Iowa Ag Construction Co., Inc., An Iowa

IN THE SUPREME COURT OF IOWA
No. 72 / 04-1836

Filed September 15, 2006

IOWA AG CONSTRUCTION CO., INC., an Iowa Corporation, and IOWA
SELECT FARM, an Iowa Limited Liability Partnership,

Appellants,

vs.

IOWA STATE BOARD OF TAX REVIEW,

Appellee.

Appeal from the Iowa District Court for Polk County, Robert J. Blink,

Judge.

Taxpayers appeal judicial review decision that affirmed their tax

assessment. AFFIRMED.

Burns Mossman of Nyemaster, Goode, West, Hansell & O’Brien, P.C.,

Des Moines, for appellants.

Thomas J. Miller, Attorney General, and Marcia Mason, Assistant

Attorney General, for appellee.
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LAVORATO, Chief Justice.

Iowa Ag Construction Co., Inc. (Iowa Ag) and Iowa Select Farms,

L.L.P. (Iowa Select) appeal from a district court decision affirming the

decision of the Iowa State Board of Tax Review (Board). The Board held that

property used in pork production was not exempt from Iowa sales or

consumer use tax under Iowa Code section 422.45(26), (39) (2001).

Because we agree with the conclusions the district court reached, we affirm.

I. Background Facts.

Iowa Ag constructed buildings for DeCoster Farms. Hog confinement

buildings built by Iowa Ag were always owned by Austin J. DeCoster. Some

of these buildings were leased to Iowa Select.

In the hog confinement business, different buildings are used for

confining hogs of different ages to isolate disease and control the

environment. Hog operations use farrowing facilities. In those facilities

sows give birth to pigs, and those pigs stay with the sow for three to four

weeks. Hog operations also use nurseries in which pigs are confined until

they reach a weight of forty or fifty pounds. Finishing facilities are also

used to confine pigs weighing 50 to 250 pounds.

A typical hog confinement building is 200 to 280 feet in length and
forty feet wide. The foundation is made of poured concrete, with walls from

one to four feet high. These walls have a two-inch ledge to allow for

installation of slatted concrete flooring or nursery floor frames. Piers in the

pits are poured concrete walls that run the length of the building. The pit

walls and piers support the slats or nursery floor frames. The pigs and the

people tending the pigs walk into a hog confinement building on the same

level where the concrete slats or nursery floor frames are located. Below the

slatted or nursery flooring is a manure pit that is between one and four feet

deep.
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Farrowing and nursery barns consist of separate rooms because of

the need to regulate the temperature in the rooms. In finishing barns,

which are open, the hogs are separated into pens.

Nursery flooring is used in farrowing and nursery buildings. Nursery

flooring is galvanized steel mesh wire cut to fit a frame. The frames are

typically four-by-eight feet or six-by-ten feet and weigh 144 pounds and 270

pounds, respectively. The frame rests on top of concrete beams and is

attached by a “J” bolt to the pen dividers. Bolts are used to secure the

flooring to the floor frame in the corners. There are four bolts for each

frame. Nursery flooring suspends pigs from their waste, which falls through

the wire mesh to the pit below. The nursery flooring is designed to separate

the animals from their waste thereby keeping them clean and dry.

Concrete slats are used in finishing buildings. These slats are usually

four by ten feet or four by eight feet. A four by ten feet slat weighs about

1340 pounds. The slats are designed to separate the hogs from their waste,

which falls through the floor into the waste pit. The weight of the slat holds

it in place on the two-inch ledge in the wall of the building.

Exhaust fans are located in the sides or ends of buildings or in pits to

exchange air. Ventilation is necessary for the pigs’ proper growth. The
exhaust fans are made of fiberglass and vary in size and weight from eleven

inches square to fifty-three inches square and weigh from 19 pounds to 287

pounds. The wall fans are inserted into a hole in the wall. Four to eight

screws or bolts attach the fan to the building. If a fan is removed, a square

opening would be left in the building. The size of the opening would match

the size of the fan. The pit fans typically sit on top of a rectangular concrete

box that is part of the pit structure and located outside the building. A

ventilation controller turns the fans on and off, and a motor powers the

fans.
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Curtains are used in the hog confinement buildings and are part of a

system that, together with other equipment in the building, provide proper

ventilation for the animals. These buildings are built with rectangular

openings along the sides of the buildings to provide for natural ventilation.

