Qwest Corporation v. Iowa State Board of Tax Review

IN THE SUPREME COURT OF IOWA
No. 11–1543

Filed April 12, 2013

QWEST CORPORATION,

Appellee,

vs.

IOWA STATE BOARD OF TAX REVIEW,

Appellant.

Appeal from the Iowa District Court for Polk County, Joel D.

Novak, Judge.

The State appeals from a judgment in a judicial review proceeding

finding that the disparate tax treatment of the personal property of

incumbent local exchange carriers, as contrasted with that of competitive

long distance companies and wireless providers, violates the equal

protection clause of the Iowa Constitution. DISTRICT COURT

JUDGMENT REVERSED AND CASE REMANDED.

Thomas J. Miller, Attorney General, Donald D. Stanley, Jr., Special

Assistant Attorney General, and James D. Miller, Assistant Attorney

General, for appellant.

Bruce W. Baker of Nyemaster Goode, P.C., Des Moines, Richard G.

Smith of Hawley Troxell Ennis & Hawley LLP, Boise, Idaho, and Roy A.
Adkins, Denver, Colorado, for appellee.
 2

MANSFIELD, Justice.

This administrative review proceeding requires us to decide

whether imposing a tax on the Iowa-based personal property of

incumbent local exchange carriers, but not on that of competitive long

distance and wireless service providers, violates article I, section 6 of the

Iowa Constitution. We conclude it does not. The differential tax

treatment of these enterprises is rationally related to legitimate state

interests in encouraging the development of new competitive

telecommunications infrastructure, while raising revenue from those
providers that historically had a regulated monopoly and continue to

enjoy some advantages of that monopoly. Accordingly, we reverse the

judgment of the district court and uphold the Iowa State Board of Tax

Review’s assessment on Qwest Corporation.

I. Background Facts and Proceedings.

The facts in this case are largely undisputed. A generation ago, the

American Telephone & Telegraph Company (AT&T) had a dominant

position nationally in both local and long-distance telephone service. In

Iowa, it did business under the name Northwestern Bell. Most Iowans

obtained their local and long-distance phone service through

Northwestern Bell. The company owned and maintained lines that ran

from Iowa residences and businesses into central offices, where

switching equipment was used to route phone calls toward their ultimate

destination. Those Iowans who did not get their phone service from

Northwestern Bell primarily relied on another local monopoly, such as

GTE.

As the result of a lengthy antitrust case, a consent decree was
entered in 1982, which ended AT&T’s national industry dominance. The

decree took effect in 1984 and required AT&T to divest its local telephone
 3

businesses. This led to the formation of seven independent regional Bell

operating companies, one of which was U S West, Inc., the predecessor to

Qwest Corporation. U S West thereafter provided local landline

telephone service in fourteen states, including Iowa and the rest of the

former Northwestern Bell territory.

Although the divestiture was the death knell for a single telephone

company’s predominance in this country, it did leave in place a system

where local phone service was generally provided by monopoly carriers

that had the existing infrastructure to do so (e.g., central offices,
switches, and customer phone lines). To address this situation,

Congress and the states enacted legislation in the mid-1990s. The

Telecommunications Act of 1996 (Telecom Act) required incumbent local

exchange carriers (ILECs) like U S West to provide interconnection to

their networks and to offer their network elements, such as the

hardwired phone lines that entered homes, on an “unbundled” basis to

other carriers (CLECs) that sought to enter the marketplace and compete

with them. See Telecommunications Act of 1996, Pub. L. 104–104, 110

Stat. 56 (codified in scattered sections of 47 U.S.C.)

Complementing the Telecom Act was House File 518, which had

been passed by our general assembly the year before. See 1995 Iowa

Acts ch. 199 (current version at Iowa Code §§ 476.95–.101 (2013)). Like

the Telecom Act, House File 518 required any ILEC to provide

“interconnection” and to make available the “unbundled essential

facilities of its network.” See id. § 12 (current version at Iowa Code

§ 476.101(4)(a)(1)). The section entitled “Findings—statement of policy,”

expressly sets forth certain purposes of the act, as follows:

1. Communications services should be available
throughout the state at just, reasonable, and affordable rates
from a variety of providers.
 4
2. In rendering decisions with respect to regulation of
telecommunications companies, the board shall consider the
effects of its decisions on competition in telecommunications
markets and, to the extent reasonable and lawful, shall act
to further the development of competition in those markets.

3. In order to encourage competition for all
telecommunications services, the board should address
issues relating to the movement of prices toward cost and
the removal of subsidies in the existing price structure of the
incumbent local exchange carrier.

4. Regulatory flexibility is appropriate when
competition provides customers with competitive choices in
the variety, quality, and pricing of communications services,
and when consistent with consumer protection and other
relevant public interests.

5. The board should respond with speed and flexibility
to changes in the communications industry.

6. Economic development can be fostered by the
existence of advanced communications networks.

Iowa Code § 476.95. Thus, the legislature’s stated purposes for the act

can be interpreted as enhancing the availability of affordable

communication services throughout the state, encouraging competition

for all telecommunication services, and fostering economic development.

Prior to 1995, ILECs in Iowa like Northwestern Bell/U S West had

been subject to rate-base/rate-of-return regulation. See 1963 Iowa Acts
ch. 286, § 1 (current version at Iowa Code § 476.8 (2013)). Under this

system of regulation, the incumbent carrier essentially received a

guarantee that its costs plus a reasonable rate of return would be

covered by the tariffs paid by Iowa customers, so long as the company’s

costs were reasonable. See id. House File 518, however, gave local

phone companies the option of exiting from this form of regulation by

submitting a “price regulation plan” that, if approved, would set forth the

price for “basic communications services” subject to permitted
adjustments. See 1995 Iowa Acts ch. 199, § 8 (current version at Iowa
 5

Code § 476.97). In 1998, U S West opted for such a voluntary price

regulation plan and, consequently, was no longer subject to rate-

base/rate-of-return regulation.

The Telecom Act and its Iowa counterpart resulted in an increased

CLEC presence in Iowa. From 2000 to 2006, for example, CLEC access

lines in Iowa increased from 193,000 to 260,000. But, in the meantime,

other competitors for local residential and business service entered the

marketplace—cable telephony, voice over internet protocol (VOIP), and

wireless service. While the record here does not detail the actual inroads
made by each of these competitors on traditional landline service, it is

clear that a number of Iowans have swapped their ILEC service for one of

these three alternatives. From 2000 to 2006, ILEC access lines declined

from 1,759,000 to 1,422,000—a greater decline than the corresponding

increase in CLEC lines.

