                 IN THE SUPREME COURT OF IOWA
                               No. 18–0097

                         Filed December 14, 2018


LOWE’S HOME CENTERS, LLC,

      Appellant,

vs.

IOWA DEPARTMENT OF REVENUE and COURTNEY M. KAY-DECKER,

      Appellees.



      Appeal from the Iowa District Court for Polk County, Lawrence P.

McLellan, Judge.



      Taxpayer appeals district court judgment upholding department of

revenue’s   assessment    of   sales   tax   on   labor   installing   home

improvements.      AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED WITH INSTRUCTIONS.



      E. Kendrick Smith of Jones Day, Atlanta, Georgia, and Allison M.

Heffern and Desirée Kilburg of Shuttleworth & Ingersoll, Cedar Rapids,

for appellant.



      Thomas J. Miller, Attorney General, and Hristo Chaprazov and

James D. Miller, Assistant Attorneys General, for appellee.
                                        2

WATERMAN, Justice.

      In this appeal, we must determine whether the Iowa Department of

Revenue (the Department) erred by assessing sales tax on labor installing

building components sold by Lowe’s Home Centers, L.L.C.              Iowa Code

section 423.2(6) (2007) imposes sales tax on many services including

“carpentry,” “electrical and electronic repair and installation,” and “pipe

fitting and plumbing,” terms defined in regulations promulgated by the

Department. But the statute exempts from sales tax services performed

in   connection   with     “new   construction,   reconstruction,    alteration,

expansion, remodeling, or the services of a general building contractor,

architect, or engineer.”     Id. § 423.3(37).     The regulations distinguish

between services performed for “repairs” and “installation” subject to

sales tax and “remodeling” services exempt from tax.                The parties

disagree whether the sales tax applies to labor installing items sold by

Lowe’s   to   homeowners      through   installation   contracts,    specifically

windows, doors, dishwashers, garbage disposals, faucets, toilets, sinks,

vanities, and ceiling fans installed by subcontractors.

      Lowe’s protested the Department’s sales tax assessment, and an

administrative law judge (ALJ) on summary judgment found the disputed

transactions were properly taxed as “repairs” and that the services of a

general building contractor are only exempt when performed in

connection with new construction, reconstruction, alteration, expansion,

or remodeling. On intra-agency appeal, the director upheld the sales tax

assessment as taxable “installation” services.         On judicial review, the

district court affirmed.    We retained Lowe’s’ appeal.       Lowe’s does not

challenge the validity of the regulations promulgated by the Department

but contends the agency erred in applying the Iowa Code and
                                        3

regulations.     The parties disagree on the deference owed to the

Department’s rulings.

      On our review, we conclude the Department’s application of law to

fact is entitled to deference and should be upheld unless it is “irrational,

illogical, or wholly unjustifiable.”    Iowa Code § 17A.19(10)(m).    For the

reasons elaborated below, we uphold the sales tax assessment except as

to carpentry services.      The Department’s own regulations limit the

definition of carpentry services subject to sales tax to those performed for

repairs. The director’s final order disavowed the ALJ’s finding that the

installation services constituted repairs, which in our view means the

sales tax did not apply to carpentry for installations other than repairs.

By contrast, the regulations expressly define the electrical and plumbing

services to include installations. The director correctly determined these

installation services by electrical and plumbing subcontractors, which

involved no structural changes to the homes of customers, did not fall

within the statutory exemption for “new construction, reconstruction,

alteration, expansion, remodeling, or the services of a general building

contractor.”    Id. § 423.3(37).   We strictly construe exemptions to tax

statutes. We therefore affirm in part, reverse in part, and remand with

instructions for the district court to direct the Department to recalculate

the sales tax assessment consistent with this opinion.

      I. Background Facts and Proceedings.

      Lowe’s operates eleven big-box home improvement stores in Iowa.

It sells a variety of products, including lumber, siding, shingles, paint,

electrical and plumbing supplies, doors, windows, cabinets, sinks, ceiling

fans, and appliances. Lowe’s primarily engages in two types of customer

transactions:    over-the-counter      retail   sales   of   merchandise   and

installation sales contracts.
                                          4

      To make an over-the-counter retail purchase, the customer selects

products in the store and takes them to a checkout counter. The cashier

scans the products’ bar codes, and the store’s computer system

calculates the sales tax based on the item’s retail price. The customer

pays the sales price and tax at checkout and departs with the

merchandise. These transactions are not at issue in this case.

      The home improvements at issue here are installed custom storm

windows and doors, faucets, toilets, built-in dishwashers, ceiling fans,

patio doors, interior and exterior doors, sinks, vanities, and garbage

disposals. Based on the Department’s regulations, the retailer must pay

tax on the cost of materials used during installation. The fighting issue

is whether Lowe’s is required to collect taxes on the installation labor.

The Iowa Code imposes a sales tax on sixty-six categories of services. Id.