The curtains are made of vinyl over a polyethylene material, woven together

in strands. The curtains can be raised or lowered manually.

Curtain controllers control the ventilation within the hog confinement

buildings. A curtain controller receives information from thermostats or

sensors inside and outside the building. Based on that information, the

curtain controller causes fans to go off and on and the curtains to go up

and down. The controller can also control heaters and water misters that

drip water on the animals.

The controller is usually attached to a control board in the center of

the building with two to four one-half-inch screws. The controller has three

wires coming in to it, and the number of wires going out would depend on

how many items the controller was to control.

A curtain machine raises and lowers the curtains. The curtain

machine replaces a hand crank. The curtain machine weighs between 100

and 150 pounds and is usually attached to the outside of the confinement
building with six screws or bolts. Three electrical wires provide power to the

curtain machine, and additional wires connect it to the curtain and

ventilation controller. The curtain machine has a cable attached to a drum,

which is operated by electrical power. When the drum turns, the cable lifts

or lowers the curtains on the side of the building.

As part of the biosecurity procedures at Iowa Select and DeCoster

Farms, personnel who work in the hog confinement buildings are required

to shower every morning upon arrival before entering a hog confinement

building. Both Iowa Select and DeCoster Farms provide uniforms for their
 5

employees, which are worn by the employees and are washed on-site.

These procedures are necessary because hogs are susceptible to disease

that is easily carried and transmitted by clothing.

At each building, refrigerators are used to keep medications for hogs

at the proper temperature. Such medication might include immunizations

or vitamin or mineral supplements that need refrigeration to maintain

effectiveness.

Today, most hogs are bred artificially. After semen is collected and

delivered to the farm, the semen must be stored at a specific temperature.

A special refrigerator is used at the Iowa Select and DeCoster Farms to store

the semen.

Iowa Select uses mowers to cut grass and weeds around the hog

confinement buildings for rodent control. Mowers are also used around

sewage lagoons located on the site as required by the Iowa Department of

Natural Resources. The agency requires the mowing so that its employees

can properly inspect the lagoons to determine if there are any cracks, leaks,

or degradation around the outside of the lagoons. The mowers were used

more than fifty percent of the time to cut grass and weeds to control rodents

and to mow grass around the lagoons.
II. Proceedings.

On November 23, 1999, as a result of a field audit, the Iowa

Department of Revenue and Finance (department) sent Iowa Ag a notice of

assessment for sales/use tax, covering the period from April 1, 1992,

through June 30, 1998. The tax, penalty, and interest amounted to

$1,414,714.51. On January 5, 2000, Iowa Ag filed a protest, disputing the

entire amount of the assessment.

On November 23, 1999, as a result of a field audit, the department

sent Iowa Select a notice of assessment for sales/use tax covering the
 6

period from January 1, 1993, through December 31, 1998. The tax,

penalty, and interest amounted to $708,410.87. On April 7, 2000, Iowa

Select filed a protest, disputing the entire amount of the assessment. Later,

Iowa Select paid the assessment under protest and filed a claim for refund

of the amount paid.

Iowa Ag and Iowa Select agreed to consolidate the two cases. An

administrative law judge (ALJ) heard the case. The issues pertinent to the

appeal before this court were whether certain items of property described

above were exempt from tax pursuant to Iowa Code section 422.45(39) and

whether other items of property described above were exempt from tax

pursuant to Iowa Code section 422.45(26). The department appealed the

ALJ’s proposed decision to the director, who issued an order reversing a

part of the ALJ’s proposed decision. Iowa Ag and Iowa Select [hereinafter

taxpayers] appealed the director’s order to the Board.

Following a hearing, the Board issued its decision. The Board

concluded that the following items of property pertinent to the appeal to this

court and described above were subject to tax: nursery flooring, concrete

slats, exhaust fans, curtains, curtain controllers, curtain machines,

washers, dryers, refrigerators, and mowers.
The taxpayers filed a petition for judicial review in the district court.

The taxpayers alleged that the Board erred in its legal conclusion that the

property described was subject to tax. Following a hearing, the district

court affirmed the Board’s decision. It is from this ruling that the taxpayers

appeal.