As Iowans know from their personal experience, the wireless

industry has grown significantly in recent years. From 2000 to 2006, the

number of wireless service subscriptions in Iowa increased from 975,000

to 1,821,000. A wireless phone is essentially a two-way radio. Wireless

communication is based on radio signals as it travels from the handset to

the cell tower (or vice versa). After reaching the cell tower, the signal

travels by high-speed data circuit1 to a mobile switching office (MSO).

The wireless provider’s MSO uses switches to route calls; those switches,

however, may contain additional functionality that an ILEC’s switches do

not need to have. From the MSO, the communication may travel on the

ILEC’s network—and will definitely do so if the person being spoken to is

an ILEC customer.

1Wireless providers do not generally own these data lines but lease them from
ILECs or CLECs.
 6

Historically, Iowa has centrally (i.e., at the state level) assessed for

property tax purposes both the real and the personal property of

traditional telephone companies such as Northwestern Bell and its

successors U S West and Qwest. This system dates back approximately

a century and continues to this day. See Iowa Code § 1330 (1913) (“Said

assessment shall include all property of every kind and character

whatsoever, real, personal, or mixed, used by said companies in the

transaction of telegraph and telephone business . . . .”); id. § 433.4

(2013) (containing similar language). Thus, ILECs are required to pay
property tax in Iowa on the switches, computers, and other equipment

and personal property they use to provide local telephone service in Iowa.

Historically, this tax regime applied to “[e]very telegraph and telephone

company operating a line in this state.” See id. § 1328 (1913) (current

version at id. § 433.1 (2013)).

As we noted in Heritage Cablevision v. Marion County Board of

Supervisors, “In times past Iowa statutes provided for an extensive

personal property tax.” 436 N.W.2d 37, 37 (Iowa 1989). However: “In

1973 the general assembly adopted a scheme under which most personal

property would no longer be taxed.” Heritage Cablevision, 436 N.W.2d at

37; see also 1973 Iowa Acts ch. 255, § 1 (codified as Iowa Code

§ 427A.11 (1975)) (phasing out personal property tax). Yet this phaseout

did not apply to telephone companies and certain other enterprises. See

Iowa Code § 427A.1(1)(h) (2013) (indicating that “[p]roperty assessed by

the department of revenue pursuant to sections 428.24 to 428.29, or

chapters 433, 434, 437, 437A, and 438” shall be assessed as real

property). Northwestern Bell, GTE, and other telephone companies
continued to have to pay property tax on their switches, computers, and

other equipment and personal property in Iowa. Nonetheless, as Qwest’s
 7

counsel acknowledged at oral argument in this case, so long as the

telephone company remained subject to rate-base/rate-of-return

regulation, it was allowed to include those tax obligations in its rate base

and, thus, ultimately to pass them along to Iowa consumers.

House File 518 in 1995 provided that “competitive long distance

telephone compan[ies]” (CLDTCs) would not be subject to this property

taxation scheme. See 1995 Iowa Acts ch. 199, § 1 (current version at

Iowa Code § 476.1D(10)(b)). Instead, such companies essentially would

be taxed on their real property only for property acquired after January
1, 1996. Iowa Code § 476.1D(10)(b). A “competitive long distance

telephone company” was defined as one where “more than half of the

company’s revenues from its Iowa intrastate telecommunications services

and facilities are received from services and facilities that the board has

determined to be subject to effective competition.” Id. § 476.1D(10)(a). It

is undisputed that this provision was intended to encourage so-called

“facilities-based competition,” that is, the deployment of additional

equipment in Iowa by competitive carriers. Seven carriers have since

qualified for CLDTC status, including MCI, AT&T, Sprint, McLeod, and a

long-distance affiliate of Qwest.2

Wireless companies have never been subject to the property

taxation scheme for ILECs because they are not considered to be

“telegraph and telephone compan[ies] operating a line in this state.” See

id. § 433.1. Wireless companies are assessed locally (i.e., by the county)

for the value of their cell towers, which are a form of real property. See

2A CLDTC for section 476.1D(10) purposes can be a CLEC (like McLeod), but it
cannot be an ILEC. See Iowa Code § 476.1D(10)(b) (stating that a long distance
telephone company for purposes of the section “means an entity that provides telephone
service and facilities between local exchanges, but does not include . . . a local exchange
utility holding a certificate issued under section 476.29, subsection 12”).
 8

id. § 441.21; Iowa Admin. Code r. 701—71.15. However, they do not pay

property tax in Iowa on switches and other equipment or personal

property that may be located in their MSOs. It is undisputed, however,

that wireless companies frequently have only one MSO for the entire

state—rather than a number of central offices per metropolitan area like

an ILEC.

Although both CLEC service and other forms of telephone service

have made significant incursions into ILEC market share, Qwest

continues to have a large share of local phone service. As of December
2007, it still had 730,166 access lines in Iowa. Within its service

territory, it had seventy-eight percent of the wireline connections; in over

100 communities, it had at least ninety percent of wireline customers.

While some customers had “cut the cord” and substituted wireless for

wireline service, the record indicates that in the Midwest region as a

whole this would have been only about 15.8% of households as of the

second half of 2007. Certain demographic and geographic factors

suggested the number would be even lower in Iowa.

Qwest’s taxable personal property in Iowa includes a substantial

amount of property (perhaps thirty-five to forty-five percent) that was

acquired while Qwest was still subject to rate-base/rate-of-return

regulation. On November 3, 2006, the Iowa Department of Revenue

issued a notice of assessment to Qwest placing a value on its Iowa

operating property of $1,028,480,000. Qwest elected to challenge the

general assembly’s previous decision to tax the personal property of

ILECs but not CLDTCs or wireless providers operating in Iowa. Thus,

Qwest responded to the 2006 assessment by filing a protest appealing
the assessment to the Iowa State Board of Tax Review.
 9

On December 11, Qwest filed an amended protest acknowledging

an agreement between the parties which reduced the total assessed value

of Qwest’s property to $785,000,000, while preserving Qwest’s

constitutional arguments. Qwest took the position that the dissimilar

tax treatment it received in comparison to other similarly situated

telecommunications companies amounted to unconstitutional

discrimination.3 Specifically, Qwest argued that the tax scheme which

taxed ILECs for the value of their personal property, but not CLDTCs and

wireless providers, violated Qwest’s rights under the Equal Protection
Clauses of the Iowa and United States Constitutions.