§ 423.2(6). At issue are “carpentry,” “electrical and electronic repair and

installation,”   and   “pipe   fitting    and   plumbing.”     Id.     The   Iowa

Administrative Code provides guidance on which types of activities fall

under each category of taxable services. These services are exempt from

taxation   when    performed     in      connection   with   “new    construction,

reconstruction, alteration, expansion, remodeling, or the services of a

general building contractor, architect, or engineer.” Id. § 423.3(37).

      To have Lowe’s arrange installation, the customer visits a service

station within the store. The customer describes the project and selects

the products to be installed. Lowe’s issues a printed estimate that states

in part,

      Lowes is a supplier of materials only. Lowes does not engage
      in the practice of engineering, architecture, or general
      contracting. Lowes does not assume any responsibility for
      design, engineering, or construction; for the selection or
      choice of materials for a general or specific use; for
      quantities or sizing of materials; for the use or installation of
                                       5
      materials; or for compliance with any building code or
      standard of workmanship.

(Capitalization   modified.).     Lowe’s   subcontracts   with   third-party
“installers” who install the products in the customer’s home.           The

installer may first visit the customer’s home to outline the scope of the

project, take measurements, and estimate the labor cost and quantity of

materials needed to complete the project. Lowe’s charges the customer a

detailing fee for this service.

      If the installation process is standard, or once an installer has

completed an estimate, a description of the materials and the labor cost

estimate is entered into the store’s computer system.       The computer

tracks the cost of goods and materials and the installation labor charge.

Lowe’s then prepares an “installed sales contract,” which sets forth the

cost of materials, cost of labor, sales tax charges for materials and labor

(if any), the total cost, and other terms of the sale.

      If the customer agrees to the price and terms, the customer and a

Lowe’s representative sign the contract.         Lowe’s deducts any prior

detailing fee and the customer goes to the checkout counter to pay the

total project cost. The customer typically leaves the store without the

products and materials purchased through the contract, but with a

contractual right to their installation in his or her home. Lowe’s holds

any in-stock items for the installer to pick up. The customer does not

own the items purchased until they are installed at the customer’s home.

The installer returns surplus materials to the store when the project is

complete.

      The terms of the installed sales contracts expressly “assume[]

sound existing substructures, superstructures and points of attachment”

at the purchaser’s home. The contracts typically also include disclaimers
                                         6

such as noting the installation services do not include “alterations to

existing structure[s],” “[c]hanging or moving venting,” “[c]hanging or

moving electrical lines,” “[c]hanging or moving plumbing/supply lines,”

or “[i]nstalling new electrical line, additional boxes or switches.” Craig

Price, Lowe’s’ Director of Sales and Use Tax, testified by affidavit and

described Lowe’s’ role in the installation contracts is to

      (1) serve as the general building contractor to ensure the
      installations are performed correctly;
      (2) complete each home improvement for the specified fixed
      price; and
      (3) absorb any excess costs if the actual labor and/or
      material costs exceed the amounts estimated.

If the installation does not meet the customer’s approval, Lowe’s arranges

for corrective measures. Lowe’s is responsible for obtaining licenses and

building permits if needed and warrants that the installation will be

completed in a workmanlike manner.              Lowe’s is also responsible for

ensuring the installation work complies with safety rules and building

codes, zoning ordinances, and other laws.

      Under the terms of the installed sales contracts, Lowe’s is required

to sell the goods, materials, and installation services at the prices set in

the contract.      The contract price includes the cost of goods sold,

installation services, and taxes. Lowe’s pays sales and use tax based on

the cost of the goods and materials sold under installed sales contracts

at the time Lowe’s withdraws the items from its inventory. But Lowe’s

does not collect or pay sales tax on the price customers paid for

installation services. Nor do the installers or customers pay sales tax for

the installation services.

      In 2007, the Department conducted a sales tax audit of Lowe’s for

the   three-year    period   beginning       January   1,   2004,   and   ending
                                    7

December 31, 2006.    On January 17, 2008, the Department issued a

sales tax assessment of $1,794,450.40 plus interest on the labor

performed for the installation of various home-related products sold by

Lowe’s. The Department determined that homeowners who received the

installed home improvements should have been separately assessed

sales tax on the labor. Because Lowe’s did not collect this additional tax

from its customers, the Department assessed the tax plus interest

against Lowe’s. This sales tax on the labor was in addition to the sales

tax Lowe’s already paid on the items sold. The Department found this

incidental work was independently taxable as enumerated repair services

under Iowa Code section 423.2(6).       The Department concluded that

Lowe’s’ installation contracts did not involve structural changes to real

property, which according to the Department, is a prerequisite to

exempting the labor from sales tax under Iowa Code section 423.3(37)

and its implementing regulations.

      Lowe’s and the Department resolved most of the assessment

through informal procedures. Lowe’s filed a timely protest for the sum

remaining in dispute: $249,806.22 including interest through November

30, 2012.    Interest continues to accrue monthly.      The Department

rejected Lowe’s’ protest and the matter proceeded to an appeal before an

ALJ. The parties conducted discovery and submitted the matter to the

ALJ for summary adjudication.