III. Issues.

The first issue is whether the following items of property are exempt

from Iowa sales/use tax pursuant to Iowa Code section 422.45(39): nursery
 7

flooring, concrete slats, exhaust fans, curtains, curtain controllers, curtain

machines, washers, dryers, and refrigerators.

The second issue is whether the mowers are exempt from such tax

pursuant to Iowa Code section 422.45(26).

IV. Scope of Review.

Our review of agency action is governed by the standards set forth in

Iowa’s Administrative Procedure Act. See Iowa Code §§ 17A.15(3),

17A.19(1), 421.1(4), 422.55(1); Grimm v. Iowa Dep’t of Revenue, 331 N.W.2d

137, 139-40 (Iowa 1983) (per curiam). “In exercising its judicial review

power, the district court acts in an appellate capacity.” Mycogen Seeds v.

Sands, 686 N.W.2d 457, 463 (Iowa 2004). When we review the district

court’s decision, “we apply the standards of chapter 17A to determine

whether the conclusions we reach are the same as those of the district

court.” Id. at 464. “If they are the same, we affirm; otherwise we reverse.”

Id.

The issues here involve the agency’s interpretation of law, its factual

determinations, and its application of law to the facts. Regarding the

agency’s interpretation of the law, the court may grant relief if the

taxpayers’ “substantial rights have been prejudiced because the agency’s
action meets any one of several statutory criteria.” See Midwest Auto. III,

LLC v. Iowa Dep’t of Transp., 646 N.W.2d 417, 421 (Iowa 2002).

Several administrative rules represent the agency’s interpretation of

Iowa Code section 422.45(26), (39). Although we give weight to the agency’s

interpretation, the meaning of a statute is always a matter of law for us to

determine. See City of Marion v. Iowa Dep’t of Revenue & Fin., 643 N.W.2d

205, 206 (Iowa 2002).

Iowa Code section 17A.19(11) prescribes the deference that we should

accord the view of the agency. See id. at 206-07. Iowa Code section
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17A.19(11)(c) provides that we should give appropriate deference to the view

of the agency “with respect to particular matters that have been vested by a

provision of law in the discretion of the agency.” Iowa Code § 17A.19(11)(c).

A statutory provision provides that “[t]he director [of revenue and finance]

shall have the power and authority to prescribe all rules not inconsistent

with the provisions of this chapter, necessary and advisable for its detailed

administration and to effectuate its purposes.” Id. § 422.68(1). We

therefore conclude that the interpretation of section 422.45(26), (39) has

been vested in the agency. Consequently, we must give the agency’s

interpretation of this statute through its administrative rules the deference

directed by Iowa Code section 17A.19(11)(c). See City of Marion, 643 N.W.2d

at 206-07. That deference requires us to uphold the agency’s interpretation

unless that interpretation is “irrational, illogical, or wholly unjustifiable.”

Iowa Code § 17A.19(10)(l).

Regarding the agency’s factual determinations, the court may grant

relief if the taxpayers’ substantial rights have been prejudiced because the

agency action is

[b]ased upon a determination of fact clearly vested by a
provision of the law in the discretion of the agency that is not
supported by substantial evidence in the record before the
court when that record is viewed as a whole.

Id. § 17A.19(10)(f).

For purposes of our review,

“[s]ubstantial evidence” means the quantity and quality of
evidence that would be deemed sufficient by a neutral,
detached, and reasonable person, to establish the fact at issue
when the consequences resulting from the establishment of
that fact are understood to be serious and of great importance.

Id. § 17A.19(10)(f)(1). “In assessing evidentiary support for the agency’s

factual determinations, we consider evidence that detracts from the
 9

agency’s findings, as well as evidence that supports them, giving deference

to the credibility determinations of the presiding officer.” Lange v. Iowa

Dep’t of Revenue, 710 N.W.2d 242, 247 (Iowa 2006); see Iowa Code

§ 17A.19(10)(f)(3).