The parties jointly requested transfer of the case to the Department

of Inspections and Appeals (DIA) for a contested case hearing.

Subsequently, an evidentiary hearing was held before the DIA over a five-

day period from June 23 to 26 and July 1, 2008. The administrative law

judge (ALJ) issued a forty-page decision on May 5, 2010, setting forth her

findings of fact and conclusions of law and rejecting Qwest’s equal

protection challenge. Regarding the differential treatment of personal

property owned by CLDTCs and ILECs, she observed:

Qwest concedes that the legislature may pass tax laws to
stimulate economic development. They argue, however, that
the state [cannot] provide incentives to one group and deny
them to another related group. As applied here, they
contend that the legislature had no legitimate basis for
offering a property tax incentive to competitive long distance
companies and excluding incumbent local exchange
providers.

The record reveals ample justification for the legislature to
make a distinction between ILECs and telephone service
providers, including the long distance providers. Qwest and
other ILECs had been providing local exchange service and

3The parties stipulated that of this assessment, 28 percent (or $220,049,395)
represents assets that were purchased after January 1, 1995, and that would have
been exempt if purchased by a CLDTC.
 10
operating as sole providers for their service areas under
sanctioned monopoly status for decades. They owned the
existing local telephone infrastructure and, prior to the mid-
1990s were “the local phone company.” ILECs were unlikely
to reduce their presence in the state or withhold expansion
in Iowa. More importantly, the ILECs were well-positioned
not only to withstand competition, but to impede
competitors.

....

Qwest contends that the offer of tax incentives to competitive
long distance companies was not rationally related to a
desire to enhance competition and encourage the
construction in the local exchange market. The state had a
legitimate interest in encouraging the development and
construction of both long distance and local exchange
facilities in Iowa. H.F. 518 contained other measures
designed to promote competition in the local exchange
market. Further, the subsection 476.[1]D(10) exemption
applied to all newly acquired equipment purchased by
qualifying CLDCs—not merely equipment used to provide
long distance service. Thus the exemption provided an
incentive for established long distance companies to move
into the local exchange market.

Finally, Qwest argues that even if a rational basis existed to
support the exemption for newly acquired CLDC property
when the provision was enacted in 1995, the growth of
competitive forces within the telecommunications industry
between 1995 and 2006 has negated the need to provide
incentives to encourage competitors. However, the record
establishes that although Qwest has lost a portion of its
market share, Qwest remains the dominant local exchange
carrier in the markets it serves.

The rational basis test does not require classifications to be
narrowly tailored to serve a particular end. If the
classification has some reasonable basis, it does not offend
the constitution simply because the classification is not
made with mathematical nicety or because in practice it
result[s] in some inequality. The fact that the legislature
could have crafted a broader or different tax exemption does
not render section 476.1D(10) unconstitutional.

(Internal citations and quotation marks omitted.)

Turning to the wireless providers, the ALJ concluded:

The state also has ample reason to treat wireless service
providers differently than wireline providers for purposes of
property tax assessment. By definition, wireless providers
 11
are not telephone companies. They do not own an
interconnected state-wide infrastructure and their property
is not centrally assessed by the department of revenue.
Although these distinctions impact the question of whether
wireline and wireless providers are similarly situated, they
also provide[] a rational justification for taxing wireless
companies differently than wireline telephone companies.

Wireless communication service is a relatively new industry.
The first commercial license was issued by the FCC in 1983.
From the inception of personal wireless service, this segment
of the market has been highly competitive. Despite market
competition, wireless service has expanded rapidly
throughout the state.

. . . Because wireless providers frequently have only one
mobile [switching] office for the entire state (rather than a
number of central offices within each service area) it seems
reasonable to conclude that wireless companies are likely to
own significantly less property which would fall into the
traditional “personal property” categories than ILECs own.

....

Wireless providers do not own the type of state-wide
infrastructure common to centrally assessed businesses. It
is fully reasonable for the legislature to allow wireless
providers the same personal property tax exemptions that
are available to other locally assessed owners of commercial
property.

Qwest filed a timely appeal to the Iowa State Board of Tax Review.

The parties stipulated, however, that the ALJ’s decision would be treated

as that of the Board, subject to Qwest’s right to seek judicial review
thereon. Accordingly, the Board issued a final order on October 12,

adopting the ALJ’s decision in full.

On November 10, Qwest brought a petition for judicial review in

the Polk County District Court, raising only its state constitutional

challenge. After a hearing, the district court reversed the Board’s ruling

and found that Qwest’s Iowa constitutional rights were violated with

respect to the tax treatment it received compared to CLDTCs and
wireless providers. With respect to the CLDTCs, the district court found:
 12
Assuming without deciding that at the time [House
File 518] was enacted there was a rational basis and
legitimate governmental purpose for the legislation, the
Court concludes the evidence in the record shows such
rationale no longer exists. . . . It has been established that
the wireline and wireless segments of the
telecommunications industry are in competition for the same
customers, thus this is the relevant market to look at. When
this more complete picture of the total telephone market is
looked at, Qwest’s share of the market it served as of 2006 is
just under forty percent according to a report by the Board.
Therefore, it is clear Qwest is no longer dominant in this
market, as it was fifteen years ago when it was operating
under sanctioned monopoly status, and the ALJ’s reason for
rejecting this argument by Qwest is without support in the
record.

....

In the end the Court returns to the fact the items
taxed or not taxed (here Qwest’s switches and related central
office equipment and the personal property purchased after
1995 by some long distance telephone companies
respectively) are nearly identical and are for the same main
activity or primary use. . . .

Assuming without deciding there was a rational basis
for the disparate tax treatment of section 476.1D(10) when it
was enacted, the Court concludes that rational basis and
legitimate governmental interests have been vitiated through
changes in the underlying circumstance[s], passage of time,
and advancements in technology. Accordingly, Iowa Code
section 476.1D(10) allowing tax exemption for personal
property acquired after 1995 by CLDCs but taxing the
similarly situated “personal” property of Qwest is an
unconstitutional violation of Iowa’s equal protection
provision, set forth in Article 1, section 6 of Iowa’s
Constitution, as applied to Qwest.

(Internal citations omitted.)

