Local Option Sales Tax (LOST) Frequently Asked Questions

A Local Option Sales Tax (LOST) is a 1% sales tax applied to eligible purchases made in Iowa City. This means the sales tax increases from 6% to 7% with that additional 1% allocated to local priorities. LOST was approved by a simple majority of Iowa City voters on November 4, 2025, and goes into effect July 1, 2026.

Who pays for LOST?

Anyone who shops in a community that has adopted LOST pays the tax, including visitors and people making online purchases delivered there.

In Johnson County, this includes the millions of visitors who spent more than $450 million locally in 2023, which would help fund local services if a LOST is adopted. Iowa City residents already paid the additional 1% when shopping in the other Iowa communities that adopted LOST, including Des Moines, Cedar Rapids, Davenport, Sioux City, Waterloo, Council Bluffs, Dubuque, and Ames.

What purchases are and are not impacted by LOST?

 LOST applies to most taxable goods and services. However, many basic necessities are not subject to sales tax in Iowa. For example, the following categories are generally not taxed under LOST:

• Groceries
• Rent, mortgage payments, and utilities
• Vehicles and gasoline
• Prescription drugs and many health products
• Purchases made during the annual Sales Tax Holiday
• A complete list is available at the Iowa Department of Revenue's Sales & Use Tax Guide.

By exempting food and other necessities from sales taxes, the impact on vulnerable households can be minimized.

How are local retailers affected?

Local retailers will begin collecting the additional 1% sales tax on July 1, 2026. The City is currently working with local partners to help inform retailers about the new rate and will provide resources on this website when they are ready. 

What did the ballot say in Iowa City?

 On November 4, Iowa City residents approved the following ballot language:

“SHALL THE FOLLOWING PUBLIC MEASURE BE ADOPTED?” Yes or No  

Summary: To authorize imposition of a local option sales and services tax in the City of Iowa City, Iowa, at the rate of one percent (1%) to be effective on July 1, 2026.

 A local option sales and services tax shall be imposed in the City of Iowa City, Iowa, at the rate of one percent (1%) to be effective on July 1, 2026.

 Revenues from the sales and services tax shall be allocated as follows:

 50% for property tax relief;

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.”

All LOST funds must be used consistent with this language. The tax takes effect July 1, 2026, without a sunset."

How much money would LOST generate?

 If Iowa City, LOST is expected to generate up to $14 million annually for property tax relief and local projects.

Sales tax revenues for all communities in Johnson County that approve LOST are pooled and distributed according to a formula based on population and property tax dollars. If a community does not adopt LOST, that community would not share in the revenue collected from other communities that adopt LOST.

How would LOST affect property taxes?

 By law, 50% of LOST revenues must be used for property tax relief. This could mean lowering property tax rates or preventing rate increases that would otherwise be needed to fund critical infrastructure and public services. Each year, City Council will decide how property tax relief is applied through the public budget process. Learn more at www.icgov.org/budget.

How will LOST be used in Iowa City?

In addition to the 50% required for property tax relief, the remainder would be distributed according to community priorities in the ballot language:

• 25% - Affordable Housing: LOST would create a dedicated funding source that would support affordable housing. Funding may be used for preserving existing affordable housing, increasing temporary and permanent housing supports, and improving access to and increasing the supply of affordable housing for households with low incomes.
• 10% - Public Infrastructure & Facilities: LOST would help increase funding for essential public improvement projects for infrastructure and public facilities. Funding may be used for maintaining and constructing public streets, sidewalks, trails, parks, and public facilities.
• 15% - Community Partnerships: LOST would sustain and expand the City’s many collaborations with local organizations. Funding may be used to support social service, arts and culture, economic, and intergovernmental partnerships.

For Iowa City, the Council adopted these priorities based on community feedback and its Strategic Plan values.

City Council will decide each year how funds are applied within these categories. If voters believe that funds are not being used as promised, they can petition for another ballot measure to ensure accountability.

Has Iowa City used LOST before?

Yes. After the 2008 flood, a 1% LOST was in place in Iowa City from 2010-2013, raising about $35 million. These funds were used for major flood protection projects like the Dubuque Street Gateway reconstruction project, the South Wastewater Treatment Facility expansion, and Riverfront Crossings Park.

Who should I contact with specific questions?

Questions about how LOST may affect Iowa City can be directed to: Kirk Lehmann, Assistant City Manager, City of Iowa City. klehmann@iowa-city.org; 319-356-5014.