As to the agency’s factual determinations regarding the applicability

of the exemptions in section 422.45(26), (39), such determinations are

clearly vested by a provision of law in the discretion of the agency. The case

was tried as a contested case proceeding in which factual findings were

made based on evidence produced. See Iowa Code § 422.54(2). We are

therefore bound by the agency’s findings of fact if supported by substantial

evidence. See Lange, 710 N.W.2d at 246-47. We can reverse the agency

action regarding findings of fact only if they are not supported by

substantial evidence. Mycogen Seeds, 686 N.W.2d at 465. By applying this

requirement, we are giving “appropriate deference to the view of the agency

with respect to particular matters that have been vested by a provision of

law in the discretion of the agency.” Iowa Code § 17A.19(11)(c); see also

Mycogen Seeds, 686 N.W.2d at 465.

Because factual determinations are by law clearly vested in the

agency, it follows that application of the law to the facts is likewise vested
by a provision of law in the discretion of the agency. Iowa Code

§ 17A.19(10)(f); see also Mycogen Seeds, 686 N.W.2d at 465. We can

therefore reverse the agency’s application of the law to the facts only if we

determine such application was “irrational, illogical, or wholly

unjustifiable.” Iowa Code § 17A.19(10)(m); see also Mycogen Seeds, 686

N.W.2d at 465. By applying this standard, we are likewise giving

“appropriate deference to the view of the agency with respect to particular

matters that have been vested by a provision of law in the discretion of the
 10

agency.” Iowa Code § 17A.19(11)(c); see also Mycogen Seeds, 686 N.W.2d at

465.

In assessing the validity of the agency action, we apply “the standards

of review provided in [Iowa Code section 17A.19], as applied to the agency

action at the time that action was taken.” Iowa Code § 17A.19(8)(b); see

Marovec v. PMX Indus., 693 N.W.2d 779, 782 (Iowa 2005). This accords

with the long-standing rule that “ ‘statutes controlling appeals are those

that were in effect at the time the judgment or order appealed from was

rendered.’ ” Wal-Mart Stores, Inc. v. Caselman, 657 N.W.2d 493, 498 (Iowa

2003) (quoting Ontjes v. McNider, 224 Iowa 115, 118, 275 N.W. 328, 330

(1937)).

Iowa Code section 422.45 was repealed effective July 1, 2004. 2003

Iowa Acts 1st Ex. Sess. ch. 2, §§ 151, 205. A new sales tax exemption

section was created, which became effective July 1, 2004. Id. ch. 2, §§ 96,

205 (codified at Iowa Code § 423.3 (2005)).

The Iowa legislature passed Senate File 2268 and the Governor signed

it on June 2, 2006. 2006 Iowa Legis. Serv. S.F. 2268 (West). Senate File

2268 added a new subsection providing for tax refunds for several items of

property at issue here. Id. We express no opinion on this provision.
Because we are dealing with issues of tax exemption, we must keep in

mind that any doubts as to tax exemptions must be resolved in favor of

taxation. Dial Corp. v. Iowa Dep’t of Revenue & Fin., 634 N.W.2d 643, 646

(Iowa 2001).

With these principles in mind, we consider the issues before us.

V. Exemption Afforded by Iowa Code Section 422.45(39).

A. Applicable law. Iowa Code section 422.45(39) exempts from sales

tax
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[t]he gross receipts from the sale or rental of farm machinery
and equipment, including auxiliary attachments which improve
the performance, safety, operation, or efficiency of the
machinery and equipment and replacement parts, if all of the
following conditions are met:
a. The implement, machinery, or equipment is directly
and primarily used in livestock or dairy production . . . .
b. The implement is not a self-propelled implement . . .
c. The replacement part is essential to any repair or
reconstruction necessary to the farm machinery’s or
equipment’s exempt use in livestock or dairy production . . . .

Iowa Code § 422.45(39) (emphasis added).

Section 423.4(4) exempts from use tax “[t]angible personal property,

the gross receipt from the sale of which are exempted from the retail sales

tax by the terms of section 422.45, except [as to subsections not relevant

here] . . . .”

Rule 701—18.48 of the Iowa Administrative Code implements Iowa

Code section 422.45. Iowa Admin. Code r. 701—18.48(8). This rule defines

“equipment” as

tangible personal property (other than a machine) directly and
primarily used in livestock or dairy production. It may be
characterized as property which performs a specialized
function which, of itself, has no moving parts or if it does
possess moving parts, its source of power is external to it.