Similarly, concerning wireless providers, the district court wrote:

As with the analysis of long distance companies above,
the Court will assume without deciding there was a rational
basis for the exemption for wireless companies when it was
enacted. However, as above, the Court must again conclude
such assumed rational basis no longer exists. Wireless
service was a relatively new industry and was not widely
available in Iowa when the exemption was enacted. The
record is clear the growth of wireless providers and
subscribers has exploded over the past ten years to the point
 13
that by 2006 the number of wireless subscribers in Iowa
exceeded the number of wireline customers. Accordingly,
the Court concludes any rational basis and legitimate
governmental interests that once existed for this disparate
tax treatment have been vitiated through changes in the
underlying circumstance[s], passage of time, and
advancements in technology. The provisions in Iowa Code
chapters 433 and 427A that establish a tax scheme allowing
a tax exemption for the personal property of wireless
[providers] but not for the substantially similar switching
and central office equipment property of Qwest (the only
property relevant to this issue as detailed above) are in
violation of Iowa’s equal protection provision, set forth in
Article 1, section 6 of Iowa’s Constitution, as applied to
Qwest.

The Board timely appealed to this Court.
II. Standard of Review.

We generally review a district court’s decision on a petition for

judicial review of agency action for correction of errors at law.

Timberland Partners XXI, LLP v. Iowa Dep’t of Revenue, 757 N.W.2d 172,

174 (Iowa 2008). However, in cases such as this, where constitutional

issues are raised, our review is de novo. Id.

III. Analysis.

A. Equal Protection Under the Iowa Constitution. We now

address Qwest’s claim that the State’s property tax scheme for

telecommunications companies violates the equal protection clause of

the Iowa Constitution.4 Article I, section 6 of the Iowa Constitution

states: “All laws of a general nature shall have a uniform operation; the

General Assembly shall not grant to any citizen, or class of citizens,

4For the sake of consistency with our more recent precedent, we will refer to
article I, section 6 as the “equal protection clause” of the Iowa Constitution. See L.F.
Noll Inc. v. Eviglo, 816 N.W.2d 391, 392 (Iowa 2012) (referring to the “equal protection
clause” of the Iowa Constitution); NextEra Energy Res. LLC v. Iowa Utils. Bd., 815
N.W.2d 30, 44 (Iowa 2012) (referring to the “equal protection provision found in article I,
section 6 of the Iowa Constitution”); King v. State, 818 N.W.2d 1, 22 n.18 (Iowa 2012);
Judicial Branch v. Iowa Dist. Ct., 800 N.W.2d 569, 578 (Iowa 2011) (querying whether
“the Equal Protection Clause of the Iowa Constitution has been violated”); Rojas v. Pine
Ridge Farms, L.L.C., 779 N.W.2d 223, 229 (Iowa 2010) (same).
 14

privileges or immunities, which, upon the same terms shall not equally

belong to all citizens.” Like its federal counterpart, our equal protection

clause “is essentially a direction that all persons similarly situated

should be treated alike.” Varnum v. Brien, 763 N.W.2d 862, 878 (Iowa

2009) (citation and internal quotation marks omitted); accord Judicial

Branch v. Iowa Dist. Ct., 800 N.W.2d 569, 578 (Iowa 2011).

Social and economic legislation, such as the tax provisions at issue

here, is reviewed under the rational basis test. See King v. State, 818

N.W.2d 1, 27 (Iowa 2012); accord Sanchez v. State, 692 N.W.2d 812, 817
(Iowa 2005). This is “a very deferential standard.” Varnum, 763 N.W.2d

at 879; accord King, 818 N.W.2d at 27; Ames Rental Prop. Ass’n v. City of

Ames, 736 N.W.2d 255, 259 (Iowa 2007). “Under rational-basis review,

the statute need only be rationally related to a legitimate state interest.”

Sanchez, 692 N.W.2d at 817–18. “[T]he [s]tate does not have to produce

evidence, and only a plausible justification is required.” King, 818

N.W.2d at 28; see also Varnum, 763 N.W.2d at 879. The challenging

party “has the heavy burden of showing the statute unconstitutional and

must negate every reasonable basis upon which the classification may be

sustained.” Varnum, 763 N.W.2d at 879 (citation and internal quotation

marks omitted); accord King, 818 N.W.2d at 28; Sperfslage v. Ames City

Bd. of Review, 480 N.W.2d 47, 49 (Iowa 1992) (“The statute will . . . be

upheld under the rational basis standard if we find the legislature could

reasonably conclude that the classification would promote a legitimate

state interest.”). The fit between the means and the end can be “far from

perfect” so long as the relationship “is not so attenuated as to render the

distinction arbitrary or irrational.” Varnum, 763 N.W.2d at 879 & n.7
(citation and internal quotation marks omitted); see also King, 818

N.W.2d at 28.
 15

When we have applied the rational basis test to tax laws, they have

generally been upheld without much difficulty. “The rational basis

standard is easily met in challenges to tax statutes.” Hearst Corp. v.

Iowa Dep’t of Revenue & Fin., 461 N.W.2d 295, 306 (Iowa 1990); accord

Heritage Cablevision, 436 N.W.2d at 38 (“It is widely recognized that the

rational basis standard is easily satisfied in challenges to tax statutes.”);

City of Waterloo v. Selden, 251 N.W.2d 506, 508–09 (Iowa 1977) (“An iron

rule of equal taxation is neither attainable nor necessary.”).5 In Hearst,

we held that it violated neither federal nor state equal protection
guarantees for the legislature to exempt newspapers but not magazines

from Iowa’s sales and use tax. 461 N.W.2d at 304–06. We noted that “in

tax matters even more than in other fields, the legislature possesses the

greatest freedom in classification.” Hearst, 461 N.W.2d at 305. Among

other things, we accepted the state’s argument that Iowa’s tax scheme

served the state’s interest in “enhancing the general knowledge and

literacy of its citizenry.” Id. at 306.

By subsidizing the price of newspapers through the
“newspaper” exemption the State makes newspapers
available to those of even moderate to low means; an action
deemed to be in the public interest. With this exemption,
newspapers will remain an inexpensive source of public
information which most people will be able to afford.

Id. It went without saying that the exemption applied regardless of

whether the buyer of the newspaper was a person of moderate to low

means and did not apply even if the magazine would have been a

5The United States Supreme Court has taken a similar view. See Armour v. City
of Indianapolis, ___ U.S. ___, ___, 132 S. Ct. 2073, 2080, 182 L. Ed. 2d 998, 1005 (2012)
(“[W]e have repeatedly pointed out that [l]egislatures have especially broad latitude in
creating classifications and distinctions in tax statutes.” (Citation and internal
quotation marks omitted.)).
 16

similarly inexpensive source of public information for people of moderate

to low means.

