*1 CORPORATION, QWEST Appellee, TAX BOARD OF
IOWA STATE
REVIEW, Appellant.
No. 11-1543. of Iowa.
Supreme Court
April Miller, General, Attorney
Thomas J. Jr., Special Stanley, Donald D. Assistant Miller, General, D. Attorney and James General, appellant. Attorney Assistant Goode, Nyemaster Bruce W. Baker of P.C., Moines, Richard Des G. Smith LLP, & Hawley Hawley Ennis Troxell Denver, Idaho, Adkins, Boise, A. Roy Colorado, appellee.
MANSFIELD, Justice. proceeding review This administrative imposing whether requires us decide *2 Corporation. of S provid- tax on the Iowa-based U West thereafter carriers, exchange telephone incumbent local but not ed local landline service in four- states, competitive long including on that of distance and teen Iowa and the rest of providers, wireless service violates article former Northwestern territory. Bell I, section 6 of Iowa Constitution. We Although the divestiture was the death conclude it does not. The differential tax knell for a single telephone company’s pre- enterprises rationally treatment of these country, dominance in this did leave in in legitimate related to state interests en- place system where local phone service new couraging development compet- was generally provided by monopoly carri- infrastructure, itive telecommunications ers that existing had the infrastructure to raising providers while revenue from those offices, switches, do so (e.g., central and historically regulated monopoly had a lines). phone customer To address this enjoy advantages and continue to some situation, Congress and the states enacted monopoly. Accordingly, reverse legislation in the mid-1990s. Telecom- of the court judgment district (Telecom Act) munications Act re- uphold the Iowa State Board of Tax Re- quired exchange incumbent local carriers Qwest Corporation. view’s assessment on (ILECs) like U S West provide inter- connection to their networks to offer Background
I. Facts and Proceed- elements, their network such as the hard- ings. homes, phone wired lines that entered an “unbundled” basis largely The facts in this case are undis- to other carriers (CLECs) puted. sought to enter the generation ago, A the American market- (AT&T) place and Telephone Telegraph Company compete & them. See Tele- position nationally had a communications Act of Pub.L. dominant both 104- (codified local 110 Stat. long-distance telephone service. scattered U.S.C.) Iowa, In sections of 47 it did business under the name Northwestern Bell. Most Iowans obtained Complementing Telecom Act was long-distance their local and phone service passed House which File had been through company Northwestern Bell. The general assembly year our before. See owned and maintained ran lines that from (current 1995 Iowa ch. Acts version at Iowa residences and businesses into cen- (2013)). §§ Iowa Code 476.95-.101 Like offices, switching tral equipment where Act, required Telecom House File 518 phone was used to route toward their calls provide ILEC to “interconnection” ultimate Iowans destination. Those who and to make available the “unbundled es- phone did not get service from sential facilities its network.” See id. Bell primarily Northwestern relied on an- (current § 12 version at Iowa Code monopoly, other local such GTE. as 476.101(4)(a)(l)). § The section entitled “Findings expressly of policy,” case, of a lengthy As the result antitrust —statement act, purposes sets forth certain a consent decree entered follows: industry ended AT&T’s national 1. Communications services should effect in dominance. The decree took throughout just, be available the state at its local required AT&T to divest tele- reasonable, rates from and affordable phone businesses. This led to forma- variety providers. independent regional tion of Bell seven operating rendering one which was decisions with re- companies, U West, Inc., predecessor spect S of telecommunica- regulation con- were reasonable. company’s the board shall costs companies,
tions 518, however, File gave id. House its on See effects of decisions sider the phone companies option exiting local mar- competition telecommunications *3 regulation by submitting from this form of and, to extent reasonable kets that, plan” if “price regulation approved, a lawful, develop- to further the shall act price set for “basic com- forth competition in those markets. ment of to subject permitted munications services” encourage competition In order to 3. Acts ch. adjustments. See Iowa services, the for all telecommunications (current § version at Iowa Code relating to address issues board should 476.97). opted § U West for S toward cost and prices the movement of and, voluntary price regulation plan a existing in the removal subsidies no consequently, longer subject to the incumbent local price structure of regulation. rate-base/rate-of-return exchange carrier. The Telecom Act and its Iowa counter- flexibility appro- Regulatory 4. in an increased part resulted CLEC priate provides cus- competition when to for presence in Iowa. From 2000 with choices in the competitive tomers in- example, CLEC access lines Iowa variety, quality, pricing of commu- 193,000 260,000. But, creased from services, and when consistent nications meantime, competitors other for local protection with consumer and other service residential and business entered public interests. relevant telephony, voice marketplace —cable respond 5. The board should (VOIP), protocol over internet and wire- flexibility to in the speed changes record less service. While the here does industry. communications by not detail the actual inroads made development can be fos- 6. Economic competitors each these traditional by the of advanced com- tered existence service, it is that a landline clear number munications networks. swapped of Iowans have ser- ILEC Thus, legislature’s § Iowa Code 476.95. vice for one of these three alternatives. inter- purposes the act can be stated From 2000 to ILEC access lines preted availability of af- enhancing 1,759,000 1,422,000 declined from —a through- fordable communication services corresponding than greater decline state, encouraging competition out increase in CLEC lines. services, all and foster- telecommunication As Iowans know from their ing development. economic experience, industry has wireless Prior ILECs in Iowa like significantly years. From grown recent S West had been Northwestern Bell/U the number of wireless ser- subject regula- to rate-base/rate-of-return vice Iowa increased from subscriptions 286, § tion. Acts Iowa ch. 975,000 1,821,000. phone A wireless (current § 476.8 version at Code essentially two-way radio. Wireless (2013)). system regulation, Under this signals communication is based on radio essentially the incumbent carrier received it travels from the handset to the cell (or versa). guarantee plus costs a reason- its reaching tower vice After tower, by able be signal by high-speed rate of return would covered cell travels customers, long paid switching tariffs so data circuit1 to mobile office generally providers do not own CLECs. Wireless lines them ILECs or these data but lease from (MSO). provider’s The wireless MSO uses certain enterprises. other See Iowa Code calls; switches, 427A.l(l)(fe) (2013) switches to route those § (indicating that however, may contain additional function- “[property assessed the department of ality that an do ILEC’s switches not need pursuant revenue to sections 428.24 to MSO, to have. From the the communica- 428.29, 433, 434, chapters 437, 437A, or may travel on the ILEC’s network— 438” shall be assessed as real property). definitely person and will do so if the being Bell, GTE, Northwestern and other tele- spoken to is an ILEC customer. phone companies continued to have to pay Historically, (i.e., Iowa has centrally switches, tax on their computers, *4 level) the state property assessed for tax and other equipment personal and proper- purposes both the real and the personal ty Nonetheless, in Iowa. Qwest’s coun- property telephone traditional compa- sel acknowledged at oral argument in this nies such as Northwestern Bell and its case, long so as the telephone company successors S Qwest. U West and This remained subject to rate-base/rate-of-re- system dates back approximately a centu- regulation, turn it was allowed to include ry and continues day. to this See Iowa obligations those tax and, in its rate base (1913) (“Said § Code 1380 assessment thus, ultimately pass to them along to shall property every include all kind and Iowa consumers. whatsoever, real, character personal, or House File 518 in provided 1995 that mixed, used said companies in the “competitive long telephone distance com- transaction of telegraph telephone and (CLDTCs) panies]” subject not be business....”); (2013) (con- § id. 433.4 to property this taxation scheme. See Thus, taining language). similar ILECs (current 1995 § Iowa Acts ch. ver- required pay are to property tax in Iowa 476.1D(10)(6)). sion at § Iowa Code In- switches, on the computers, and other stead, companies essentially would be equipment and personal property they use taxed on their property real only prop- for provide to local telephone service in Iowa. erty acquired after January 1996. Iowa Historically, this tax regime applied to 476.1D(10)(6). § Code A “competitive “[ejvery telegraph telephone company long telephone company” distance was de- operating a line this state.” See id. fined as one where “more than half of the (1913) (current § 1328 version at id. company’s revenues from its Iowa intra- (2013)). § 433.1 state telecommunications services and fa- As we in Heritage noted Cablevision v. cilities are received from services and facil- Manon County Board Supervisors, “In ities that the board has determined to be past times provided Iowa statutes for an subject competition.” to effective personal extensive property tax.” 476.1D(10)(a). § It undisputed that this (Iowa 1989). However: “In provision was intended to encourage so- general 1973 the assembly adopted a called competition,” “facilities-based that scheme personal under which most proper- is, deployment of additional equipment ty would longer no be taxed.” Heritage in Iowa Cablevision, by competitive carriers. Seven 37; 436 N.W.2d at see also (codified carriers have since qualified § Iowa Acts ch. CLDTC (1975)) status, MCI, AT&T, § Iowa including Code 427A.11 Sprint, (phasing out tax). personal McLeod, property Yet phaseout long-distance this affiliate of did not apply telephone to companies Qwest.2 476.1D(10) (like
2. A McLeod), CLDTC for purposes section can be a CLEC but it cannot thirty-five forty-five to property (perhaps been companies never Wireless acquired taxation scheme while percent) to the subject they are not consid- subject because was still for ILECs rate-base/rate-of-return telephone 3, 2006, com- “telegraph regulation. ered to be On November a line in this state.” See operating a no- pan[ies] Iowa of Revenue issued Department companies are as- § Wireless id. 438.1. a value placing tice of assessment (i.e., county) locally by the sessed operating on Iowa its towers, which a form are value of cell $1,028,480,000. Qwest challenge elected to 441.21; § id. property. real assembly’s previous decision general However, they r. 701-71.15. Admin. Code property of ILECs personal tax the property tax pay do not operat- providers or wireless CLDTCs or equipment and other switches Thus, ing Qwest responded Iowa. located in their may be by filing appeal- protest assessment however, undisputed, It MSOs. Iowa State ing the assessment only frequently have companies wireless Review. Board of Tax *5 than for entire state —rather one MSO the 11, Qwest amend- On filed an December per metropoli- of central offices a number agreement protest acknowledging ed an like an tan area ILEC. which reduced the to- parties between the service other Although both CLEC and Qwest’s property tal value of assessed telephone sig- have made of service forms $785,000,000, Qwest’s preserving while ILEC market nificant incursions into