Wendling Quarries, Inc. v. Property Assessment Appeal Board of the State of Iowa , 865 N.W.2d 635 ( 2015 )

IN THE COURT OF APPEALS OF IOWA
No. 14-0626
Filed February 25, 2015
WENDLING QUARRIES, INC.,
Petitioner-Appellant,
vs.
PROPERTY ASSESSMENT APPEAL
BOARD OF THE STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Robert E. Sosalla,
Judge.
A taxpayer appeals from a district court decision affirming the assessment
of the Iowa Property Assessment Appeal Board. REVERSED AND
REMANDED.
Steven J. Kahler of Schoenthaler, Bartelt, Kahler & Reicks, Maquoketa, for
appellant.
Jessica Braunschweig-Norris and Brad Hopkins, Assistant Attorney
General, Des Moines, for appellee.
Heard by Vaitheswaran, P.J., and Tabor and Mullins, JJ.
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MULLINS, J.
Wendling Quarries, Inc. (WQI) appeals from a decision of the district court,
upon its petition for judicial review, affirming the order of the Property
Assessment Appeal Board of the State of Iowa (PAAB). WQI contends the
district court erred in affirming PAAB’s finding that its quarry scale was a taxable
improvement on the land under Iowa Code chapter 427A (2013). We reverse
and remand for further proceedings.
I. SUMMARY OF APPLICABLE LAW.
Except for certain exceptions not applicable to this case, all Iowa real
property is subject to annual property tax. Iowa Code § 427.13. Real property
for the purposes of taxation includes more than is covered by the traditional
definitions of land and fixtures. Real property is statutorily defined in Iowa Code
section 427A.1(1), in relevant part, to include buildings, structures, or
improvements on the land and buildings, structures, equipment, machinery, or
improvements attached to buildings, structures, or improvements on the land.
Tax assessment determinations are made by assessors, either county or
city. Id. §§ 441.1, 441.17(2),. The taxpayer may protest an assessment. Id.
§ 441.37. The applicable board of review, either county or city, hears the protest
and may modify the assessment. Id. The grounds for protest are statutorily
limited. Id. § 441.37(1). Appeals from the board of review may be taken to
PAAB.1 Id. §§ 441.37A, 421.1A. PAAB decides anew all questions arising
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Appeals may also bypass PAAB and seek judicial review in the district court. Iowa
Code § 441.38. When this is done, the district court hears the appeal in equity and
review is, therefore, de novo. Id. § 441.39.
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before the local board of review. Iowa Code § 441.37A(2). The decision of
PAAB is the final agency action for the purpose of further appeal. Id.§ 441.37A(3)(b). Petitions for judicial review may be made to the district court
under Iowa Administrative Law Chapter 17A. Id. § 441.38B.
II. BACKGROUND FACTS & PROCEEDINGS.
Wendling Quarries, Inc. (WQI) leases land in Cedar Rapids on which it
built and operates a quarry scale to weigh mining products. In 2011, the City of
Cedar Rapids Assessor assessed the leased property with a value of $212,423.
Of that amount, $71,062 was attributed to the scale. WQI appealed the
assessment to the city board of review, arguing the scale was not assessable
property under Iowa Code section 427A.1(1). The board reduced the overall
assessment by about $8000, but maintained the scale was assessable real
property. WQI appealed to PAAB. PAAB concluded the scale was assessable
under Iowa Code section 427A.1(1)(c) as an improvement “constructed on or in
the land, attached to the land, or placed upon a foundation whether or not
attached to the foundation.” WQI petitioned for judicial review, urging the court to
find the scale was nontaxable equipment or machinery rather than an
improvement. The district court affirmed PAAB’s order. WQI appeals,
contending the district court erred in affirming PAAB’s conclusion that the scale is
assessable as an improvement to the land.
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III. STANDARD AND SCOPE OF REVIEW.
