Iowa Supreme Court Clarifies Rules for Residential Co-ops
May 22, 2015
[The following summary was written by Kyle Carlson, a law clerk in Nyemaster Goode’s summer program.]
On May 15, 2015, the Iowa Supreme Court handed down two decisions, Dolphin Residential Cooperative, Inc. v. Iowa City Board of Review and City of Iowa City v. Iowa City Board of Review, concerning multiple housing cooperatives in Iowa. The Court reaffirmed previous rulings that multiple housing cooperatives that fulfill the procedural formation requirements of the Iowa Code are to be classified as residential property for property tax purposes. In doing so, the Court preserved the preferential property tax status of residential cooperatives.
In simplest terms, the Court confirmed that the “actual use” of a property is not a factor for determining if the property fulfills the requirements to be classified as residential property. Instead of requiring that members of a residential cooperative reside at a cooperative to preserve the cooperative’s residential property tax status, the Court has employed an “organizational test” that merely requires proper formation of the residential cooperative to classify the property as residential for property tax purposes.
While generally preserving the ability of non-resident investors to own and operate an Iowa co-op, the Court did invalidate a co-op structure in which the co-op organizers who signed the coop’s articles of incorporation were attorneys for the co-op rather than actual co-op members. The Court concluded that the statutory requirement that “two or more persons…may organize themselves” to form a co-op. Because the attorneys were not organizing the co-op for themselves but as professional representatives of the co-op members, the co-op was not properly formed.
In general, the May 15 rulings preserve the property tax preferential status of residential cooperatives. If properly formed, residential cooperatives will continue to be subject to favorable residential tax treatment. It is important to note that with the passage of the property tax reform bill by the Iowa legislature in 2013, most multifamily properties are to be placed in a new “multi-residential” property tax classification starting in 2015. Properties classified as multi-residential will receive the same property tax treatment as residential coops by 2022 once the new classification is completely phased-in.