Similarly, in Sperfslage, we upheld a state regulation that required

all buildings with three or more living units to be classified as

commercial properties for property taxation purposes while allowing all

buildings with one or two units to be classified as residential even when

used as a commercial venture. 480 N.W.2d at 48–49. We reiterated that

the rational basis test “is easily satisfied in challenges to tax statutes.”

Sperfslage, 480 N.W.2d at 49. We then found the regulation
constitutional because it was “far more likely that an owner occupier

would purchase one-unit or two-unit rental properties than three-unit

property for use as a residence.” Id. Again, this rough correspondence

between the asserted state interest and the classification was enough. It

did not matter that in a particular case, the single or double-unit

property never had a residential purpose.

And in Home Builders Ass’n of Greater Des Moines v. City of West

Des Moines, we rejected a federal constitutional challenge to a parks fee

imposed on residential but not commercial developers, and based on the

geographic size of the parcel, without regard to the anticipated density of

the proposed subdivision. 644 N.W.2d 339, 352–53 (Iowa 2002). We

noted that the city had “the freedom in economic matters to encourage

one type of property usage over another by differentiating the fees

imposed on different usages” and was “free to encourage commercial

development by relieving it from payment of the parks fee.” Home

Builders, 644 N.W.2d at 352–53. We added that the City “may

reasonably assume that commercial users of property generate less need
for park facilities than do residential developers.” Id. at 353.
 17

In Racing Ass’n of Central Iowa v. Fitzgerald (RACI II), following

remand from the United States Supreme Court, we concluded that the

legislature’s decision to tax racetrack gross gambling receipts at a rate of

thirty-six percent and riverboat gross gambling receipts at a rate of

twenty percent violated article I, section 6 of the Iowa Constitution. 675

N.W.2d 1, 15–16 (Iowa 2004).6 We explained our application of the

rational basis standard in the following terms:

[T]his court must first determine whether the Iowa
legislature had a valid reason to treat racetracks differently
from riverboats when taxing the gambling revenue of these
businesses. See Fitzgerald v. [Racing Ass’n of Cent. Iowa,
539 U.S. 103, 107, 123 S. Ct. 2156, 2159, 156 L. Ed. 2d 97,
103 (2003)] (requiring “ ‘a plausible policy reason for the
classification’ ” (citation omitted)). In this regard, “the
statute must serve a legitimate governmental interest.”
Glowacki v. State Bd. of Med. Exam’rs, 501 N.W.2d 539, 541
(Iowa 1993). Moreover, the claimed state interest must be
“realistically conceivable.” Miller v. [Boone Cnty. Hosp., 394
N.W.2d 776, 779 (Iowa 1986)] (emphasis added). Our court
must then decide whether this reason has a basis in fact.
See Fitzgerald, 539 U.S. at [107], 123 S. Ct. at 2159, 156 L.
Ed. 2d at 103 (requiring that legislature could rationally
believe facts upon which classification was based are true).
Finally, we must consider whether the relationship between
the classification, i.e., the differences between racetracks
and excursion boats, and the purpose of the classification is
so weak that the classification must be viewed as arbitrary.
See id. (requiring that “ ‘the relationship of the classification
to its goal [not be] so attenuated as to render the distinction
arbitrary or irrational’ ” (citation omitted)); accord Chicago
Title Ins. Co. v. Huff, 256 N.W.2d 17, 29 (Iowa 1977)
(requiring rational relationship between classification and a
legitimate state purpose or governmental interest).

RACI II, 675 N.W.2d at 7–8 (footnotes omitted).

6RACI II was the last decision in a series. We had originally struck down the tax

differential in 2002 as violating both the Federal and Iowa Equal Protection Clauses,
without performing a separate analysis under the Iowa Constitution. Racing Ass’n of
Cent. Iowa v. Fitzgerald (RACI I), 648 N.W.2d 555, 562 (Iowa 2002). The United States
Supreme Court then granted certiorari, reversed our ruling that the tax scheme violated
federal equal protection, and remanded to us for further proceedings. Fitzgerald v.
Racing Ass’n of Cent. Iowa, 539 U.S. 103, 110, 123 S. Ct. 2156, 2161, 156 L. Ed. 2d 97,
105 (2003). This led to our 2004 decision in RACI II under the Iowa Constitution alone.
 18

In two separate footnotes, we elaborated on what we meant by the

phrases “realistically conceivable” and “basis in fact.” With respect to the

former, we said:

The requirement of “ ‘a plausible policy reason for the
classification’ ” may be the aspect of equal protection
analysis most susceptible to differing conclusions in
application. See generally Fitzgerald, 539 U.S. at [107], 123
S. Ct. at 2159, 156 L. Ed. 2d at 103 (emphasis added)
(citation omitted) (stating requirements of Equal Protection
Clause). The dictionary gives two synonyms for the word
“plausible”: “specious” and “credible.” Webster’s Third New
International Dictionary 1736 (unabr. ed. 2002). Certainly a
“specious” reason should not pass constitutional muster.
See generally id. at 2187 (defining “specious” in relevant part
as “apparently right or proper: superficially fair, just or
correct but not so in reality: appearing well at first view:
PLAUSIBLE”). Rather, the policy reason justifying a
particular classification should be “credible.” See generally
id. at 532 (defining “credible” as “capable of being credited or
believed: worthy of belief . . . : entitled to confidence:
TRUSTWORTHY”). Our court’s statement in Miller that the
reason offered in support of a classification must be
“realistically conceivable” reflects the latter understanding of
a “plausible” reason. 394 N.W.2d at 779 (emphasis added).
It implicitly rejects a purely superficial analysis and implies
that the court is permitted “to probe to determine if the
constitutional requirement of some rationality in the nature
of the class singled out has been met.” Greenwalt v. Ram
Restaurant Corp., 71 P.3d 717, 730–31 (Wyo. 2003)
(considering validity of statutory classification under the
equal protection guarantees of the United States and
Wyoming constitutions).

Id. at 7 n.3. Concerning the latter, we stated:

Although this element of equal protection analysis does not
require “proof” in the traditional sense, it does indicate that
the court will undertake some examination of the credibility
of the asserted factual basis for the challenged classification
rather than simply accepting it at face value.

Id. at 8 n.4. Thus, we made clear that actual proof of an asserted

justification was not necessary, but the court would not simply accept it
at face value and would examine it to determine whether it was credible

as opposed to specious.
 19

We also reiterated that a party bringing a rational basis challenge

must “negat[e] every reasonable basis that might support the disparate

treatment.” Id. at 8. Yet we added that when “a classification involves

extreme degrees of overinclusion and underinclusion in relation to any

particular goal, it cannot be said to reasonably further that goal.” Id. at

10 (citation and internal quotation marks omitted).