arguments. Qwest took constitutional share, Qwest large to have a continues treatment it position that the dissimilar tax of De- phone of local service. As share similarly comparison received in to other 780,166 access it still had cember companies telecommunications situated territory, Iowa. its service lines in Within discrimina- amounted to unconstitutional wireline seventy-eight percent it had that the Specifically, argued tion.3 connections; communities, in over tax taxed for scheme which ILECs ninety percent least wireline had but not personal property, value customers had customers. While some providers, wireless violated and CLDTCs cord” wireless for “cut the and substituted Qwest’s rights Equal under Protection service, that the record indicates wireline States Clauses of the and United region in the Midwest as whole this Constitutions. only about 15.8% of would have been half the second of 2007. households requested transfer of parties jointly and fac- demographic geographic Certain Department Inspections the case to the even suggested tors the number would be (DIA) for case Appeals and a contested lower Iowa. evidentiary Subsequently, an hearing. before DIA over a was held Qwest’s hearing taxable from June 23 to 26 five-day period includes a substantial amount of 476.1D(10)(b) stipulated parties § 3. The of this assess- an ILEC. Iowa Code that be ment, (or $220,049,395) telephone (stating long compa- repre- that a percent distance ny purposes "means an of the section purchased Janu- sents that were after assets entity provides telephone fa- that service and 1, 1995, ary exempt that have been exchanges, cilities between local but does purchased by a if CLDTC. exchange utility holding ... a include local 476.29, certificate issued under section sub- 12”). section 1, 2008. July The administrative law ties Iowa. H.F. 518 contained other (ALJ) judge forty-page designed issued a decision measures to promote competi- 5, 2010, May findings forth her setting exchange local market. Further, 476.[1]D(10) of fact and of law and rejecting conclusions subsection ex- Qwest’s equal protection emption applied Re- all challenge. acquired newly garding per- treatment equipment purchased differential by qualifying merely sonal equipment owned CLDTCs and CLDCs—not used to ILECs, provide long she observed: distance service. Thus exemption provided an incentive for legislature may concedes that the established long distance companies to
pass tax laws to stimulate de- economic move into the local exchange market. however, velopment. They argue, Finally, Qwest argues if a even provide the state incentives to [cannot] rational basis existed to the ex- support deny one them group to another emption newly acquired prop- CLDC group. applied here, they related As erty provision when the was enacted in legit- contend had no 1995, the growth competitive forces offering imate basis for within the industry telecommunications competitive long incentive distance between 1995 and 2006 has negated the companies excluding lo- incumbent provide need incentives to encourage exchange providers. cal However, competitors. es- record ample justification The record reveals *6 although Qwest tablishes that lost a has for the to make a distinction portion share, of its market re- Qwest telephone between ILECs and service mains the exchange dominant local car- providers, including long distance rier in the it markets serves. providers. and other had ILECs The rational test require does not providing exchange been local service narrowly classifications to be to tailored providers operating as sole for their particular serve a If end. the classifica- service areas monopo- under sanctioned has basis, some it reasonable does ly They status for decades. owned the not offend the constitution simply be- existing local telephone infrastructure cause classification is not made and, prior to the mid-1990s were “the nicety prac- mathematical or because in local phone company.” un- ILECs were tice it inequality. result[s] some The likely presence to reduce their in the fact that the legislature could have craft- expansion state or withhold in Iowa. exemption ed a broader or different tax importantly, More well- the ILECs were D(10) not does render section 476.1 un- positioned only compe- withstand constitutional. tition, competitors. but to impede (Internal quotation citations and marks omitted.) Qwest contends that the offer tax Turning to providers, the wireless
incentives to competitive long distance ALJ concluded: companies rationally was not related competition a desire to en- ample enhance The state also treat has reason to courage the differently construction the local wireless providers service exchange market. The state a le- than providers purposes had wireline gitimate definition, encouraging interest in de- By tax assessment. velopment and both providers telephone construction of wireless are not long exchange distance and local facili- do companies. They not own an inter- its state consti- Court, raising only and District infrastructure state-wide
connected hearing, After a centrally challenge. assessed tutional is not Al- ruling department of revenue. reversed the Board’s by the district court impact Qwest’s these found that Iowa constitutional though distinctions wire- wireline and question respect of whether violated with rights were situated, similarly are providers compared less it received treatment justifica- a rational they provide[ also wireless With re- providers. ] CLDTCs companies differ- taxing CLDTCs, tion for wireless district court to the spect telephone companies. ently than wireline found: service is a rel- communication