      After a hearing, the ALJ issued a proposed decision granting

summary judgment in favor of the Department. The ALJ found (1) the

installations were taxable as enumerated repair services under Iowa

Code section 423.2(6); (2) the home improvements were not sufficiently

large in scale to qualify as new construction, reconstruction, alteration,

expansion, or remodeling of a building or structure under section
                                            8

423.3(37); and (3) the services of a general building contractor are only

exempt if they are performed on or in connection with new construction,

reconstruction, alteration, expansion, or remodeling.

         Lowe’s appealed the proposed order to the director of the

Department.       The director issued a final order affirming the proposed

order from the ALJ.        The director modified the order to conclude that

under the definitions promulgated by the Department, the home

improvement installations Lowe’s performed were not repair services but

were subject to sales tax as installation services.

         Lowe’s petitioned the district court for judicial review of the final

order.     The district court affirmed the final order, concluding that the

Department’s “application of the law to the facts . . . was not irrational,

illogical or wholly unjustifiable.”          Lowe’s appealed the district court

decision, and we retained the appeal.

         II. Standard of Review.

         Our review is governed by the Iowa Administrative Procedure Act,

Iowa Code section 17A.19. Nance v. Iowa Dep’t of Revenue, 908 N.W.2d

261, 267 (Iowa 2018). The district court acts in an appellate capacity in

exercising judicial review of agency action. Id. We apply the standards

of Iowa Code section 17A.19(10) to determine if we reach the same result

as the district court. Id.

         Lowe’s does not challenge the validity of the rules promulgated by

the Department to implement chapter 423. 1 Rather, Lowe’s contends the

         1TheDepartment’s rulemaking authority to administer chapter 423 is included
in the preceding chapter. Specifically, the Department is empowered to administer the
taxes imposed in section 423.2 “in the same manner and subject to all the provisions
of, and all of the powers, duties, authority, and restrictions contained in . . . sections
422.67 through 422.75.” Iowa Code § 423.42. Iowa Code section 422.68 provides, “The
director 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).    Lowe’s does not contest the
                                      9

Department has misinterpreted and misapplied the governing provisions.

“We defer to the agency’s interpretation of law when the legislature has

clearly vested that interpretation in the agency’s discretion.” Kay-Decker

v. Iowa State Bd. of Tax Review, 857 N.W.2d 216, 222 (Iowa 2014).

Otherwise, we review the interpretation for correction of errors at law. Id.

We find no Iowa Code provision expressly granting the Department

authority to interpret the sales tax provisions in chapter 423. We need

not decide whether the Department has interpretive authority over

chapter 423 because even without any deference to the agency, we agree

with the Department’s interpretation of the governing statutes and rules.

See KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308, 312 (Iowa

2010) (declining to decide whether the Department had interpretive

authority because we agreed with the agency’s interpretation).

      Factual determinations as to sales tax obligations are vested in the

Department. Iowa Ag Constr. Co. v. Iowa State Bd. of Tax Review, 723

N.W.2d 167, 173 (Iowa 2006).        We are bound by the agency’s factual

findings that are supported by substantial evidence in the record when

the record is viewed as a whole.       Iowa Code § 17A.19(10)(f)); Iowa Ag

Constr. Co., 723 N.W.2d at 173. “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 Ag Constr. Co., 723 N.W.2d at 174. “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.’ ” Id. (quoting Iowa Code § 17A.19(10)(m)).



_______________________
Department’s statutory authority to promulgate rules implementing the sales tax
provisions of chapter 423. Nor does Lowe’s contest the validity of those rules.
                                     10

      Our review of constitutional questions is de novo. KFC Corp., 792

N.W.2d at 312.

      III. Analysis.

      This case turns on the application of law to undisputed facts. The

governing law includes the sales tax provisions and exemptions in Iowa

Code chapter 423 and the implementing regulations promulgated by the

Department.      We begin our analysis with the applicable canons of

construction for tax statutes and exemptions.       Next, we set forth the

operative provisions of the Code and regulations and apply our

deferential review to the Department’s application of that law to the facts.

      A. Construction of Tax Statutes. “Statutes which impose taxes

are construed liberally in favor of the taxpayer and strictly against the

taxing body.”    Iowa Auto Dealers Ass’n v. Iowa Dep’t of Revenue, 301

N.W.2d 760, 762 (Iowa 1981). But “taxation is the rule, exemption is the

exception.”   Iowa Network Servs., Inc. v. Iowa Dep’t of Revenue, 784

N.W.2d 772, 776 (Iowa 2010). “Exemptions from taxation, therefore, are

‘construed strictly against the taxpayer and liberally in favor of the taxing

body.’ ”   Id. (quoting Ranniger v. Iowa Dep’t of Revenue & Fin., 746

N.W.2d 267, 269 (Iowa 2008)). All doubts must be resolved in favor of

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

646 (Iowa 2001). “A taxpayer seeking to come under a tax exemption

statute has the burden of proving an entitlement to the exemption.”

Ballstadt v. Iowa Dep’t of Revenue, 368 N.W.2d 147, 148 (Iowa 1985); see

also Sherwin-Williams Co. v. Iowa Dep’t of Revenue, 789 N.W.2d 417, 424

(Iowa 2010) (same).