Review of a decision of PAAB is for correction of errors at law. 2 Iowa
Code § 441.39. In reviewing a district court decision affirming an agency, we
apply the standards of chapter 17A to determine if we reach the same conclusion
as the district court. Naumann v. Iowa Prop. Assessment Appeal Bd., 791
N.W.2d 258, 260 (Iowa 2010). “If the agency’s action was based on an
erroneous interpretation of a provision of law whose interpretation has not been
clearly vested in the agency, we shall reverse, modify or grant other appropriate
relief from the agency action.” Id.; see also Iowa Code § 17A.19(10)(c). We are
bound by PAAB’s findings of fact if they are supported by substantial evidence.
Mycogen Seeds v. Sands, 686 N.W.2d 457, 464 (Iowa 2004).
WQI complains the district court concluded it was required to adhere to
PAAB’s interpretation of the relevant statutory provisions. Under the Iowa
Administrative Procedure Act,
[a]n agency’s interpretation of law is given deference if authority to
interpret the law has clearly been vested by a provision of law in the
discretion of the agency. If the interpretation is so vested in the
agency, then the court may reverse an agency’s interpretation only
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WQI asserts review on appeal to this court is de novo. The district court’s standard of
review is statutorily defined under Iowa Code section 441.39:
If the appeal is from a decision of the local board of review, the court shall
hear the appeal in equity and determine anew all questions arising before
the board which relate to the liability of the property to assessment or the
amount thereof. . . . If the appeal is from a decision of the property
assessment appeal board, the court's review shall be limited to the
correction of errors at law.
Because we do not hear this case in equity, but from a judicial review of an agency
decision, our review is consistent with the standards under chapter 17A. See Iowa Code
§§ 17A.19, 441.38.
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if it is irrational, illogical, or wholly unjustifiable. If, however, the
interpretation of a provision of law is not vested in the discretion of
the agency, our review is for correction of errors at law and we are
free to substitute our interpretation of the statute de novo.
Tremel v. Iowa Dep’t of Revenue, 785 N.W.2d 690, 692-93 (Iowa 2010) (internal
quotations and citations omitted). Our supreme court has determined that PAAB
does not have the explicit or implicit authority to interpret Iowa Code section
441.21(1)(d) concerning actual, assessed and taxable value of property subject
to taxation. Naumann, 791 N.W.2d at 260-61. Here, PAAB does not contend it
has authority to interpret chapter 427A, and no provision of section 421.1A—the
code provision enabling PAAB—indicates explicitly or implicitly that PAAB has
the requisite authority. Thus, we may substitute our interpretation of the
provisions of chapter 427A for that of PAAB and the district court.
IV. ANALYSIS.
A. Placement of Burden of Proof.
WQI first complains the district court improperly placed the burden of proof
on it to show the scale was exempted or subject to an exception from taxation.3
Before the board of review, the protesting taxpayer bears the burden of proof.
Iowa Code § 441.21(3)(b). Before PAAB, the burden remains on the taxpayer.
See id. § 441.21(3)(b), 441.37A(2). On petition for judicial review to the district
court, the burden is on the party asserting the invalidity of the agency action, in
this case the taxpayer. Id. § 17A.19(8)(a). We apply the same standards, thus,
3
WQI extensively briefed the difference between an exemption and an exception and
who bears the burden of proof under either scenario. It cites Rose Acre Farms, Inc. v.
Bd. of Review, 479 N.W.2d 260 (Iowa 1991), in support of its argument. That case,
however, contains no discussion of burden of proof.
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the district court correctly placed the burden on WQI to show the scale was not
assessable under chapter 427A.
B. Whether the Scale is Assessable Real Property.
WQI contends the district court erred in affirming PAAB’s decision,
asserting that PAAB incorrectly concluded the scale is an improvement subject to
taxation under Iowa Code section 427A.1(1)(c). Section 427A.1(1) provides:
For the purposes of property taxation only, the following shall be
assessed and taxed, unless otherwise qualified for exemption, as
real property:
a. . . . .
b. . . . .
c. Buildings, structures or improvements, any of which are
constructed on or in the land, attached to the land, or placed upon a
foundation whether or not attached to the foundation. . . .
d. Buildings, structures, equipment, machinery or
improvements, any of which are attached to the buildings,
structures, or improvements defined in paragraph “c” of this
subsection.