Wireless deciding that at the Assuming without industry. first commer- atively new there time File enacted [House 518] by the FCC cial license was issued legitimate gov- was a rational basis and inception From the legislation, for the purpose ernmental service, segment this wireless the evidence in the the Court concludes highly competitive. has been market no longer record such rationale shows wireless competition, Despite market exists.... It has been established rapidly throughout expanded service has segments of and wireless wireline state. industry the telecommunications are fre- providers ... Because wireless customers, competition for same [switching] only one mobile quently relevant market to look thus this is the (rather entire state than office for the picture of complete at. this more When each central offices within number of at, market is looked telephone the total area) it reasonable to con- service seems Qwest’s share of market served companies likely are that wireless clude ac- just forty percent of 2006 under less significantly own cording report by to a Board. “personal fall into the traditional Therefore, no longer it is clear *7 than ILECs own. property” categories market, as it fif- dominant in this was years ago operating when it was
teen type the providers status, do own Wireless monopoly under sanctioned common to of state-wide infrastructure for rejecting argu- reason this ALJ’s fully It is centrally businesses. assessed by support in the Qwest ment is without for the to allow reasonable record. providers personal the same
wireless avail- exemptions tax that are returns In the end the Court to locally owners of able to other assessed (here taxed or not taxed fact items property. commercial of- Qwest’s switches and related central Qwest timely appeal filed to the proper- equipment personal fice parties State Board of Tax Review. The by long after some ty purchased however, that the deci- stipulated, ALJ’s companies respec- telephone distance Board, sion treated as that of the would be nearly and are for tively) are identical Qwest’s judicial subject right seek activity primary main or the same Accordingly, Board thereon. review use.... 12, adopt- final order on October
issued a deciding without there was Assuming in full. ing the ALJ’s decision disparate tax basis for the rational D(10) Qwest peti- treatment of section 476.1 when brought On November enacted, County concludes that in the Polk was Court judicial tion for review time, legitimate governmen- rational basis and technology. and advancements in through tal interests been vitiated provisions in Iowa chapters Code in the changes underlying circum- 427A a tax establish stance[s], time, passage of and advance- allowing scheme a tax exemption for the Accordingly, in technology. ments personal property of [providers] wireless D(10) allowing section 476.1 Code but not for the substantially similar exemption ac- switching and central office equipment (the quired taxing after 1995 CLDCs property of only property similarly proper- situated “personal” above) relevant to this issue as detailed ty is an viola- unconstitutional are violation of Iowa’s equal protec- equal provision, tion Iowa’s protection provision, set forth in Article set forth Article section of Constitution, Iowa’s section 6 Iowa’s ap- as Constitution, applied Qwest. plied Qwest.
(Internal omitted.) citations timely The Board appealed to this Court.
Similarly, providers, concerning wireless the district court wrote: II. Standard Review. analysis long As distance generally above, We review a district
companies the Court will assume court’s on a petition judicial decision deciding a rational without there was agency review of action for correction of for the exemption basis for wireless XXI, errors at law. Timberland Partners when it companies was enacted. How- Revenue, LLP above, Dep’t v. Iowa ever, again must Court (Iowa 2008). However, 172, 174 conclude assumed no this, cases such as where constitutional longer exists. was a Wireless service raised, issues are our relatively review is de novo. industry new was not available in widely Iowa when the ex-
emption enacted. The record is Analysis. III. growth providers clear of wireless over exploded Equal and subscribers has A. Protection Under the Iowa years ten past point We now Qwest’s Constitution. address number of wireless subscribers in claim State’s property that the tax scheme *8 Iowa exceeded the number of wireline for telecommunications companies violates Accordingly, customers. the Court con- the Iowa equal protection clause of the any I, legitimate cludes rational basis of and Constitution.4 Article section 6 the governmental interests that once existed Iowa “All of a Constitution states: laws disparate general opera- for this tax treatment have shall have a nature uniform tion; through grant been vitiated in the changes Assembly the General shall not underlying circumstance[s], citizen, citizens, or passage privi- to class of I, consistency provision 4. For the sake of our more tion found in article 6 of section I, Constitution”); State, precedent, King recent we will refer article 818 the Iowa v. 1, (Iowa 2012); "equal protection 6 as the clause” 22 section N.W.2d n. 18 Judicial Ct., 569, the Iowa Constitution. Inc. 578 See L.F. Noll v. Branch v. Iowa Dist. 800 N.W.2d 391, (Iowa 2012) (Iowa 2011) Eviglo, (querying Equal 816 N.W.2d 392 whether "the (referring "equal protection to the clause" of Protection Clause of the Iowa Constitution Constitution); violated”); Rojas Energy Ridge the Iowa NextEra Res. has been v. Pine Bd., 30, Farms, L.L.C., (Iowa 223, Iowa LLC v. Utils. 815 N.W.2d 44 779 N.W.2d 229 (Iowa 2012) 2010) (same). (referring “equal protec- to the 558 immunities, which, per the the can be “far from upon same means and end or
leges
long
citi
fect”
“is not so
equally belong
relationship
not
all
so
terms shall
counterpart,
as to
ar
federal
our
attenuated
render
distinction
zens.” Like its
Varnum, 763
essentially
bitrary
“is
or
irrational.”
equal protection clause
(citation
similarly
at 879 & n. 7
and internal
persons
that all
situated N.W.2d
direction
omitted);
quotation
King,
marks
see also
alike.” Varnum v.
should be treated
(Iowa 2009)
Brien,
818
at 28.
N.W.2d
878
N.W.2d
763
(citation
quotation
internal
marks
have
applied
When we
rational
omitted);
v.