Id. r. 701—18.48(1)(b).

Iowa Administrative Code rule 701—18.48(1)(c)(1) provides that real

property is not machinery or equipment:

(1) Real property. The ground or the earth is not
machinery or equipment. A building is not machinery or
equipment. Therefore, tangible personal property which is sold
for incorporation into the ground or a building in such a
manner that it will become a part of the ground or the building
is taxable. Generally, property incorporated into the ground or
a building has become a part of the ground or the building if
removal of the property from the ground or building will
substantially damage the property, ground, or building or
substantially diminish the value of the property, ground, or
building. Fence posts embedded in concrete and electrical
 12
wiring, light fixtures, fuse boxes, and switches are examples of
property sold for incorporation into the ground or a building,
respectively. The property referred to in 18.48(1)(c)(1) can be
identified by applying the following test: Assume that the
property is being sold to a contractor rather than a person
engaged in livestock or dairy production. If sold to a
contractor, would the retailer be required to consider the
property “building material” and charge the contractor sales
tax upon the purchase of this building material. If this is the
case, sale of the property is not exempt from Iowa tax law.
Iowa department of revenue and finance rule 701—19.3(422,
423) contains a characterization of “building material” and a
list of specific examples of building material.

Id. r. 701—18.48(1)(c)(1) (citation omitted).

As pertinent here, rule 701—19.3, referred to in rule 701—

18.48(1)(c)(1), states that the term

“building materials” . . . means materials used in construction
work, and is not limited to materials used in constructing a
building with sides and covering. The term may also include
any type of materials used for improvement of the premises or
anything essential to the completion of a building or structure for
the use intended.

Id. r. 701—19.3(1) (emphasis added) (citation omitted).

Rule 701—19.3(3) lists typical items regarded as building materials.

The list is not intended to be exclusive. Id. r. 701—19.3(3). The list regards

as building materials floor coverings “which are shaped to fit a particular

room or area and which are attached to the supporting floor with cement,

tacks or tack strips or by some other method making a permanent attachment

. . . .” Id. (emphasis added). In contrast, the rule notes that carpeting,

whether attached to the floor or not, is not considered as a building material

and that rugs, mats, and linoleum types of floor coverings that are not

attached but are simply laid on finished floors are not considered as

building materials. Id.

Iowa Administrative Code rule 701—19.10 distinguishes between

equipment and real property after installation:
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Distinguishing machinery and equipment from real
property. A construction contract may include many
activities, but it does not include a contract for the sale and
installation of machinery or equipment. Machinery and
equipment includes property that is tangible personal property
when it is purchased and remains tangible personal property
after installation. Generally, tangible personal property can be
moved without causing damage or injury to itself or to the
structure, it does not bear the weight of the structure, and it
does not in any other manner constitute an integral part of a
structure. Manufactured machinery and equipment which does
not become permanently annexed to the realty remains
tangible personal property after installation.

Id. r. 701—19.10 (emphasis added).

Rule 701—19.10(2) lists “property which, under normal conditions,

becomes a part of realty.” The list, which is nonexclusive, includes

“improvements to buildings, including awnings, canopies, . . . floors

(including computer room floors), . . . storm doors and windows, door

controls, air curtains, . . . and heating, cooling and ventilation systems.” Id.

r. 701—19.10(2)(c) (emphasis added). While the administrative rule does

not define the word “integral,” we think rule 701—19.10(2) was intended to

define the term when it used the language “property which, under normal

conditions, becomes a part of realty.” This language tracks the ordinary

meaning of “integral”: “of, relating to, or serving to form a whole.”

Webster’s Third New International Dictionary 1173 (unabr. ed. 2002); see

also Hough v. Iowa Dep’t of Personnel, 666 N.W.2d 168, 173 (Iowa 2003)

(noting the court’s practice of looking “to the ordinary, commonly

understood meaning of the [undefined statutory] word” and using a

dictionary to ascertain the meaning).
“Directly and primarily” in section 422.45(39)(a) are defined in rule

701—18.48(1). Rule 701—18.48(1)(e) pertinently provides that

[i]f the machinery or equipment is used in livestock or dairy
production, to be “directly” so used, that use must constitute an
integral and essential part of production as distinguished from a
use in production which is incidental, merely convenient to or
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remote from production. The fact that machinery or equipment
is essential or necessary to livestock or dairy production does
not mean that it is also “directly” used in production.
Machinery or equipment may be necessary to livestock or dairy
production but so remote from it that it is not directly used in that
production.