Applying these standards, we rejected four asserted justifications

in RACI II for the disparate taxation—promoting economic development of

river communities, protecting the reliance interests of riverboat
operators, aiding the financial positions of the riverboats, and

maintaining riverboats in Iowa. Id. at 9–15. Concerning the first

asserted state interest, we noted that there were river communities with

racetracks and nonriver communities with riverboats. Id. at 10. Thus,

the justification was “illogical.” Id. It involved “extreme degrees of

overinclusion and underinclusion.” Id. (quoting Bierkamp v. Rogers, 293

N.W.2d 577, 584 (Iowa 1980)). We then rejected the asserted reliance

interest of riverboat operators because the taxation lines drawn had

nothing to do with the time of investment. Id. at 11. “[T]he differential

tax is triggered not by whether the business engaged in gambling prior to

the implementation of the new tax rates, but [by] whether the gambling

takes place on a floating casino.” Id. at 12.

We also concluded that aiding the financial position of riverboats

was an insufficient justification by itself. If that were so, “any differential

tax would be constitutional because a lower tax always benefits the

financial situation of the taxpayer subject to the lower rate.” Id. at 13.

Finally, we could not accept the State’s contention that a thirty-six
percent tax on gross gambling receipts of racetracks (much higher than

the tax rate recommended by the legislative study committee) was
 20

designed as an incentive to keep riverboats in Iowa. Id. at 15. As we put

it, “[T]he legislature could not reasonably have believed that taxing

racetracks at thirty-six percent rather than at the twenty-four percent

rate recommended by the committee would have any impact on the

competitive position of the excursion boats vis-à-vis their out-of-state

counterparts.” Id. “There [wa]s simply no rational connection between

this conceivable legislative purpose and the discriminatory tax rate

imposed on the racetracks.” Id.

With the preceding principles in mind, we now turn to the personal
property tax scheme at issue in this case.

B. Application of Rational Basis Review to Qwest’s Claims.

The State vigorously argues that Qwest is not “similarly situated” with

the CLDTCs and wireless providers. Therefore, the State initially

contends, we do not need to reach the question of whether the more

favorable tax treatment of CLDTC and wireless provider personal

property has a rational basis. See Timberland, 757 N.W.2d at 175 (“If . . .

the court is unable to identify[] a class of similarly situated individuals

who are allegedly treated differently under the challenged statute, the

plaintiff has not satisfied the first step of an equal protection analysis,

and the court need not address whether the statute has a rational

relationship to a legitimate government interest.” (Citation and internal

quotation marks omitted.)). There is some risk of succumbing to a

tautology if we decide an equal protection claim on this ground, however.

Varnum, 763 N.W.2d at 882–83. No two groups are identical in every

way, and “nearly every equal protection claim could be run aground onto

the shoals of a threshold analysis if the two groups needed to be a mirror
image of one another.” Id. at 883. We will assume, therefore, that the

groups are similarly situated here.
 21

Nonetheless, we agree with the Board’s conclusion that a rational

basis exists for the legislature’s decision not to tax the post-January 1,

1995 investments by CLDTCs in personal property in this state. This

was a reasonable way for the legislature to encourage the deployment of

new infrastructure that would foster competitive wireline networks and

result in lower prices for consumers. The legislature could have

rationally believed that the ILECs had a powerful built-in competitive

advantage based on their existing facilities, whose development had been

underwritten by Iowa ratepayers over the past century.
The district court assumed for the sake of argument that section

476.1D(10)’s tax exemption may have served a rational purpose in 1995,

but found that it does not do so now because Qwest “is no longer

dominant.” We have said before that “when applying a rational basis test

under the Iowa Constitution, changes in the underlying circumstances

can allow us to find a statute no longer rationally relates to a legitimate

government purpose.” State v. Groves, 742 N.W.2d 90, 93 (Iowa 2007)

(citing Bierkamp, 293 N.W.2d at 581).7

7Neither of these cases involved a tax exemption. In Groves, we considered a
substantive due process challenge to a statute prohibiting sex offenders from residing
within two thousand feet of a school or a child care facility. 742 N.W.2d at 92. We
noted that two years before, both our court and the Eighth Circuit had rejected similar
constitutional challenges to these residency restrictions. Id. at 93 (citing State v.
Seering, 701 N.W.2d 655, 662–65 (Iowa 2005), and Doe v. Miller, 405 F.3d 700, 709–16
(8th Cir. 2005)). Citing Bierkamp, we said that “changes in the underlying
circumstances can allow us to find a statute no longer rationally relates to a legitimate
government purpose.” Id. (citing Bierkamp, 293 N.W.2d at 581). But we noted that
Groves had “failed to present any evidence that would cause us to retreat from our
decision in Seering.” Id. Thus, we rejected his rational basis challenge. Id.
In Bierkamp, we found no rational basis for Iowa’s automobile guest statute and
held it could not withstand constitutional attack under article I, section 6. 293 N.W.2d
at 585. At the outset of our rational basis review, we stated that “changes in underlying
circumstances may vitiate any rational basis” and “the passage of time may call for a
less deferential standard of review as the experimental or trial nature of legislation is
less evident.” Id. at 581. However, it is unclear that we even applied these principles in
that case. Immediately after stating them, we went on to discuss jurisprudence
overturning automobile guest statutes in other jurisdictions. Id. at 581–82. Thus, if
 22

However, in this case, we disagree with the district court’s

conclusion. To find that Qwest “is no longer dominant,” the district court

considered Qwest’s percentage of total wireline and wireless connections.

But this assumes that wireless and wireline are substitutes, when the

record before the Board showed that most wireless customers (eighty-five

percent or more during the time period covered by this proceeding)

continue to pay for wireline service. Thus, one can plausibly argue that

there remains a distinct demand and, therefore, a separate market for

wireline service, and that Qwest is still dominant in that market. See,
e.g., Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 469–

82, 112 S. Ct. 2072, 2083–90, 119 L. Ed. 2d 265, 285–94 (1992) (finding

that the existence of cross-elasticity of demand does not prevent product

markets from being treated as separate for antitrust purposes). For

rational basis purposes, this “realistically conceivable” justification,

which does not involve “extreme degrees of overinclusion and

underinclusion,” is a sufficient basis to uphold the legislature’s line-

drawing. RACI II, 675 N.W.2d at 10.