Section 427A.1(2) provides:
As used in subsection 1, “attached” means any of the following:
a. Connected by an adhesive preparation.
b. Connected in a manner so that disconnecting requires
the removal of one or more fastening devices, other than electric
plugs.
c. Connected in a manner so that removal requires
substantial modification or alteration of the property removed or the
property from which it is removed.
WQI asserts the scale is equipment or machinery under section 427A.1(1)(d), but
non-taxable because it is not “attached,” consistent with the exception set out in
section 427A.1(3). Section 427A.1(3) provides:
[P]roperty is not “attached” if it is a kind of property which would
ordinarily be removed when the owner of the property moves to
another location. In making this determination the assessing
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authority shall not take into account the intent of the particular
owner.
Before PAAB, WQI presented the testimony of Jeff Derlein, the owner and
operator of Derlein Scales, the company that sold WQI the scale and installed it
in the land; Rich White, executive director of the Iowa Limestone Producers
Association; and John Tuthill, WQI’s property manager. PAAB summarized its
findings of fact:
Jeff Derlein testified Derlein Scale, Inc. installs, repairs, and
services all types of scales. . . . Derlein testified a lot of his work
includes quarry business and he is familiar with the use of industrial
scales in the quarry industry. He installed the subject scale in the
late 1990s and continues to service it. Derlein testified the subject
scale has an approximate 20-year life. This is the second scale at
the subject property. It was installed by reusing the existing piers,
which are approximately 25-30 years old.
Derlein explained the installation process for these types of
scales. First, four main concrete piers, two approach ramps, and
three wash-out slabs located between the piers are installed to
serve as a foundation for the scale parts. Steel plates are bolted to
the piers by concrete anchors. The scale consists of three modules
with sensors or load cells in each cavity. There are a total of eight
load cells in the subject scale. The three modules are linked
together by bolts and I-beams are suspended in the center and rest
on the end piers to support the structure. A crane is used to lift the
steel plates from the truck and put them in place. Concrete is then
poured into the deck modules. Highway guardrails are installed in
the ground along the sides of the scale.
Derlein testified that a new scale like the subject would cost
approximately $52,000 to install including labor, materials, and
setup. The concrete piers and approaches account for
approximately $19,500 of the total cost. The scale components
and installation account for the remaining $32,500. He reports
most of the labor is in the foundation, with less labor on the scale.
In Derlein’s opinion, the subject scale is currently worth
approximately $8000 to $12,000.
Derlein characterized moving the scale as a simple process,
which requires reversal of the installation process. It also requires
a 40-ton crane at $1000 rental cost, one or two trucks, a three-man
crew, and four hours at $800 to $1000 in labor costs to
[disassemble] and load the scale. . . . It would cost approximately
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another $2000 to re-install it at a new location and there would also
be transportation costs associated. Derlein reported the owner
generally tears out the concrete piers and approaches after the
scale is removed. He testified there is a market for used scales.
He said he would essentially act as a broker bringing together
buyers and sellers in these types of sales if he was contacted.
Rich White reported . . . quarry operators are required by the
State to be licensed and bonded . . . . [In order to leave a quarry
site] the law requires the removal of all mining related waste
products as well as buildings, structures, machinery and equipment
....
John Tuthill reported [WQI], a subsidiary of Manatt’s Inc.,
has sixty-seven active quarries in Iowa, and owns fifty to sixty truck
scales. Tuthill testified he has been in the industry sixteen years
and does not recall [WQI] ever abandoning or leaving a scale
behind when relocating or closing an operation. He testified the
scale, all its component parts, and the scale house are required to
be removed during the reclamation process. The scale would
either be stored or sold in the used scale market. He describes
this . . . as usual and customary practice in the quarry industry.
Tuthill also reported that over the past four or five years he
has approached other assessors about the scales being personal
property. According to Tuthill, Jackson, Linn, Cedar, Clinton,
Johnston, Benton, and Muscatine Counties have exempted [WQI’s]
at-grade scales from their real estate assessments. He testified the
City of Cedar Rapids is the first jurisdiction to not exempt the scales
as personal property.