Iowa Admin. Code r. 701—18.48(1)(e) (emphasis added). The statute does

not define “directly,” but rule 701—18.48(1)(e)’s definition of the term tracks

with the dictionary meaning of “direct”: “marked by absence of an

intervening agency, instrumentality, or influence.” Merriam-Webster’s

Collegiate Dictionary 327 (10th ed. 2002).

Rule 701—18.48(1)(e)(3) lists nonexclusive examples of machinery

and equipment that are not considered to be directly used in livestock or

dairy production. One pertinent use includes “[m]achinery or equipment

used to . . . repair other machinery or equipment directly used in livestock

or dairy production.” Iowa Admin. Code r. 701—18.48(1)(e)(3)(1).

In addition, the rule defines “primarily used in livestock or dairy

production”:

Machinery or equipment is “primarily used in livestock or dairy
production” if of the total time that unit of machinery or
equipment is used, more than [fifty] percent of the time is in
livestock or dairy production. If a unit of machinery or
equipment is used more than [fifty] percent of the time for
production and the balance of time for other business
purposes, the exemption applies.

Id. r. 701—18.48(1)(f).

The rule also lists the following pertinent nonexclusive example of

machinery and equipment directly used in livestock or dairy production:

“Machinery and equipment used in the conception . . . of livestock or dairy

animals (e.g., artificial insemination equipment).” Id. r. 701—18.48(1)(e)(2)(2)

(emphasis added).

B. The merits. The Board began its analysis by stating that it

evaluated the nursery flooring, concrete slats, exhaust fans, curtains,
 15

curtain controllers, and curtain machines on the basis of the permanency

or degree of annexation of the structure to other real property under rules

701—18.48, 701—19.3, and 701—19.10, as those rules are set out above.

The Board then determined that each of these items of property had to be

addressed in terms of those rules on an individual basis. We turn now to

the Board’s findings and conclusions and our analysis of the same.

1. Nursery flooring and slats. The Board noted that rule 701—19.3

gives examples of items typically regarded as building materials such as

floors that are shaped to fit a particular room or area and that are attached

to the supporting floor in some permanent fashion. The Board compared

this type of flooring to rugs, mats, or other flooring that are not so attached.

The Board made specific findings that nursery flooring and slats (1) are not

rugs, floor mats, or flooring coverings that are simply laid but not attached

to finished floors; (2) constitute the floor of the building that separates the

hogs from the waste pit below; and (3) are attached to the real property to

an extent as to become part of the property. Based on these findings, the

Board concluded these items were not exempt from tax.

According to the evidence, the buildings in question were constructed

for the purpose of operating a hog confinement business. The evidence
supports a reasonable inference that the nursery flooring and concrete slats

were essential to the completion of the building for the use intended and for

that reason were building materials and therefore subject to tax. See Iowa

Admin. Code rs. 701—18.48(1)(c)(1), 701—19.3(1). The nursery flooring and

concrete slats also fit the intended meaning of “floors” in rule 701—19.3(3),

meaning they are building materials. Accordingly, they meet the definition

of “building materials” and therefore are subject to tax. See id. r. 701—

18.48(1)(c)(1). They also fit the intended meaning of “floors” in rule 701—

19.10(2)(c), that describes “property which, under normal conditions,
 16

becomes a part of realty.” As such, the nursery flooring and concrete slats

are “an integral part of a structure,” within the meaning of rule 701—19.10.

The nursery flooring and concrete slats therefore fall outside the meaning of

tangible personal property not subject to tax. See id. r. 701—19.10.

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(39), as

implemented by the administrative rules considered by the Board, was not

irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.

2. Exhaust fans. As to the exhaust fans, the Board found that, after

the fans were installed into the walls of the building, “they became part of

the real property.” The Board further found that these items perform the

same functions as a window and are necessary because of the specialized

construction of the building. Finally, removing these items, the Board

found, would be consequential to the building environment. For all of these

reasons, the Board concluded these items were not exempt from tax.

