Iowa City finalizes housing-focused revenue for proposed local option sales tax

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Iowa City is asking residents to vote on a possible local option sales tax in November, producing revenue that will address the city's housing needs while funding additional road and sidewalk repairs.
The vote is part of an area-wide push to establish a local option sales tax and provide additional budgetary flexibility in Iowa City, Coralville and North Liberty. A simple majority of voters is needed to approve the ballot measure. If approved, the Iowa City's 1% tax will take effect on July 1, 2026.
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Here's what to know:
What does Iowa City's local option sales tax ballot language say?
Iowa law requires 50% of local option sales tax revenue to be used for "property tax relief." Cities are free to use the remaining 50% in revenue as they see fit.
Iowa City's ballot language reads:
"The specific purposes for which the revenues shall otherwise be expended are:
25% to preserve existing affordable housing stock, increase shelter, transitional, and permanent housing supports, and increase access to and the supply of affordable housing for households with low incomes.
10% for maintenance and construction of public streets, sidewalks, trails, parks, and facilities as designated by City Council.
15% for community partnerships, including, but not limited to, partnerships that support intergovernmental, economic development, arts and culture, and social service priorities as designated by City Council."
Does a local option sales tax apply to every purchase?
No.
"Life necessities" including groceries, rent or mortgages, utilities, vehicle purchases, gas, motels or hotels, prescription drugs and other health products would be exempt from the 1% surcharge.
How much revenue would a sales tax create for Iowa City?
City staff estimate that Iowa City generates between $800 million and $1 billion in eligible purchases each year, which would equate to between $8-10 million in revenue.
Since state law requires the city to use half on property tax relief, the remaining 50% would equal $4-5 million. Iowa City's adopted Fiscal 2026 budget includes about $76.3 million in revenues, meaning the additional cash flow from a local option sales tax would add an estimated 5-6.5% to the city's budget.
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Based on staff estimates, the sales tax would annually create an additional $2-2.5 million for housing, $1.2-1.5 million for community partnerships and $800,000 to $1 million for public infrastructure improvements.
Iowa City City Council supports LOST with a bit of pause
The seven-member Iowa City City Council unanimously approved the LOST ballot language despite a bit of concern.
Mayor Pro Tempore Mazahir Salih and several of her colleagues acknowledged that the local option sales tax is "regressive," meaning it creates a greater burden for lower-income people.
"I think this is going to affect the most vulnerable people in the community if we add the sales tax," Salih said, though she voted in favor of the proposed ballot language. "We cannot just tax the poor to fix property."
Salih has been largely against the tax since it was first discussed in early summer.
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Councilor Megan Alter referenced University of Iowa gamedays, festivals and other events that bring in large crowds from outside of Iowa City.
"We will be able to benefit from outside dollars that will stay in our community," Alter said.
Mayor Bruce Teague also said the council should "call it like it is," acknowledging the regressive nature of the tax, but referenced the city's "increasingly tight" budget as a possible concern.
"It does have large benefits for the most vulnerable in our community," Teague said. "And let's face it, funding is being reduced all around and this is one way that we can help to keep the services that we currently have, as well as enhance opportunities for more services for those most in need."
Ryan Hansen covers local government and crime for the Press-Citizen. He can be reached at [e-mail] or on X, formerly known as Twitter, @ryanhansen01.
This article originally appeared on Iowa City Press-Citizen: What to know about Iowa City's local option sales tax propsal
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