WQI also presented numerous statements from other mine operators in the area
stating that scales are routinely disassembled and removed from quarry sites,
and that there is a market for used scales.
The board of review presented the testimony of City Assessor Scott
Labus. PAAB summarized his testimony as follows:
In Labus’ experience, scales like the subject property
generally stay on site, but, he acknowledged [WQI’s] evidence
indicates it typically moves it scales. In his thirty-nine years of
experience, he has found that scales are generally left on industrial
sites, at elevators, grain handling companies, and feed mills. In
Labus’ experience and opinion, the property owner usually does not
remove a scale when it leaves a site, but rather it remains for use
by the next owner of that site or salvage . . . .
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Ultimately, Labus believes the scale is an improvement and
not equipment. He believes equipment is used to process raw
materials or is used to move raw material from one part of a
manufacturing establishment to another manufacturing
establishment. He contends the scale here is not used in this
manner and is therefore not equipment.
On our review of the record, including the hearing transcript and photographic
exhibits, we find substantial evidence supports PAAB’s factual findings regarding
the mechanics of the scale and the piers, and their operation, assembly, and
disassembly.
Where the statutory provision does not provide a definition, we apply the
plain meaning of the words. State ex rel. Atty. Gen. of Iowa v. Terry, 541 N.W.2d
882, 887-88 (Iowa 1995). Because chapter 427A does not define the words
“building,” “improvement,” or “equipment,” PAAB consulted Black’s Law
Dictionary and applied the plain meanings in its ruling. We find no error in
PAAB’s approach. In relevant part, PAAB concluded an “improvement” is “an
addition to real property, whether permanent or not; esp[ecially] one that
increases its value or utility or that enhances its appearance.” Black’s Law
Dictionary, 773 (8th ed. 1990). “Equipment” includes “the articles or implements
used for a specific purpose or activity.” Id. at 578. A “structure” is “any
construction, production, or piece of work artificially built up or composed of parts
purposely joined together.” Id. at 1464.
In analyzing the applicable law, PAAB noted, “Only twice has the Iowa
Supreme Court had occasion to examine the meaning of equipment in the
context of section 427A.1(1)(c) and (d).” PAAB referenced Rose Acre Farms v.
Board of Review, 479 N.W.2d 260 (Iowa 1991), and Western Outdoor
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Advertising Company v. Board of Review, 364 N.W.2d 256 (Iowa 1985). In Rose
Acre Farms, our supreme court examined an egg production facility’s use of cage
stands, cage floor grids, feeding and water systems, egg collection systems, an
egg collection belt, and an egg grading machine. 479 N.W.2d at 261. The
supreme court concluded the property was equipment or machinery rather than a
structure or improvement. Id. at 263. In so deciding, the supreme court
particularly noted that all the equipment was electronically powered, automated,
and easily taken apart, “much like an erector set,” without causing damage to the
land or the building in which the systems operated. Id. WQI urges us to
conclude Rose Acre Farms is applicable here because testimony at the hearing
showed that the scale could be easily disassembled and removed without
adversely affecting the land. PAAB maintains, although the scale itself can be
disassembled, the concrete piers and approach on which it is built would remain
on the land.
In Western Outdoor Advertising, our supreme court found that highway
billboards were structures or improvements “constructed on or in the land” within
the meaning of section 427A.1(1)(c) and therefore subject to taxation. 364
N.W.2d at 258. The billboards were constructed upon wooden poles inserted in
to the ground and set with concrete or dirt. Id. at 257. One set of poles was set
eight feet into the ground. Id. Others were set three-and-a-half feet into the
ground. Id. The poles were sealed so that they could be removed and reused
elsewhere. Id. WQI argues Western is not applicable here because the scale
was not constructed in the land—rather, according to WQI, the scale itself is only
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“connected to the piers with removable concrete anchors.” Further, WQI
concedes the piers are themselves taxable as real property.
