IN THE SUPREME COURT OF IOWA
No. 115 / 06–1354
Filed October 24, 2008
TIMBERLAND PARTNERS XXI, LLP,
EDWARD L. HENDRICKSON, and
JAMES C. CONLIN,
Appellants,
vs.
IOWA DEPARTMENT OF REVENUE,
Appellee.
________________________________________________________________________
Appeal from the Iowa District Court for Polk County, Don C.
Nickerson, Judge.
Apartment building owners challenge the constitutionality of the
different tax treatment given apartments and condominiums under Iowa
Administrative Code rule 701—71.1(4), (5). AFFIRMED.
Michael A. Dee and Rebecca A. Brommel of Brown, Winick, Graves,
Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellants.
Thomas J. Miller, Attorney General, and Donald D. Stanley, Jr.,
Assistant Attorney General, for appellee.
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BAKER, Justice.
Apartment building owners appeal the district court’s ruling that
Iowa Administrative Code rule 701—71.1(4), (5) (2005), under which
apartment buildings are designated as commercial regardless of their use
and are therefore subject to higher property taxes than non-commercial
condominiums, does not violate the equal protection clauses of the
United States and Iowa Constitutions. Because apartments and
condominiums are not “similarly situated,” we find their dissimilar
treatment does not violate equal protection.
I. Background Facts and Proceedings.
Appellants Timberland Partners XXI, L.L.P., Edward L.
Hendrickson, and James C. Conlin own numerous multi-unit residential
apartment buildings in Iowa. Timberland filed a petition for declaratory
order with the Iowa Department of Revenue requesting that Iowa
Administrative Code rule 701—71.1(4), (5) be declared unconstitutional
as violative of the equal protection clauses of the United States and Iowa
Constitutions. This rule classifies apartment buildings as commercial
property, regardless of their use, but classifies condominiums as
commercial if used for a commercial venture and residential if used for
human habitation. Timberland seeks to have its apartment buildings
taxed as residential because residential properties are taxed at a much
lower percentage of their assessed value than commercial properties.
The department issued a declaratory order finding the rule did not violate
equal protection. Timberland filed a petition for judicial review. The
district court concluded that rule 701—71.1(4), (5) does not violate equal
protection.
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II. Scope of Review.
We typically review a district court’s decision on a
petition for judicial review of agency action for correction of
errors at law. . . . The provisions of the Iowa Administrative
Procedure Act, particularly the judicial review provisions of
section 17A.19(8), govern this review. However, in cases
such as this one, where “constitutional issues are raised, . . .
we must make an independent evaluation of the totality of
the evidence and our review . . . is de novo.”
Brummer v. Iowa Dep’t of Corr., 661 N.W.2d 167, 171 (Iowa 2003)
(quoting Simonson v. Iowa State Univ., 603 N.W.2d 557, 561 (Iowa 1999)).
III. Discussion and Analysis.
Timberland contends the disparate treatment afforded apartments
and condominiums under rule 701—71.1(4), (5) is unconstitutional and
a violation of the equal protection clauses of the United States and Iowa
Constitutions.
A. The Rule. “By statute and administrative regulation, taxable
real property in Iowa must be assessed within one of six categories:
agricultural, residential, commercial, industrial, utilities, or railroads.”
City of Newton v. Bd. of Review, 532 N.W.2d 771, 773 (Iowa 1995) (citing
Sperfslage v. Ames City Bd. of Review, 480 N.W.2d 47, 48 (Iowa 1992)).
Property is to be classified and valued “according to its present use and
not according to its highest or best use.” Iowa Admin. Code r. 701—
71.1(1).
Rule 701—71.1 provides in relevant part:
71.1(4) Residential real estate. Residential real estate shall
include all lands and buildings which are primarily used or
intended for human habitation . . . .
An apartment in a horizontal property regime (condominium)
. . . which is used or intended for use for human habitation
shall be classified as residential real estate regardless of who
occupies the apartment. . . .
71.1(5) Commercial real estate. Commercial real estate shall
include all lands and improvements and structures located
thereon which are primarily used or intended as a place of
business . . . . Commercial realty shall also include hotels,
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motels, rest homes, structures consisting of three
or more separate living quarters and any other buildings for
human habitation that are used as a commercial venture. . . .
However, regardless of the number of separate living
quarters or any commercial use of the property, single- and
two-family dwellings, multiple housing cooperatives
organized under Iowa Code chapter 499A . . . shall be
classified as residential real estate.
An apartment in a horizontal property regime (condominium)
referred to in Iowa Code chapter 499B which is used or
intended for use as a commercial venture, other than leased
for human habitation, shall be classified as commercial real
estate.
(Emphasis added.)
In short, under the Iowa Administrative Code, apartment buildings
are classified as commercial, regardless of their use, and condominiums
are classified as commercial if used for a commercial venture and as
residential if used for human habitation. This court has “recognized the
commercial nature of apartment complexes and their resulting
commercial classification for tax purposes.” Newton, 532 N.W.2d at 773
(citing Sperfslage, 480 N.W.2d at 49).
Timberland contends the disparate treatment between apartments
and condominiums is a violation of equal protection because
condominiums leased for human habitation are classified as residential,
while apartments leased for human habitation are classified as
commercial.