Additionally, to the extent there is a separate market for wireline

services in which the ILECs have monopoly power, a legislature could
_____________________________________
anything, the Bierkamp decision’s reference to “changes in underlying circumstances”
contemplates evolving legal trends. There have been no comparable developments of
which we are aware in property tax jurisprudence.
Notably, the Eighth Circuit case on which we relied in Groves indicates that
elected policymakers are better suited to reevaluate the basis for legislation over time.
See Doe, 405 F.3d at 715 (“The legislature is institutionally equipped to weigh the
benefits and burdens of [legislation], and to reconsider its initial decision in light of
experience and data accumulated over time.”). Still, the United States Supreme Court
recognized that a property taxation scheme can become constitutionally invalid if it fails
to account for changes in value due to the passage of time. Allegheny Pittsburgh Coal
Co. v. Cnty. Comm’n of Webster Cnty., 488 U.S. 336, 343–46, 109 S. Ct. 633, 637–39,
102 L. Ed. 2d 688, 697 (1989) (striking down a county’s assessment of property taxes
primarily on the basis of purchase price, with no adjustments over time, such that new
property owners were assessed at roughly 8 to 35 times the rate of those who had
owned their property longer).
 23

reasonably conclude that taxing the ILECs’ personal property is an

appropriate way to capture some of their monopoly rent. See FCC v.

Beach Commc’ns, Inc., 508 U.S. 307, 319–20, 113 S. Ct. 2096, 2104, 124

L. Ed. 2d 211, 225 (1993) (justifying a regulatory exemption for satellite

service covering commonly owned or managed buildings, but not

separately owned and managed buildings, on the ground that an

operator in the latter situation is more likely to have unchecked

monopoly power).8

Turning to the differential treatment of personal property owned by
ILECs and wireless providers, we note at first the district court’s

irrefutable observation: “[T]he growth of wireless providers and

subscribers has exploded over the past ten years to the point that by

2006 the number of wireless subscribers in Iowa exceeded the number of

wireline customers.”9 Yet, this observation is helpful only in so far as it

goes. To the extent that separate wireless and wireline markets exist, the

legislature could reasonably conclude that the wireless market is

competitive, with four companies of national scope doing business in

8The issue here is one of tax incidence, i.e., whether the tax would be borne by

consumers or instead would come out of monopoly profits. Defending a tax on this
basis is different from defending it based on “revenue production” or “the pure fact that
the market will allow [a higher tax].” See RACI I, 648 N.W.2d 561–62. In short, it is one
thing for the government to assert that a group of taxpayers should be more heavily
taxed so the government can raise more money. As we pointed out in RACI I, this is a
circular argument that can always be used to justify any discrepancy in tax rates.
However, it is another thing to maintain that differential tax rates are rationally related
to enhancing affordability because the lower rates will ultimately benefit consumers
while the higher rates will come out of monopoly rents.
9Qwest argues that when the legislature phased out personal property taxes on

most businesses in 1973, it could not have been intending to stimulate the wireless
industry, which did not even exist. But one cannot have it both ways. If we are going
to require that legislation serve a current legitimate purpose, we cannot require that
such end have been in the actual minds of legislators when the legislation was enacted.
Otherwise, we would be saying that the legislature has to periodically review the entire
Iowa Code and regularly reenact any laws that serve a different purpose than the
original intended purpose.
 24

Iowa (AT&T, Verizon, Sprint and T-Mobile), and that the wireline market

is not. In a competitive industry, pricing approaches marginal cost, and

there are no monopoly rents for government to extract. See NetCoalition

v. S.E.C., 615 F.3d 525, 537 (D.C. Cir. 2010) (“[I]n a competitive market,

the price of a product is supposed to approach its marginal cost, i.e., the

seller’s cost of producing one additional unit.”). Thus, the legislature

might logically conclude that the burdens of a tax on the wireless

providers’ personal property in Iowa would simply be passed along to

consumers in higher prices, while, a tax on a monopolist would not.
The record contains evidence from which a rational legislator might

conclude that the wireless companies operate in a competitive market

and Qwest still does not. Wireless rates have been declining dramatically

on a per minute basis. Meanwhile, Qwest increased single line flat-rated

residential monthly service rates from $12.80 to $14.12 on August 1,

2005, to $15.56 on August 1, 2006, and to $16.60 on August 1, 2007.10

Thus, the justification for differential treatment is not “specious”; it is

“credible.” RACI II, 675 N.W.2d at 8 n.3.

It is useful to compare and contrast this case with RACI II. A key

weakness of the State’s position in RACI II was that it was trying (at least

in part) to justify the tax differential simply as a way to promote the

companies that were treated favorably by the differential. We do not hold

here that the State can simply justify the different tax treatment of ILECs

in section 433.4 as a way to promote one group of companies over

10Qwest’s ability to institute annual price increases of eight to ten percent

suggests that competition is not so “robust” as Qwest claims it be, or at least the
legislature could so conclude. Qwest analogizes its situation to Blockbuster, which
used to have a thriving in-store rental business but has been driven into bankruptcy by
other forms of video competition. Yet, Qwest has not been driven into bankruptcy and
does not claim that its wireline business in Iowa is unprofitable. Nor has Qwest
demonstrated, as the racetracks did in RACI, that the tax in question jeopardizes its
ability to make a profit. RACI I, 648 N.W.2d at 561.
 25

another—and it hasn’t. Rather, the State has made a plausible showing

that the ILECs retain some vestiges of their former monopoly status that

make it appropriate for the State to tax their property while relieving

potential developers of competing infrastructure from a similar burden.

Also, we dismissed the reliance interest in RACI II because nothing

in those laws turned on when the investment had been made. By

contrast, section 476.1D(10) limits the CLDTC exemption to property

purchased after the exemption was enacted. Furthermore, this case

concerns property taxes, an area where reliance interests have been
viewed as significant. Owners—certainly sophisticated businesses like

telecommunications companies—often consider the property tax

consequences of their purchases before they make them. It is reasonable

for the State to preserve those reliance interests by continuing to tax

property as it has been taxed from the date of purchase by its owner.

See Nordlinger v. Hahn, 505 U.S. 1, 13–14, 112 S. Ct. 2326, 2333, 120 L.

Ed. 2d 1, 14 (1992) (upholding California’s limits on adjustments to the

assessed value of property until it is resold and acknowledging that

“classifications serving to protect legitimate expectation and reliance

interests do not deny equal protection of the laws”).