Branch
accord Judicial
laws, they
generally
test
been
2011).
(Iowa
Ct.,
569, 578
Dist.
800 N.W.2d
difficulty. “The ra
upheld without much
easily
is
met in chal
tional basis standard
legislation,
Social and economic
v.
lenges
Corp.
to tax statutes.” Hearst
here,
at issue
is
provisions
the tax
Fin.,
&
N.W.2d
Dep’t Revenue
461
reviewed
the rational basis test.
under
(Iowa 1990);
Heritage
accord
Ca
306
(Iowa
State,
1, 27
King
818 N.W.2d
v.
(“It
blevision,
widely
436
at 38
is
N.W.2d
State,
2012);
Sanchez v.
692
accord
recognized
basis standard
(Iowa 2005).
This
“a
N.W.2d
817
is
easily
challenges
satisfied in
to tax stat
Varnum,
very
standard.”
763
deferential
utes.”);
Selden,
251
City Waterloo
879;
King,
N.W.2d at
accord
818 N.W.2d
1977) (“An
(Iowa
iron
N.W.2d
508-09
27;
v. City
at
Rental
Ass’n
Prop.
Ames
rule
equal
taxation is neither attainable
(Iowa 2007).
Ames,
N.W.2d
259
736
Hearst,
necessary.”).5
nor
we held that
review, the statute
“Under rational-basis
equal
it violated neither federal nor state
only
rationally
legiti
need
related to
be
protection guarantees for the
Sanchez,
mate
interest.”
state
not
exempt newspapers
magazines
at
N.W.2d
817-18.
does
“[T]he [s]tate
from Iowa’s sales and use tax.
evidence,
only
produce
plau
have to
at
noted
“in tax
N.W.2d
304-06. We
justification
required.” King,
sible
fields,
even
than in
matters
more
other
28;
Varnum, 763
N.W.2d at
see also
legislature possesses
greatest
freedom
challenging
at
party
N.W.2d
879.
Hearst,
at
classification.”
461 N.W.2d
heavy
showing
“has the
the stat
burden of
Among
things,
accepted
305.
other
negate every
ute unconstitutional and must
argument
state’s
that Iowa’s tax scheme
upon
reasonable basis
classifica
“enhancing
served the state’s interest
Varnum,
may
be sustained.”
knowledge
literacy
of its
general
(citation
quota
N.W.2d at
internal
Id. at
citizenry.”
omitted);
King,
tion marks
accord
28;
subsidizing
newspapers
Sperfslage
City
By
price
v. Ames
Bd.
(Iowa
Review,
1992)
through
“newspaper” exemption
480 N.W.2d
of
(“The
...
makes
upheld
newspapers
statute will
be
under
State
available
*9
means;
legis
we find the
of even moderate to low
basis standard if
those
reasonably
public
lature
conclude that the
an action deemed to be in the
could
legitimate
exemption, newspa-
promote
classification would
interest. With this
interest.”).
pers
inexpensive
state
fit between the
will remain an
source
creating
Supreme
especially
5. The United States
Court
taken
have
broad latitude in
has
City
a similar view. See
v.
India
Armour
stat-
and distinctions in tax
classifications
of
—,
2073,
—,
napolis,
U.S.
132 S.Ct.
(Citation
quotation
utes.”
and
marks
internal
(2012) (“[W]e
182 L.Ed.2d
1005
omitted.)).
[[legislatures
repeatedly pointed
out that
(Iowa 2002).
people
of
public information
most
352-53
We noted that
will be
city
able to afford.
“the
had
freedom in economic matters
encourage
one type
property
of
usage
saying
exemp-
Id. It went
that the
without
over another
differentiating the fees
buy-
tion applied regardless of whether the
imposed
usages”
different
and was
person
er of the
was a
of mod-
newspaper
“free
encourage
commercial develop-
erate
even
apply
to low means
did not
by relieving
payment
ment
it from
if magazine
have been a similar-
would
Builders,
parks fee.” Home
644 N.W.2d
ly inexpensive
public
source of
information
at 352-53. We
the City “may
added that
people
for
of
to low
moderate
means.
reasonably assume that commercial users
Similarly,
Sperfslage,
upheld
we
generate
of property
need for park
less
regulation
required
state
buildings
all
facilities than do
developers.”
residential
living
three or more
units to be classi-
Id. at 353.
properties
fied as commercial
for
Racing
In
Ass’n
purposes
allowing
taxation
while
all build-
Central Iowa v. Fitz
of
(RACI II),
ings
gerald
following
with one or
units to
two
be classified
remand from
Court,
Supreme
residential even when used as a com-
United States
we con
legislature’s
mercial venture.