      B. Governing Iowa Code Provisions and Administrative Rules.

During the relevant time period, the Iowa Code imposed a five percent

sales tax on the furnishing of certain services, including “carpentry,”
                                     11

“electrical and electronic repair and installation,” and “pipe fitting and

plumbing” services.     Iowa Code § 423.2(5)–(6).       But the legislature

included an exemption from sales tax for “[t]he sales price of services on

or   connected   with   new    construction,     reconstruction,   alteration,

expansion, remodeling, or the services of a general building contractor,

architect, or engineer.” Id. § 423.3(37).

      The Iowa Code also imposed a five percent sales tax on “the sales

price of all sales of tangible personal property, consisting of goods, wares,

or merchandise, sold at retail in the state to consumers or users except

as otherwise provided in this subchapter.” Id. § 423.2(1). Lowe’s does

not contest the imposition of sales tax on the merchandise it sold to

homeowners through the installed sales contracts.           Instead, Lowe’s

contests the imposition of sales tax on the labor installing the

merchandise in the customer’s homes. We must determine whether the

installation services were taxable under the Iowa Code.

      1. Whether the services were taxable under Iowa Code section

423.2(6). Lowe’s challenges the tax imposed on the labor performed in

the installation of custom storm windows and doors, faucets, toilets,

built-in dishwashers, ceiling fans, patio doors, interior and exterior

doors, sinks, vanities, and garbage disposals.       The Department found

these installation services were taxable as carpentry, electrical and

electronic repair and installation, and plumbing and pipe fitting services.

Specifically, the Department found the installation of dishwashers and

garbage disposals involved electrical installation and plumbing; the

installation of ceiling fans involved carpentry and electrical installation;

the installation of vanity tops, windows, storm doors, patio doors, and

interior and exterior doors involved carpentry; and the installation of

faucets, toilets, and sinks involved plumbing.
                                        12

      The legislature did not codify definitions of the services at issue,

but the Department promulgated regulations that define them.             The

regulation defining “carpentry” provides, “Persons engaged in the

business of repairing, as a carpenter, as the trade is known in the usual

course of business, are rendering, furnishing, or performing a service,

the gross receipts from which are subject to tax.”         Iowa Admin. Code

r. 701—26.12 (emphasis added).          This regulatory definition expressly

limits the scope of taxable carpentry services to repairing and omits the

terms “installing” or “installation.”

      “Electrical and electronic repair and installation services” are more

broadly defined to include services performed by “[p]ersons engaged in

the business of repairing or installing electrical wiring, fixtures, switches

in or on real property or repairing or installing any article of personal

property powered by electric current.”         Id. r. 701—26.16 (emphasis

added).    This regulation expressly encompasses both repairs and

installations.

      “ ‘Pipe fitting and plumbing’ shall mean the trade of fitting,

threading, installing and repairing of pipes, fixtures or apparatus used

for heating, refrigerating, air conditioning or concerned with the

introduction, distribution and disposal of a natural or artificial

substance.” Id. r. 701—26.36 (emphasis added). Again, the definition in

this regulation expressly encompasses both repairs and installations.

      These      regulations   are   binding   on   the   Department.    The

Department acknowledges that the installation services Lowe’s provided

were not repairs. Lowe’s argues that because the definition of carpentry

is limited to repairs and omits installation services, the sales tax did not

apply. We agree. The Department included both installing and repairing

in its definitions for electrical and plumbing services but omitted
                                        13

installing from its definition of carpentry. We assume its omission was

intentional and give it effect.         See Oyens Feed & Supply, Inc. v.

Primebank, 808 N.W.2d 186, 193 (Iowa 2011) (assuming legislature’s

placement of term in one provision but not another was intentional).

Regardless, “[w]hen an agency elects to be its own lexicographer, persons

are entitled to rely upon the established definitions.” AOL LLC v. Iowa

Dep’t of Revenue, 771 N.W.2d 404, 409 (Iowa 2009). Provisions imposing

taxes are construed strictly against the Department. Iowa Auto Dealers

Ass’n, 301 N.W.2d at 762.            We hold that the Department erred by

assessing   sales      tax   on   carpentry   services   for   installations   not

constituting repairs.

      By contrast, the definitions of “electrical and electronic repair and

installation” and “pipe fitting and plumbing” encompass both repairs and

installations. For that reason, the Department’s imposition of sales tax

on those installation services was lawful, subject to the exemption in

Iowa Code section 423.3(37).

      According to the Department, the installation of vanity tops,

windows, storm doors, patio doors, and interior and exterior doors

involved carpentry alone without electrical or plumbing services.              We

reverse the district court judgment upholding the sales tax on the

installation of those items. But if carpentry services were included on

installations   also    involving    electrical   or   plumbing   services,    the

Department on remand must adjust the sales tax assessment subject to

the predominant service rule discussed below.