B. Equal Protection. “[T]he Equal Protection Clause ‘is
essentially a direction that all persons similarly situated should be
treated alike.’ ” Racing Ass’n of Cent. Iowa v. Fitzgerald, 675 N.W.2d 1,
7 (Iowa 2004) (quoting City of Cleburne v. Cleburne Living Ctr., 473 U.S.
432, 439, 105 S. Ct. 3249, 3254, 87 L. Ed. 2d 313, 320 (1985)).
“The first step of an equal protection [analysis] is to identify the
classes of similarly situated persons singled out for differential
treatment.” Ames Rental Prop. Ass’n v. City of Ames, 736 N.W.2d 255,
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259 (Iowa 2007) (citing Grovijohn v. Virjon, Inc., 643 N.W.2d 200,
204 (Iowa 2002)). “ ‘If people are not similarly situated, their dissimilar
treatment does not violate equal protection.’ ” Bowers v. Polk County Bd.
of Supervisors, 638 N.W.2d 682, 689 (Iowa 2002) (quoting In re Morrow,
616 N.W.2d 544, 548 (Iowa 2000)). If a plaintiff fails to articulate, and
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.” Grovijohn, 643 N.W.2d
at 204; see also Glen Haven Homes, Inc. v. Mills County Bd. of Review,
507 N.W.2d 179, 183 (Iowa 1993) (noting equal protection does not
require dissimilar entities be treated similarly).
Timberland contends that “[a]partments and condominiums are
similarly situated in their use, market characteristics, and structure.”
According to the district court, “[t]he similarities of condominiums and
apartments . . . are not as pronounced as they are alleged to be.” The
court concluded that “[c]ondominiums’ characteristics as separate and
identifiable parcels of real property make them rationally more akin to
single family residences than apartments for classification purposes,”
and that “[b]ased on this factor alone, the court believes the agency
clearly has a rational basis for making the distinction . . . .” The trial
court went on to identify other factors that differentiate condominiums
from apartments, including market characteristics, structural
differences, and the “bundle of rights” associated with condominium
ownership. The trial court concluded that “what truly makes the
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difference in this case is that the two types of property are simply not
similarly situated.”1
Timberland contends the district court erred in focusing on the
ownership of condominiums rather than focusing on the similar uses of
condominiums and apartments. It argues the market characteristics of
the two “are so similar as to be virtually identical,” because both compete
for the same occupants, i.e., “many condominium units are marketed as
leaseholds, just like apartments,” and they are similar in structural
design and in the rules applied to residents. The State counters that the
“record is totally void of any evidence to support [appellants’] claim that
condominiums are routinely marketed and leased throughout the state
in the same manner as multi-unit apartment complexes.”
We determine that any similarities between apartments and
condominiums are insufficient to consider them “similarly situated” for
equal protection analysis. Although condominiums may be marketed
and leased like apartments and are similar in structural design and in
the rules applied to residents, unlike apartments, each condominium
unit is treated as a separate real estate parcel and could be marketed as
a single-family unit. See Iowa Code § 499B.10 (Supp. 2008) (declaring
that in a horizontal property regime, “each individual apartment . . . shall
constitute . . . a separate parcel of real property and shall be . . .
completely and freely alienable . . . .”). In this respect, for classification
purposes, condominiums are more like single-family residences than
apartments. See Sperfslage, 480 N.W.2d at 49 (recognizing “the
1Although the district court determined that apartments and condominiums are
not similarly situated, it then engaged in a rational basis analysis to determine “a
rational basis exists for the classification of apartment complexes . . . as commercial
property and condominiums . . . as residential property.”
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appropriateness of factoring market classifications into property
valuations”).
In addition to the individual ownership rights of condominium
owners, under chapter 499B an owner of a condominium, unlike an
apartment tenant, has certain rights, including the right to participate in
the management and operation of the unit or complex. See Iowa Code §
449B.15 (providing the minimum requirements to be contained in the
bylaws for the governance of the condominium). Condominium owners
also bear increased stewardship expectations. Iowa Code section
499B.20 outlines the requirements for apartment-to-condominium
conversions. It states:
[A]n existing structure shall not be converted to a horizontal
property regime unless the converted structure meets local
city or county, as applicable, building code requirements in
effect on the date of conversion or the state building code
requirements, as adopted pursuant to section 103A.7, if the
local city or county does not have a building code.
Id. § 499B.20. This statute provides a minimum standard that property
owners must meet when attempting to convert apartment buildings into
condominiums and outlines the State’s heightened stewardship
requirements for owner-occupied property.
Under the statute, the ultimate question for classification is the
use of the property. A condominium is typically occupied by the owner
whereas an apartment is always a commercial enterprise. City of
Newton, 532 N.W.2d at 773 (“We, like other jurisdictions, have
recognized the commercial nature of apartment complexes and their
resulting commercial classification for tax purposes.”). The primary use
of each is dissimilar. One is typically residential whereas the other is
exclusively commercial. As a result, apartments are not similarly
situated to condominiums. Because we, like the district court, cannot
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find a class of similarly situated individuals who are allegedly
treated differently under the challenged statute, Timberland has not
satisfied the first step of the equal protection analysis. Therefore, we
need not address whether the classification meets “the rational basis
prong of the equal protection analysis.” Bowers, 638 N.W.2d at 690.
IV. Disposition.
We affirm the district court judgment in favor of the Iowa
Department of Revenue.
AFFIRMED.
All justices concur except Appel, J., who takes no part.