Bradley & Riley PC

By Shannon Thompson

August 2010 -- Apartment owners across the state have "converted" their properties to residential cooperatives to qualify the properties as residential for property tax classification purposes. The move enables the properties to qualify for the residential rollback and can save the owners significant sums in property taxes. The process involves formation of a residential cooperative and transfer of title to the cooperative. The former owners typically own the membership interests in the cooperative, so the property does not really change hands. The cooperative leases individual apartment units to the owners, who in turn sublease the units to the existing tenants.

Cities and counties are beginning to fight back. Scheduled for oral argument in front of the Iowa Supreme Court on Wednesday, September 1, 2010, is the case Krupp Place 1 Co-op, Inc. and Krupp Place 2 Co-op, Inc. v. Jasper County Board of Review. At issue is whether the apartment properties owned by the residential cooperatives should be classified as residential for tax purposes or should be classified as commercial because they are being operated "as a commercial enterprise." The district and appeals courts found that the properties should be classified as residential because the cooperatives were formed and are operating in accordance with Chapter 499A of the Iowa Code. Jasper County argued that the arrangements satisfied the "letter of the law" but not "the spirit of the law". The Iowa Supreme Court may rule on this case as early as this fall. We will continue to monitor this case and will provide additional newsletter updates as appropriate.

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