      2. Whether the services fall under the exemption in Iowa Code

section 423.3(37).      Lowe’s argues that even if the contracts involved

enumerated services, the services at issue are exempt from taxation

under section 423.3(37).          Lowe’s’ argument is two-pronged.       First, it
                                     14

contends that any installation of the products it sold that become a

permanent fixture of the real estate fall within the statutory exemption

for   “new   construction,   reconstruction,   alteration,   expansion,   [or]

remodeling”—even, for example, the installation of a new ceiling fan in an

existing room.    Second, Lowe’s contends the installation services are

exempt as “the services of a general building contractor.” We address

each argument in turn.

       i. “[S]ervices on or connected with new construction, reconstruction,

alteration, expansion, [or] remodeling.” We begin with the statutory text.

Section 423.3 exempts from sales tax

       [t]he sales price of services on or connected with new
       construction,     reconstruction,   alteration,   expansion,
       remodeling, or the services of a general building contractor,
       architect, or engineer. The exemption in this subsection also
       applies to the sales price on the lease or rental of all
       machinery, equipment, and replacement parts directly and
       primarily used by owners, contractors, subcontractors, and
       builders for new construction, reconstruction, alteration,
       expansion, or remodeling of real property or structures and
       of all machinery, equipment, and replacement parts which
       improve the performance, safety, operation, or efficiency of
       the machinery, equipment, and replacement parts so used.

Iowa Code § 423.3(37).       The Department promulgated this regulation

implementing section 423.3(37):

       The distinction between a repair . . . and new construction,
       reconstruction, alteration, expansion and remodeling
       activities . . . can, oftentimes, be difficult to grasp.
       Therefore, the intent of the parties and the scope of the
       project may become the factors which determine whether
       certain enumerated services are taxable.         An area of
       particular difficulty is the distinction between repair and
       remodeling. Remodeling a building or other structure means
       much more than making repairs or minor changes to it.
       Remodeling is a reforming or reshaping of a structure or some
       substantial portion of it to the extent that the remodeled
       structure or portion of the structure is in large part the
       equivalent of a new structure or part thereof.

Iowa Admin. Code r. 701—219.13 (emphasis added).
                                     15

      Lowe’s does not challenge the validity of this regulation, which has

been in effect since 2005.     The legislature has not amended section

423.3(37) in response to this administrative rule.        “We consider the

legislature’s inaction as a tacit approval of the [agency’s] action.” City of

Sioux City v. Iowa Dep’t of Revenue & Fin., 666 N.W.2d 587, 592 (Iowa

2003) (noting that the administrative rule being in effect for eleven years

weighs against finding the rule invalid).

      Significantly, this regulation explains the exemption applies to

home improvement projects of a size or scale “the equivalent of a new

structure or part thereof.”    Iowa Admin. Code r. 701—219.13.           The

Department and district court determined that section 423.3(37)’s

exemption does not apply to small-scale installations without structural

changes to the customer’s home. We agree.

      The regulation gives examples of projects that constitute “new

construction, reconstruction, alteration, expansion, [and] remodeling”:

             a. The building of a garage or adding a garage to an
      existing building would be considered new construction.
           b. Adding a redwood deck to an existing structure
      would be considered new construction.
           c. Replacing a complete roof on an existing structure
      would be considered reconstruction or alteration.
            d. Adding a new room to an existing building would be
      considered new construction.
            e. Adding a new room by building interior walls would
      be considered alteration.
            ....
            i. Rebuilding a structure damaged by flood, fire or
      other uncontrollable disaster or casualty would be
      considered reconstruction.
            j. Building a new wing to an existing building would
      be considered an expansion.
            k. Rearranging the interior physical structure of a
      building would be considered remodeling.
            ....
                                               16
            m. Replacing an entire water heater, water softener,
      furnace or central air conditioning unit.

Id. r. 701—219.13(2). The foregoing examples involve home improvement
projects of a larger scale than the installation of fixtures or other building

components at issue here—windows, doors, dishwashers, garbage

disposals, toilets, sinks, vanities, and ceiling fans.

      Lowe’s nevertheless argues that all of its installation services are

exempt under section 423.3(37) because they were performed on or

connected with new construction, reconstruction, alteration, expansion,

or remodeling. Lowe’s argues for a bright-line distinction to determine

whether a service is subject to sales tax. According to Lowe’s, there are

only two categories of services: repairs, which are taxable, 2 and capital
improvements, which are not taxable under the exemption.                        Lowe’s

argues there is no “third category” of installation services that are neither

repairs nor exempt under section 423.3(37).                    We disagree.         The

regulation, after providing a list of examples within the exemption,

acknowledges the third category of projects not falling within section

423.3(37)’s exemption that are subject to sales tax on the installation

labor. Iowa Admin. Code r. 701—219.13(3) (“The department would like
to emphasize that facts and motives are important in the determination

of the taxability of services relating to construction activities. However, it

should also be noted that taxes on enumerated services are applicable to



      2The   regulations define “repair” as,
      synonymous with mend, restore, maintain, replace and service. A repair
      contemplates an existing structure or tangible personal property which
      has become imperfect and constitutes the restoration to a good and
      sound condition. A repair is not a capital improvement; that is, it does
      not materially add to the value or substantially prolong the useful life of
      the property.
Iowa Admin. Code r. 701—219.13(1).
                                     17

repair or installation work that is not a construction activity.” (Emphasis

added.)).