over, (defining “specious” interest must be 2187 the claimed state part right or su- “apparently proper: v. conceivable.” Miller “realistically fair, not so perficially just or correct but Hosp., 394 N.W.2d Cnty. [Boone 1986) added). (Iowa reality: appearing well first view: in at (emphasis ] 779 PLAUSIBLE”). Rather, rea- policy whether this court must then decide Our justifying classification Fitzger particular in See son a a basis fact. reason has be See id. ald, [107], generally should “credible.” at 123 S.Ct. at U.S. “capable of (defining at 532 “credible” as legis (requiring at L.Ed.2d worthy of being credited or believed: rationally upon lature could believe facts true). ...: belief entitled confidence: based are was classification TRUSTWORTHY”). Our court’s state- Finally, whether the we must consider classification, ment in Miller that the reason offered relationship between a “real- i.e., support of classification must be between racetracks differences boats, the latter istically conceivable” reflects purpose and the of and excursion understanding “plausible” a reason. of so weak that classification added). It (emphasis N.W.2d at 779 must viewed as arbi classification be “ rejects implicitly purely superficial a trary. (requiring that ‘the rela See id. analysis implies the court tionship goal the classification its of permitted “to if the probe as to render the determine so attenuated [not be] ” (cita ra- requirement constitutional of some arbitrary irrational’ distinction or omitted)); tionality in the nature of the class sin- Chicago tion accord Title Ins. (Iowa v. gled out has been met.” Greenwalt Huff, 256 N.W.2d Co. 1977) Corp., 71 P.3d Ram Restaurant (requiring relationship rational be validity legitimate (Wyo.2003) (considering a tween 730-31 classification interest). statutory governmental classification under purpose state or protection guarantees of the Unit- equal (footnotes II, 7-8 675 N.W.2d at RACI constitutions). Wyoming States and ed omitted). latter, we Concerning Id. at 7 n. 3. footnotes, In two we elaborated separate stated: phrases what meant “realis- we Although equal protec- this element tically “basis fact.” conceivable” and require analysis “proof’ tion does not former, we said: respect to the With sense, “ traditional it does indicate requirement plausible policy ‘a ” ex- the court will undertake some may reason for the classification’ be credibility the assert- amination aspect equal analysis protection challenged factual for the classi- ed basis susceptible differing most conclusions it simply accepting fication rather than generally Fitzgerald, application. face value. at [107], at at 123 S.Ct. 539 U.S. Thus, 8 n. 4. clear that made added) (cita- (emphasis L.Ed.2d at 103 justification asserted proof actual an omitted) (stating requirements not necessary, would not court Clause). The Equal dictio- Protection accept at face value and simply nary gives synonyms two the word it was examine it to determine whether “plausible”: “specious” and “credible.” opposed specious. credible New Webster’s Third International Dic- ed.2002). (unabr. bringing tionary party also reiterated that Certain- We ly “specious” challenge “negat[e] must pass reason should support might reasonable basis that generally every constitutional muster. See id. *11 8. Yet we reasonably the treatment.” Id. at could not disparate believed when “a involves taxing thirty-six added that classification racetracks at percent degrees of and un- rather than at the twenty-four extreme overinclusion percent particular by in relation rate recommended any derinclusion the committee reasonably impact cannot be said fur- would have on goal, competitive the (citation position the goal.” excursion boats vis-a-vis ther that Id. at 10 and omitted). quotation counterparts.” out-of-state Id. internal marks simply “There no rational connection [wa]s standards, Applying rejected these we between this conceivable legislative pur- justifications four III asserted RAC pose discriminatory and the tax im- rate disparate eco- promoting taxation — posed on the racetracks.” Id. communities, development nomic of river preceding mind, With the principles in protecting the reliance of river- interests we personal now turn to the property tax operators, aiding posi- boat the financial scheme in this at issue case. riverboats, maintaining tions of the in Iowa. riverboats Id. at 9-15. Concern- Application B. of Rational Ba interest, ing first asserted we state Qwest’s sis Review Claims. The State there noted that were river communities argues that vigorously “simi is not with racetracks nonriver communities larly situated” with the CLDTCs and wire Thus, jus- with riverboats. Id. at Therefore, less providers. ini the State “illogical.” was It involved tification Id. contends, tially we do not need to reach degrees “extreme and un- overinclusion question of whether the more favor Bierkamp derinclusion.” Id. (quoting tax able treatment CLDTC and wireless (Iowa 1980)). Rogers, N.W.2d provider has a rational rejected We then the asserted reliance Timberland, basis. See at 175 of riverboat operators interest because the (“If identify[ ... court is unable to a] nothing lines drawn taxation had do similarly class of situated who individuals time of with the investment. Id. 11. are treated allegedly differently under tax triggered by differential “[T]he statute, challenged plaintiff has not engaged gambling whether business first step equal protec satisfied the an prior implementation new tax analysis, the court need not ad rates, [by] whether gambling takes dress whether statute has a rational place floating at 12. casino.” Id. legitimate government to a in relationship (Citation quotation terest.” and internal We also concluded that the finan- aiding omitted.)). marks There is some risk of cial insuffi- position riverboats was an tautology to a if an succumbing we decide cient that were justification itself. If equal claim protection ground, on this so, “any differential tax constitu- would be Varnum, 763 however. N.W.2d at 882-83. tional because lower tax benefits always way, No are groups every two identical in the financial situation of the sub- taxpayer “nearly every equal protection claim ject lower Finally, to the rate.” Id. at 13. of a aground could be run onto the shoals not accept we could contention State’s analysis if the need groups threshold two thirty-six percent gam- that a on gross image mirror ed to be a of one another.” (much receipts bling higher of racetracks therefore, assume, will Id. at 883. We than the tax rate recommended similarly the groups are situated here. committee) study legislative designed Nonetheless, keep as an incentive to Iowa. agree riverboats with the Board’s it, As we put at 15. a rational exists for conclusion that “[T]he *12 562 Constitution, underly- in changes the to tax the legislature’s decision by 1995 investments find a
post-January
ing
can allow us to
circumstances
in this
property
in
CLDTCs
a
longer rationally relates
statute no
way
a
for the
state. This was
reasonable
legitimate government purpose.” State
encourage
deployment of
legislature to
2007)
Groves,
(Iowa
90, 93
742 N.W.2d
that would foster com-
new infrastructure
581).7
Bierkamp,
N.W.2d at
(citing
293
in
networks and result
petitive wireline
However,
case,
disagree
in
we
this
The
prices
legisla-
for consumers.