As mentioned, the fans vary in size and weight from eleven inches

square to fifty-three inches square and weigh from 19 pounds to 287

pounds. The fans are inserted into a hole in the wall and are attached to
the building with screws or bolts. Their removal would leave a hole the size

of the fan. The fans are a necessary part of the ventilation system, which is

essential for the animals’ health and proper growth. This evidence supports

the Board’s findings that the fans are necessary because of the specialized

construction of the building, and their removal would be consequential to

the building environment. A reasonable inference from these findings is

that the fans are essential to the completion of the building for the use

intended and are for that reason considered building materials and

therefore subject to tax. See id. rs. 701—18.48(1)(c)(1), 701—19.3(1).
 17

We note that windows and window screens are listed as typical items

meeting the description of “building materials” in rule 701—19.3(3).

Windows and cooling and ventilation systems qualify as “property which,

under normal conditions, becomes a part of realty.” Id. r. 701—19.10(2)(c).

The exhaust fans here serve a similar purpose as windows, window screens,

and cooling and ventilation systems. We therefore conclude the fans meet

the “building materials” description in rule 701—19.3(3) and are therefore

for that further reason subject to tax. See id. r. 701—18.48(1)(c)(1). The

fans also meet the definition of “property which, under normal conditions,

become[] a part of realty” in rule 701—19.10(2). As such, the fans are an

“integral part of a structure,” within the meaning of rule 701—19.10. The

fans therefore fall outside the parameters of tangible personal property not

subject to tax. See id. r. 701—19.10.

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(39), as

implemented by the administrative rules considered by the Board, was not

irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.

3. Curtains, curtain machines, and ventilation controllers. The
Board found these items are necessary for controlling temperature in the

confinement building. The Board further found that these items became

part of the hog confinement structure once they were installed. For that

reason, the Board found these items did not retain tangible personal

property status. Consequently, the Board concluded these items were not

exempt from tax.

The evidence showed that the curtains, curtain machines, and

ventilation controllers together with the exhaust fans provide proper

ventilation for the animals, as found by the Board. The curtain controller is
 18

attached to a control board in the center of the building with screws. The

curtain machine is attached to the outside of the building with screws or

bolts.

A reasonable inference from this evidence is that these items are

necessary and essential to the completion of the buildings for the use

intended and for that reason are building materials and therefore subject to

tax. See id. rs. 701—18.48(1)(c)(1), 701—19.3(1). Air curtains and cooling

and ventilation systems are listed in rule 701—19.10(2)(c) as “property

which, under normal conditions, becomes a part of realty.” The items in

question clearly meet this description. As such, the items are an “integral

part of a structure” within the meaning of rule 701—19.10. The items

therefore fall outside the parameters of tangible personal property not

subject to tax. See id. r. 701—19.10.

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(39), as

implemented by the administrative rules considered by the Board, was not

irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.

4. Washers and dryers. Regarding the washers, dryers, and
refrigerators, the Board analyzed the exemption issue as to whether those

items were used directly and primarily in livestock production as set out in

Iowa Code section 422.45(39) as implemented by the administrative rules.

As mentioned, personnel who work in the hog confinement buildings

at Iowa Select and DeCoster Farms must shower every morning before

entering a hog confinement building. The personnel must also wear

uniforms provided by their employers, and these uniforms are washed on-

site. These procedures are necessary to protect the animals from disease

that is easily carried and transmitted by clothing.
 19

The Board found that the washers and dryers are one step removed

from being “directly and primarily used in livestock production.” The Board

therefore concluded that these items were not exempt from tax.

While it may be necessary for the taxpayers to have these items, this

is not the test. The test is that the items must not be remote from the

production process. Substantial evidence supports the Board’s finding that

these items are one step removed from being directly used in livestock

production. The use of washers and dryers is analogous to maintaining or

repairing equipment directly used in livestock production, which is not a

direct production use. See id. r. 701—18.48(1)(e)(3)(1); Dain Mfg. Co. v. Iowa

State Tax Comm’n, 237 Iowa 531, 538, 22 N.W.2d 786, 790-91 (1946)

(holding that drill grinding machine used to service machinery or equipment

directly used in processing property was not considered to be directly used

in the processing).