      The director of the Department determined that the installation of

the items at issue here did not fall within the exemption in section

423.3(37).   The director explained that although “Iowa Administrative

Code 701—219.13 discusses at length the distinction between ‘repair’

and ‘remodeling[,]’ [t]his discussion does not preclude an alternate

context in which enumerated services can be performed by a contractor-

retailer.” The district court affirmed, stating,

      The ALJ’s and director’s conclusions that the Construction
      Exemption requires activity that is significantly larger in size
      and scope than the Lowe’s installation contracts are not
      irrational, illogical or wholly unjustifiable. Rule 701—219.13
      demonstrates that the Department since at least 2005 has
      construed new construction, reconstruction, alteration,
      expansion, or remodeling to be more than “minor changes.”
      To be subject to the Construction Exemption the activity
      must constitute “a reforming or reshaping of a structure or
      some substantial portion of it to the extent that the
      remodeled structure or portion of the structure is in large
      part the equivalent of a new structure or part thereof.” A
      review of the cases cited in the rule confirms this concept.
      The conclusion reached by the director on this issue is not
      irrational, illogical or wholly unjustifiable.

(Footnotes omitted.) We agree with the Department and district court.

Exemptions are construed strictly against the taxpayer. Iowa Network

Servs., Inc., 784 N.W.2d at 776. We must read chapter 423 as a whole,

and harmonize its provisions. Lowe’s’ interpretation would broaden the

exemption in 423.3(37) to any service that is not a repair, in conflict with

section 423.2(6) imposing a sales tax on electrical and plumbing

installation services. We decline to construe the statutory exemption to

encompass the installation of any item that becomes a fixture.

Installations of items such as sinks or ceiling fans, without more, do not
                                      18

involve the scale or structural changes required to result in the

equivalent of a new room or structure.

      To the contrary, the terms of the Lowe’s installed sales contracts

take the transactions at issue outside the scope of section 423.3(37).

The   contracts    expressly    “assume[]   sound   existing   substructures,

superstructure and points of attachment” at the purchaser’s home.

Lowe’s has also included in the installed sales contracts disclaimers such

as the installation services do not include “[a]ny alterations to [the]

existing structure,” “[c]hanging or moving or electrical lines,” “[c]hanging

or moving plumbing/supply lines,” “[c]hanging or moving venting,”

“[m]odifying existing cabinet(s) or countertop,” or “[r]eframing or

alterations to existing structure or carpentry work resulting from old or

damaged structure.” The installations at issue did not involve structural

changes of the type that would fall within section 423.3(37)’s exemption

for   new     construction,    reconstruction,   alteration,   expansion,   or

remodeling.     The Department’s determination that the exemption does

not apply to the installation services was not irrational, illogical, or

wholly unjustifiable. We therefore affirm that determination.

      ii. “[T]he services of a general building contractor, architect, or

engineer.” Lowe’s also argues that it was performing “the services of a

general building contractor” within the meaning of section 423.3(37).

Craig Price testified that Lowe’s “served as the general building

contractor to ensure that the installation was performed correctly.” The

Department responds that the installation services subject to the sales

tax were actually performed by subcontractors, not by Lowe’s. We must

interpret the words in context. The exemption includes “general building

contractors,” with “architects, and engineers.”         Under the canon of

statutory construction noscitur a sociis, “the meanings of particular
                                        19

words may be indicated or controlled by associated words.” Des Moines

Flying Serv., Inc. v. Aerial Servs., Inc., 880 N.W.2d 212, 221 (Iowa 2016)

(quoting Peak v. Adams, 799 N.W.2d 535, 547 (Iowa 2011)).                 Reading

those    terms    together   supports    the   Department’s    plain      language

interpretation that the work of a general building contractor on a project,

like that of the architect or engineer, differs from the physical installation

work actually performed in this case by subcontractors.              Rather, the

services of “a general building contractor, architect, or engineer” typically

involve the design and planning for the project, and work overseeing and

coordinating the subcontractors performing the physical installations.

Indeed, the Lowe’s printed estimates in the agency record include the

disclaimer stating, “Lowes is a supplier of materials only. Lowes does not

engage    in    the   practice   of   engineering,   architecture,   or    general

contracting.”    (Capitalization modified.)    As noted, the terms of Lowe’s

installed sales contracts provide for straightforward physical installations

without the type of structural changes to the home that require the

services of a general building contractor, architect, or engineer. In any

event, the sales tax was imposed on the installation labor performed by

subcontractors, not Lowe’s.

        Moreover, the Department’s regulations limit the exemption to

services the general building contractor performs on or connected with

new construction, reconstruction, alteration, expansion, or remodeling.

See, e.g., Iowa Admin. Code r. 701—219.1 (“Contractors may also be

retailers of tangible personal property and taxable enumerated services.