lower
find
conclusion. To
the district court’s
that the
rationally
ture could have
believed
dominant,” the
longer
that
“is no
competitive
powerful
ILECs had a
built-in
Qwest’s percent-
district court considered
facilities,
advantage
existing
on their
based
total wireline and wireless connec-
age
of
had
underwritten
development
whose
been
tions.
past century.
over the
But this
that wireless
ratepayers
assumes
substitutes,
record
wireline are
when the
court
the sake
district
assumed
most wire-
before the Board showed that
476.1D(10)’s
argument
that section
tax
or
(eighty-five percent
less customers
a rational
exemption may
pur-
served
during
period
the time
covered
more
in
but found that it does not do
pose
pay
this
for wire-
proceeding) continue
longer
so now because
“is no
domi-
Thus,
ar-
line
one can plausibly
service.
that “when
nant.” We have said before
a
demand
gue
that
there remains
distinct
applying a rational basis test under
them,
Immediately
stating
exemp
we went on to
Neither
cases
a tax
after
7.
of these
involved
Groves,
In
a
jurisprudence overturning
tion.
we considered
substantive
automobile
discuss
process challenge
prohibiting
due
ato statute
guest
jurisdictions.
at
in
Id.
statutes
other
residing within
thou
sex offenders from
two
Thus,
Bierkamp
anything,
if
deci-
581-82.
facility.
feet
care
sand
of a school or a child
“changes
underlying
reference to
in
sion’s
years
742
at 92. We noted that two
evolving legal
contemplates
circumstances”
before,
Eighth
court
Circuit
both our
comparable
no
de-
There have been
trends.
rejected
challenges
had
similar constitutional
proper-
velopments of which we are aware in
(cit
residency
Id. at
to these
restrictions.
ty
jurisprudence.
ing
Seering,
State v.
701 N.W.2d
662-65
Notably,
Eighth Circuit
on which
case
Miller,
(Iowa 2005), and Doe v.
405 F.3d
poli-
in
we relied Grovesindicates that elected
(8th Cir.2005)). Citing Bierkamp, we
709-16
cymakers
are better suited
reevaluate
"changes
underlying
said
circum
Doe,
legislation
over time. See
basis
stances can allow us to find a statute no
("The
institutionally
legislature is
F.3d at
longer rationally
legitimate gov
relates to
weigh
equipped to
benefits and burdens
(citing
purpose."
Bierkamp,
ernment
Id.
[legislation], and
initial deci-
to reconsider its
581). But
N.W.2d at
we noted
Groves
light
experience
and data accumu-
sion
present any
had "failed to
evidence that
Still,
time.”).
States
lated over
United
us to retreat from our decision in
cause
recognized
Supreme Court
Thus,
Seering."
rejected
we
his rational
Id.
constitutionally
taxation scheme can become
challenge.
basis
changes
if it fails
invalid
to account for
Bierkamp,
we found no rational basis for
Allegheny
passage
value due to
time.
guest
Iowa’s automobile
statute
held
Pittsburgh
Cnty.
Web-
Coal Co. v.