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(39), as

implemented by the administrative rules considered by the Board, was not

irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.
5. Refrigerators. The evidence revealed there were two types of

refrigerators used. One was for storage of medications and another was for

storage of semen. The Board found the refrigerators were not directly used

in livestock production because they were one step removed from being

directly used in production as required by the statute. They were one step

removed, the Board found, because “[i]t is the semen, medication and

vaccinations that are used, not the refrigerator.” For these reasons, the

Board concluded these items were not exempt from tax.
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The refrigerators used to store the medication were necessary to

preserve the medication’s effectiveness. However, as with the washers and

dryers, this is not the test. The test is that the refrigerators must not be

remote from the production process. And like the washers and dryers, the

use of these refrigerators is analogous to repairing or maintaining

equipment directly used in the production process. We conclude

substantial evidence supports the Board’s finding that these refrigerators

were not directly used in livestock production.

We reach the same conclusion for the same reasons regarding the

refrigerators used to store the semen. As mentioned, rule 701—

18.48(1)(e)(2)(2) provides that artificial insemination equipment is directly

used in the production of livestock because it is equipment used in the

conception of livestock. As the Board found, refrigerators are not directly

used in the production of livestock; rather, it is the semen itself that is

directly so used. Unlike artificial insemination equipment, the refrigerators

are clearly one step removed from the production of livestock.

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(39), as

implemented by the administrative rules considered by the Board, was not
irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.

VI. Exemption Afforded by Iowa Code Section 422.45(26).

A. Applicable law. Iowa Code section 422.45(26) exempts from sales

tax

[t]he gross receipts from the sale or rental of farm machinery
and equipment, including auxiliary attachments which improve
the performance, safety, operation, or efficiency of the
machinery and equipment and replacement parts, if the
following conditions are met:
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a. The farm machinery and equipment shall be directly
and primarily used in production of agricultural products.
b. The farm machinery and equipment shall constitute
self-propelled implements or implements customarily drawn or
attached to self-propelled implements or the farm machinery or
equipment is a grain dryer.
c. The replacement part is essential to any repair or
reconstruction necessary to the farm machinery’s or
equipment’s exempt use in the production of agricultural
products.

Iowa Code § 422.45(26) (emphasis added).

B. The merits. What remains to be considered are the mowers. The

Board determined these items were not exempt pursuant to Iowa Code

section 422.45(26), which exempts from tax farm machinery directly and

primarily used in the production of agricultural products. Production of

agricultural products means “a farming operation undertaken for profit by

raising crops or livestock.” Iowa Admin. Code r. 701—18.44(2)(a) (emphasis

added). Therefore, the administrative rules applicable to livestock

production have application to the mowers.

The taxpayers rely on section 422.45(26) because the exemption in

section 422.45(39) does not apply to “self-propelled implement[s] or

implement[s] customarily drawn or attached to self-propelled implements”

whereas the exemption in section 422.45(26) does apply to such

implements. Compare Iowa Code § 422.45(39)(b), with Iowa Code

§ 422.45(26)(b). The mowers here are either pulled by a tractor or are rider

mowers.

Iowa Select uses mowers to cut grass around the hog confinement

buildings and on the farm for rodent control. Iowa Select also mows around

sewage lagoons to abide by an Iowa Department of Natural Resources

regulation requiring mowing there to enable the agency to inspect lagoons.

These uses consumed well over fifty percent of the mowers’ use.
 22

The Board found that the mowers were one step removed from being

used directly in the production of livestock. Our reasoning that substantial

evidence supports the Board’s findings regarding the washers, dryers, and

refrigerators applies here with equal force.

We conclude substantial evidence supports the Board’s findings. We

further conclude that the Board’s interpretation of section 422.45(26), as

implemented by the administrative rules considered by the Board, was not

irrational, illogical, or wholly unjustifiable. Nor was its application of the

law to the facts irrational, illogical, or wholly unjustifiable.

VII. Disposition.

Because we reach the same conclusions the district court reached, we

affirm its decision affirming the decision of the Board. We have carefully

considered all of the issues. Those we have not addressed were either not

properly preserved or lack merit.

AFFIRMED.