It should be noted that these services are exempt from taxation when

performed on or in connection with new construction, reconstruction,

alteration, expansion, or remodeling of a building or structure.”). Lowe’s

does not challenge the validity of this regulation, which has been in effect
                                          20

since 2005.      See City of Sioux City, 666 N.W.2d at 592 (considering

legislature’s inaction as tacit approval).          We reiterate that we strictly

construe exemptions against the taxpayer.               Sherwin-Williams Co., 789

N.W.2d at 424. For those reasons, we affirm the Department’s rejection

of Lowe’s general building contractor argument.

      3. The contractor-retailer rule.         Lowe’s also relies on Iowa Code

section 423.2(1)(b), known as the “contractor-retailer rule,” which

governs the timing and payee for the sales tax on building materials and

provides,

      Sales of building materials, supplies, and equipment to
      owners, contractors, subcontractors, or builders for the
      erection of buildings or the alteration, repair, or
      improvement of real property are retail sales of tangible
      personal property in whatever quantity sold. Where the
      owner, contractor, subcontractor, or builder is also a retailer
      holding a retail sales tax permit and transacting retail sales
      of building materials, supplies, and equipment, the person
      shall purchase such items of tangible personal property
      without liability for the tax if such property will be subject to
      the tax at the time of resale or at the time it is withdrawn
      from inventory for construction purposes.

      Under this provision, Lowe’s as a contractor-retailer pays sales tax

when the property “is withdrawn from inventory for construction

purposes.”      Lowe’s argues that the Iowa Contractors Guide (ICG),3
published by the Department, provides that any installation labor

provided pursuant to a construction contract must be excluded from

sales tax because the contractor-retailer “does not collect sales tax from

the final customer.”        Lowe’s reliance on the ICG and the contractor-

retailer rule is misplaced. Section 423.2(1)(b) addresses only the sales

tax on items of personal property, not on the labor to install them. The

Department has not imposed sales tax on services in a manner


      3Iowa   Dep’t of Revenue, Iowa Contractor’s Guide (2004).
                                    21

inconsistent with its ICG.       To the contrary, the ICG applies to

“construction contracts” expressly defined as “an agreement that

provides labor and materials to erect a structure for a second party.”

ICG at 1. As noted above, labor involved in new construction or other

structural changes to buildings falls within the exemption for “new

construction, reconstruction, alteration, expansion, [or] remodeling.”

Iowa Code § 423.3(37).

      C. Lowe’s Remaining Arguments.          Lowe’s raises a number of

additional arguments. We will address each argument in turn.

      1. Predominant service rule. Lowe’s argues that it is exempt from

taxation because the primary service provided under these contracts was

the installation of nontaxable capital improvements.           Under the

predominant service rule,

      When taxable and nontaxable services are performed as part
      of one transaction and the charge for the transaction is a
      lump-sum fee that is not itemized or separately contracted,
      the taxation of the fee for the entire transaction is
      determined by the predominant service being performed.
      Iowa Movers and Warehousemen’s Association v. Briggs, 237
      N.W.2d 759 (Iowa 1976). If the predominant service being
      provided in the transaction is a taxable enumerated service,
      then the entire fee for the transaction is subject to Iowa tax.
      However, if the predominant service being performed is a
      nontaxable service, then the entire fee charged for the
      transaction is not subject to Iowa tax.

Iowa Admin. Code r. 701—26.1(2).

      The Iowa Tax Review Committee explained this rule with regard to

installing an air conditioning system:

      Some enumerated services may be involved with the
      installation of the air conditioning equipment such as
      electrical installation and pipe fitting and plumbing services.
            However, these enumerated services were incidental to
      the overall installation of the air conditioning equipment. It
      has been the Department’s position that, where a name[d]
      service is incidental to a service not specifically enumerated,
                                      22
      the entire service is not subject to tax. Therefore it is the
      position of the Committee that the installation of air
      conditioning systems, whether a new installation or a
      replacement, is exempt from the sales tax.

J. Elliott Hibbs, Iowa Tax Review Comm., Findings of the Tax Review

Committee in Regard to Tax Question by Field Personnel (May 11, 1976).

      Lowe’s argues the homeowners were purchasing new, installed

home improvements and that all of the services at issue in this case were

“on or connected with new construction, reconstruction, alteration,

expansion, [or] remodeling” of real property. Lowe’s argues that because

the predominant service was installing permanent capital improvements,

pursuant to the predominant service rule, the incidental labor portions of

installation contracts that fall under enumerated tax sections are exempt

from taxation.

      We    have    already   determined     that   Lowe’s   was    performing

installation services subject to sales tax rather than services exempt

under Iowa Code section 423.3(37). Accordingly, Lowe’s reliance on the

predominant service rule is without merit on installation labor not

involving carpentry.

      The predominant service rule does come into play for installations

involving carpentry and plumbing or electrical services. For example, the

Department found that the installation of ceiling fans involved both

carpentry and electrical services.      Whether sales tax applies for the

installation of ceiling fans should be determined under the predominant

service rule.    Neither the Department nor the district court made that

determination. We will not decide that issue on appeal. See Plowman v.