Comm'n
un-
could not withstand constitutional attack
336, 343-46,
I,
Cnty., 488
109 S.Ct.
der article
section
Also, interest we dismissed the reliance whether the still had 51% wire- ILEC laws nothing II because in those RACI service, personal case the line the investment had been turned on when 476.1D(10) Verizon, contrast, By property tax would continue. section made. Qwest's Yet, ability price has not been driven into annual tion. institute eight percent suggests increases of ten not claim that its wire- bankruptcy does competition so "robust” as unprofitable. Nor line business be, legislature could claims it or at least the Qwest demonstrated, as has the racetracks Qwest analogizes conclude. its situation so RACI, jeopard- question did in that the tax Blockbuster, thriving in- which used to have I, ability profit. RACI 648 izes to make its into store rental business but has been driven N.W.2d at 561. bankruptcy competi- by other forms of video N.J.Tax at 418. The New Jersey court “its property must receive the same tax then held that the statute so construed did benefits as similar property used cable equal protection not violate the clause of companies provide telephone services”), Jersey the New Constitution: granted, 11SC669, cert. No. 2012 WL (Colo.2012); North, The court concludes that there was a GTE Inc. v. Zaino, impose continue to 96 Ohio St.3d 770 N.E.2d (2002) personal property only (rejecting those local an ILEC’s constitutional telephone had, companies challenge to an Ohio many law that provided for years, enjoyed a monopoly higher over the much pro- rate of assessment on cer vision of local tain telephone service in of ILECs and not ing franchise areas. The Legislature “enjoy ILECs the advantage could ... *15 reasonably being assume provider that three the default of intraLATA enjoyed ILECs call substantial service for competitive customers who fail to take advantage as a result of affirmative their former action to choose another pro vider”); monopolies; they Sw. Combs, continued to be Bell Tel. Co. v. 270 249, the dominant users of S.W.3d public rights of 272-73 (Tex.App.2008)(finding facilities; way that, no federal or state equal protection transi- viola measure, tional tion in it was reasonable imposing to con- franchise taxes on local impose tinue to only exchange the tax on carriers those but not long-distance carriers).11 companies until they such time as no longer enjoyed a competitive advantage, C. Alternative to the Rational Basis as evidenced they the fact that were alternative, Test. In the Qwest urges us longer no providing 51% the dial tone not to follow our established rational basis and access exchange. to an jurisprudence, but instead to up take Id. at 428. The court added dictum that lead of certain other states expressly the tax would fail the rational basis test if require uniformity in taxation. companies that originally had met the fif points out that a few other jurisdictions ty-one percent would “perpetually be sub have concluded that “constitutional unifor- ject to tax” regardless of happened what mity sufficiently important that no ra- competitive position. Notably, justify tionalization can differences in taxa- though, Jersey New employs a balancing tion.” See Citizens Telecomms. Co. of test in rational basis cases that differs White Mountains v. Dep’t Ariz. Reve- analytically nue, from 33, the federal rational 123, 206 Ariz. 75 P.3d 129-30 event, test. Id. at 425. In any the New (Ct.App.2003) (holding that under the Ari- Jersey court found that the ILECs’ reten zona constitution functionally equivalent tion of a majority of the same); wireline business property must be taxed the Idaho was a Baird, sufficient justification constitutional Tel. Co. v. 91 Idaho 423 P.2d for continuing (1967) differently, treat them 346-47 (finding it unconstitu- the same conclusion we are reaching here. tional under Idaho’s uniformity clause to See also Corp. v. Prop. Colo. Div. assess certain at a higher ratio of — Taxation, —, 10CA1320, P.3d value), No. full cash overruled Simmons v. 2011 (Colo.App.2011) Comm’n, WL 8832876 (reject Idaho St. Tax 111 Idaho 723 ing Qwest’s arguments (1986); constitutional that P.2d 892-93 Inter Island Tel. Qwest's argues it, 11. The State greater also imposing personal property tax on but not government use of services because of its on providers. the CLDTCs and wireless We larger justifies much infrastructure in Iowa argument. need not reach that justices except All concur Co., County, 125 Wash.2d Juan v. San (1994) WATERMAN, J., specially (holding it who concurs P.2d 1382-83 APPEL, J., phone a local who part. assess takes no unconstitutional rate than other higher a much company at WATERMAN, (concurring spe- Justice property taxpayers). utilities cially). easily distinguishable, These cases are at however, constitutions the state because majority’s I in the well-reasoned concur language requiring specific contained issue respects one. The ma- decision in all Telephone Idaho uniformity in taxation. opportunity expressly jority misses the VII, in article section language relied Iowa v. Racing overrule Ass’n Central stating, “All tax of the Idaho Constitution (Iowa II), (RACI Fitzgerald 675 N.W.2d same uniform class upon es shall be 2004). my expressly call to I reiterate limits, of the within the territorial subjects II as erroneous for plainly overrule RACI ” 423 levying tax.... P.2d authority concur- my special set forth in reasons event, has that Idaho decision 340. In State, 1, 43 n. King rence in Simmons, P.2d been overruled. See 2012) (Iowa J., (Waterman, concurring). *16 Washington The Arizona at 892-93. relied similar state constitu courts also mandating apparently provisions
tional Tele taxation. See Citizens
uniform Co., (“According at 129
comms. P.3d Uniformity of the Arizona Con Clause
stitution, ‘all taxes Article Section the same class of upon
shall be uniform WATSON, Appellant, Brandon Dean Island, ”); Inter P.2d property.’ (“All upon taxes uniform shall be class of within territori same levying authority
al limits DEPARTMENT OF TRANS- IOWA ” Const, 1)). 7, § art. (quoting .... Wash. PORTATION MOTOR VEHICLE DIVISION, Appellee. the Iowa Constitution say, Needless And, not contain a clause. such does No. 12-0344. to our prece- a test would be antithetical them above. dents as we have described Court of Iowa. Supreme Bd., City Coralville v. Utils. Cf. April (Iowa 2008) n. 3 750 N.W.2d (declining interpret Constitu- requiring “all Iowa laws be
tion as uniform”).
geographically
IV. Conclusion. reasons, we foregoing reverse
For judgment the district court further proceed- to that court for
remand opinion. not inconsistent with this
ings RE- JUDGMENT
DISTRICT COURT AND REMANDED. CASE
VERSED