Qwest’s challenge to Iowa’s personal property tax scheme is not the

only such challenge that has been brought nationally. In Verizon New

Jersey Inc. v. Hopewell Borough, an ILEC objected to a New Jersey law

that imposed a personal property tax on any “local exchange telephone

company,” which the law defined as “a telecommunications carrier

providing dial tone and access to fifty-one percent of a local telephone

exchange.” 26 N.J. Tax 400, 404 (N.J. Tax Ct. 2012). The court
construed the statute as requiring an annual determination of whether

the ILEC still had 51% of wireline service, in which case the personal
 26

property tax would continue. Verizon, 26 N.J. Tax at 418. The New

Jersey court then held that the statute so construed did not violate the

equal protection clause of the New Jersey Constitution:

The court concludes that there was a rational basis to
continue to impose the personal property tax only on those
local telephone companies that had, for many years, enjoyed
a monopoly over the provision of local telephone service in
their franchise areas. The Legislature could reasonably
assume that the three ILECs enjoyed a substantial
competitive advantage as a result of their former monopolies;
that they continued to be the dominant users of public rights
of way and facilities; and that, as a transitional measure, it
was reasonable to continue to impose the tax on only those
companies until such time as they no longer enjoyed a
competitive advantage, as evidenced by the fact that they
were no longer providing 51% of the dial tone and access to
an exchange.

Id. at 428. The court added in dictum that the tax would fail the rational

basis test if companies that had originally met the fifty-one percent

would “perpetually be subject to tax” regardless of what happened to

their competitive position. Id. Notably, though, New Jersey employs a

balancing test in rational basis cases that differs analytically from the

federal rational basis test. Id. at 425. In any event, the New Jersey court

found that the ILECs’ retention of a majority of the wireline business was

a sufficient constitutional justification for continuing to treat them
differently, the same conclusion we are reaching here. See also Qwest

Corp. v. Colo. Div. of Prop. Taxation, ___ P.3d ___, No. 10CA1320, 2011

WL 3332876 (Colo. App. 2011) (rejecting Qwest’s constitutional

arguments that “its property must receive the same tax benefits as

similar property used by cable companies to provide telephone services”),

cert. granted, No. 11SC669, 2012 WL 1940812 (Colo. 2012); GTE North,

Inc. v. Zaino, 770 N.E.2d 65, 69 (Ohio 2002) (rejecting an ILEC’s
constitutional challenge to an Ohio law that provided for a much higher
 27

rate of assessment on certain personal property of ILECs and noting that

ILECs “enjoy the advantage . . . of being the default provider of intraLATA

call service for customers who fail to take affirmative action to choose

another provider”); Sw. Bell Tel. Co. v. Combs, 270 S.W.3d 249, 272–73

(Tex. App. 2008) (finding no federal or state equal protection violation in

imposing franchise taxes on local exchange carriers but not long-

distance carriers).11

C. Alternative to the Rational Basis Test. In the alternative,

Qwest urges us not to follow our established rational basis
jurisprudence, but instead to take up the lead of certain other states that

expressly require uniformity in taxation. Qwest points out that a few

other jurisdictions have concluded that “constitutional uniformity is

sufficiently important that no rationalization can justify differences in

taxation.” See Citizens Telecomms. Co. of the White Mountains v. Ariz.

Dep’t of Revenue, 75 P.3d 123, 129–30 (Ariz. Ct. App. 2003) (holding that

under the Arizona constitution functionally equivalent property must be

taxed the same); Idaho Tel. Co. v. Baird, 423 P.2d 337, 346–47 (Idaho

1967) (finding it unconstitutional under Idaho’s uniformity clause to

assess certain property at a higher ratio of full cash value), overruled by

Simmons v. Idaho St. Tax Comm’n, 723 P.2d 887, 892–93 (Idaho 1986);

Inter Island Tel. Co., v. San Juan County, 883 P.2d 1380, 1382–83 (Wash.

1994) (holding it unconstitutional to assess a local phone company at a

much higher rate than other utilities and personal property taxpayers).

These cases are easily distinguishable, however, because the state

constitutions at issue contained specific language requiring uniformity in

11The State also argues that Qwest’s greater use of government services because
of its much larger infrastructure in Iowa justifies imposing personal property tax on it,
but not on the CLDTCs and wireless providers. We need not reach that argument.
 28

taxation. Idaho Telephone relied on language in article VII, section 5 of

the Idaho Constitution stating, “All taxes shall be uniform upon the same

class of subjects within the territorial limits, of the authority levying the

tax . . . .” 423 P.2d at 340. In any event, that Idaho decision has been

overruled. See Simmons, 723 P.2d at 892–93. The Arizona and

Washington courts also relied on similar state constitutional provisions

apparently mandating uniform taxation. See Citizens Telecomms. Co., 75

P.3d at 129 (“According to the Uniformity Clause of the Arizona

Constitution, Article 9, Section 1, ‘all taxes shall be uniform upon the
same class of property.’ ”); Inter Island, 883 P.2d at 1382 (“All taxes shall

be uniform upon the same class of property within the territorial limits of

the authority levying the tax . . . .” (quoting Wash. Const. art. 7, § 1)).

Needless to say, the Iowa Constitution does not contain such a

clause. And, such a test would be antithetical to our precedents as we

have described them above. Cf. City of Coralville v. Iowa Utils. Bd., 750

N.W.2d 523, 530 n.3 (Iowa 2008) (declining to interpret the Iowa

Constitution as requiring that “all Iowa laws be geographically uniform”).

IV. Conclusion.

For the foregoing reasons, we reverse the judgment of the district

court and remand to that court for further proceedings not inconsistent

with this opinion.

DISTRICT COURT JUDGMENT REVERSED AND CASE

REMANDED.

All justices concur except Waterman, J., who concurs specially and

Appel, J., who takes no part.
 29

#11–1543, Qwest Corp. v. Iowa State Bd. of Tax Review

WATERMAN, Justice (concurring specially).

I concur in the majority’s well-reasoned decision in all respects but

one. The majority misses the opportunity to expressly overrule Racing

Ass’n of Central Iowa v. Fitzgerald (RACI II), 675 N.W.2d 1 (Iowa 2004). I

reiterate my call to expressly overrule RACI II as plainly erroneous for the

reasons set forth in my special concurrence in King v. State, 818 N.W.2d

1, 43 n.28 (Iowa 2012) (Waterman, J., concurring).