PAAB reached the following conclusions:
[T]he Board finds this pit-less truck scale falls under
paragraph ‘c’ as a “building[], structure[] or improvement[] . . .
constructed on or in the land, attached to the land, or placed upon a
foundation whether or not attached to the foundation.” The scale’s
physical characteristics, the functional utility it provides to the
quarry site, and the scale’s relative permanence at the quarry site
make this scale more like an improvement than equipment. The
testimony and evidence established this scale is 70-feet-by-11-feet,
has an eight-inch thick concrete top, and would require the use of a
crane and two trucks if it were ever removed. The scale is placed
upon concrete piers that serve as its foundation.
The scale increases the functional utility of the quarry site,
as it is used along with other real and personal property in the
weighing of extracted material. Although the scale contains
electronic components, it does not engage in the processing or
moving of any material and is not automated like the equipment in
Rose Acre Farms. Rather, the scale is more akin to the billboards
in the Western Outdoor Advertising Co., which also did not actively
engage in any mechanized process.
Finally, the scale was installed in the late 1990s, is still used
at the site, and has a useful life of approximately twenty years.
Given all these considerations, we cannot conclude the subject
scale would commonly be understood to be equipment or
machinery.
On our analysis of the existing law, however, we reach a different legal
conclusion as to the categorization of the scale. While the district court
understood the scale and the concrete base on which it rests together to form the
taxable property, we view them as being separate for the purpose of taxation.
The base on which the scale is built includes the concrete piers, the approach
ramps, and the washout areas. These underpinnings together form a base
where the scale rests and are either an improvement or a structure constructed
in or on the land. Furthermore, WQI concedes that the concrete base is taxable
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as real property. The concrete base increases the utility of the land at the quarry
site by allowing the owner to place a scale over it. The piers are essentially
concrete posts sunk forty-eight inches into the land, with the approach ramps and
washout area allowing access to the scale components. The concrete structures
are relatively permanent when compared to the scales—they have a lifespan of
twenty-five to thirty years, while the scale has an approximate twenty-year
lifespan.
The scale itself is an implement used to weigh mining products. The
scale’s parts are attached to the piers, within the meaning of section 427A.1(2),
with bolts as fastening devices. As in the egg production equipment in Rose
Acre Farm, the scale’s components are easily disassembled and removed by
reversing the assembly process, and leave no damaging impact on the land or
the concrete base. We view the scale as a piece of mining equipment that can
be taken apart and freely bought and sold between mining operations.
Therefore, upon our review, we find the district court and PAAB erred at law by
concluding the scale itself was an improvement under section 427A.1(1)(c) rather
than equipment attached to an improvement or structure under section
427A.1(1)(d).
As PAAB and the district court concluded the scale was an improvement,
neither considered whether the exception under section 427A.1(3) applied for
equipment “attached” to buildings, structures, or improvements. We remand to
PAAB for a determination of whether the exception under section 427A.1(3)
applies to the scale in this case.
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C. Evidentiary Issues.
WQI contends PAAB and the district court erred in relying upon three
exhibits to conclude the scale is an improvement. The three exhibits—a
machinery and equipment guide, a property appraisal manual, and a letter from
the chief appraiser of the Iowa Department of Revenue—were admitted into the
record without objection. WQI now complains the information contained in the
exhibits is irrelevant and PAAB erred in relying upon them. Irrelevant evidence
should be excluded from administrative proceedings. Iowa Code § 17A.14(1).
“[A] party preserves error on an issue before an agency if a party raises the issue
in the agency proceeding before the agency issues a final decision and both
sides have had an opportunity to address the issue.” Staff Mgmt. v. Jimenez,
839 N.W.2d 640, 647 (Iowa 2013). WQI did not do so here, therefore, it did not
preserve its objections for this appeal.
V. Conclusion.
We find the district court erred in affirming PAAB’s conclusion that the
quarry scale was taxable as an improvement to the land. On our review of the
record and the applicable law, we find the scale is equipment attached to the
taxable concrete structure or improvement on which it rests. We remand to
PAAB for a determination of whether the exception under section 427A.1(3)
applies to exclude the scale itself from taxation as real property.
REVERSED AND REMANDED.