shall be conditioned as follows: (1) New construction, as referred to herein, means new buildings and structures, and includes new buildings and structures which are constructed as additions to existing buildings and structures. New construction does not include reconstruction of an existing building or structure which does not constitute complete replacement of an existing building or refitting of an existing building or structure unless the reconstruction of an existing building or structure is required due to economic obsolescence and the reconstruction is necessary to implement recognized industry standards for the manufacturing and processing of specific products and the reconstruction is required for the owner of the building or structure to continue to competitively manufacture or process those products, which determination shall receive prior approval from the city council upon the recommendation of the Iowa Development Commission. (2) The exemption shall also apply to new machinery and equipment assessed as real estate pursuant to Section 427A.1, Subsection 1, Paragraph e, of the Code of Iowa, unless the machinery or equipment is part of the normal replacement or operating process to maintain or expand the existing operational status. (3) Research-service facilities means a building or group of buildings devoted primarily to research and development activities, including, but not limited to, the design and production or manufacture of prototype products for experimental use, and corporate-research services which do not have a primary purpose of providing on-site services to the public. (4) Warehouse means a building or structure used as public warehouse for the storage of goods pursuant to Chapter 554, Article 7 of the Code of Iowa, except that it does not mean a building or structure used primarily to store raw agricultural products or from which goods are sold at retail. (5) Distribution center means a building or structure used primarily for the storage of goods which are intended for subsequent shipment to retail outlets. Distribution center does not mean a building or structure used primarily to store raw agricultural products, used primarily by a manufacturer to store goods to be used in the manufacturing process, used primarily for the storage of petroleum products, or used for the retail sale of goods. (6) A property tax exemption under this section shall not be granted if the property for which the exemption is claimed has received any other property tax exemption authorized by law. (b) Application, information to be provided, prior approval of new construction proposals. An application shall be filed for each project resulting in actual value added for which an exemption is claimed. The application for exemption shall be filed by the owner of the property with the local assessor by February first of the assessment year in which the value added is first assessed for taxation. Applications for exemption shall be made on forms prescribed by the director of revenue of the State of Iowa and shall contain information pertaining to the nature of the improvement, its cost and other information deemed necessary by the said director. A person may submit a proposal to the city council to receive prior approval for eligibility for a tax exemption on new construction. The city council, by ordinance, may give its prior approval of a tax exemption for new construction if the new construction is in conformance with the zoning plans for the city. The prior approval ordinance shall not be enacted until not less than thirty (30) days after a public hearing held in accordance with Section 362.3 of the Code of lowas#a~ . Prior approval does not entitle the owner to exemption from taxation until the new construction has been completed and found to be qualified real estate. However, if the tax exemption for new construction is not approved, the person may submit an amended proposal to the city council to approve or reject. (c) Amount of exemption. The actual value added to industrial real estate for the reasons specified in this section is eligible to receive a partial exemption from taxation for a period of five (5) years. However, if property ceases to be classified as industrial real estate or ceases to be used as aresearch-service facility or a warehouse or distribution center, the partial exemption for the value added shall not be allowed for subsequent assessment years. "Actual value added," as used in this section, means the actual value added as of the first of the year for which the exemption is received, except that "actual value added by improvements to machinery and equipment" means the actual value as determined by the assessor as of January first of each year for which the exemption is received. The amount of actual value added which is eligible to be exempt from taxation shall be as follows: (1) For the first year, seventy-five (75) percent. (2) For the second year, sixty (60) percent. (3) For the third year, forty-five (45) percent. (4) For the fourth year, thirty (30) percent. (5) For the fifth year, fifteen (15) percent. However, the granting of the exemption under this section for new construction constituting complete replacement of an existing building or structure shall not result in the assessed value of the industrial real estate being reduced below the assessed value of the industrial real estate before the start of the new construction added. (d) Duration, repeal of exemption. The partial exemption shall be available until such time as this section is repealed by the city council. When, in the opinion of the city council, continuation of the exemption granted in this section ceases to be of benefit to the city, the city council may repeal this section, but all existing exemptions shall continue until their expiration.