Fort Madison Cmty. Hosp., 896 N.W.2d 393, 413 (Iowa 2017) (“A supreme

court is ‘a court of review, not of first view.’ ” (quoting Cutter v. Wilkinson,

544 U.S. 709, 718 n.7, 125 S. Ct. 2113, 2120 n.7 (2005)); see also
                                    23

Felderman v. City of Maquoketa, 731 N.W.2d 676, 679 (Iowa 2007)

(“Ordinarily we do not decide an issue on appeal that was not raised by a

party or decided by the district court.”). Rather, that determination must

be made by the Department on remand as to ceiling fan installations and

any other transactions involving carpentry and electrical or plumbing

services.   Sales tax shall not be assessed on labor in transactions in

which the predominant service was carpentry installation.

      2. Bifurcation. Lowe’s   argues    that   because   the   installation

contracts charged a lump sum, the Department erred by splitting the

transaction into separate sales tax events for the goods and labor to be

paid by separate taxpayers. Lowe’s argues that neither the Iowa Code

nor the Department’s regulations authorize the bifurcation of sales tax

charges.

      Lowe’s argues that there are only three types of transactions that a

contractor-retailer can perform: (1) an over-the-counter retail sale of

products, for which the customer owes sales tax for the entire

transaction; (2) the installation of products pursuant to a construction

contract, for which the contractor-retailer would owe use tax on the cost

of installed product; and (3) repair of a product for which the customer

would owe sales tax on the entire transaction.      Iowa Admin. Code r.

701—219.4.      Lowe’s argues that in each scenario, one taxpayer owes

only one tax.    Lowe’s argues that no regulations allow bifurcating a

transaction into separately taxable events.

      The administrative code explains that

      [chapter 423] details the obligation of contractors,
      contractor-retailers, retailers, and repairpersons to pay or
      collect sales tax on the sales price from sales of building
      materials, supplies, equipment, and other tangible personal
      property and the obligation of these parties to collect tax or
      claim exemption for their performances of taxable services.
                                    24

Iowa Admin. Code r. 701—219.1. The director of the Department found

that Lowe’s bifurcation argument was without merit:

             The statutes at issue are separate and distinct. One
      imposes tax on the owner, contractor, subcontractor or
      builder for materials purchased to erect buildings or alter,
      repair or improve real property. Iowa Code § 423.2(1)(b)
      (emphasis added). The other statute exempts the sales price
      of enumerated services when they are performed in
      connection with new construction, reconstruction, alteration,
      expansion or remodeling. Id. § 423.3(37). There is nothing
      in the exemption statute that exempts the sales price of
      services when performed in the context of a repair or
      improvement of real property that occurs outside the scope
      of a larger construction project.

We agree with the Department and reject Lowe’s bifurcation argument.

      3. Other states. Lowe’s argues that Department’s interpretation of

the relevant statutes conflicts with the interpretations of other state

courts and taxing authorities and violates Iowa’s commitment to

uniformity under the Streamlined Sales and Use Tax Agreement (SSUTA).

See Iowa Code § 423.11. Relying on decisions from other jurisdictions,

Lowe’s contends that the Department’s position makes Iowa an outlier.

The Department responds that the SSUTA focuses on sales tax

administration and not on the substance of the law, and while it strives

for uniformity in the definitions of items subject to sales tax, it does not

require members to have the same taxable transactions and exemptions.

The   Department    notes   that   the   cases   from   other   states   are

distinguishable because the text of their respective statutes differs

materially from Iowa’s. We agree with the Department.

      The purpose of the SSUTA is “to simplify and modernize sales and

use tax administration in order to substantially reduce the burden of tax

compliance for all sellers and for all types of commerce.”      Id. § 423.8.

But section 103 of the SSUTA states, “This Agreement shall not be
                                    25

construed as intending to influence a member state to impose a tax on or

provide an exemption from tax for any item or service.”       Streamlined

Sales and Use Tax Agreement § 103 (2002) (Streamlined Sales Tax

Governing Bd., Inc., amended 2018); see also Iowa Code § 423.11 (noting

that the agreement requires uniform rates, standards, and definitions,

but states are able to make policy choices consistent with the rates,

standards, and definitions).

      Lowe’s relies on decisions from Indiana, Kansas, and Oklahoma to

support its argument that the installation services here are not subject to

tax. The Indiana and Oklahoma cases addressed the issue of taxing the

products, not the installation labor. See, e.g., Lowe’s Home Ctrs., LLC v.

Ind. Dep’t of State Revenue, 23 N.E.3d 52 (Ind. T.C. 2014); In re Sales Tax

& Use Tax Protest of Lowe’s Home Ctrs., LLC, No. P-09-195-H (Okla. Tax

Comm’n July 7, 2014), aff’d, 2015 WL 1530422 (Okla. Tax Comm’n

Feb. 26, 2015).

      The Kansas case addressed installation services, but the Kansas

statute differs from Iowa’s by providing a much broader exemption. The

Kansas statute stated,

      No tax shall be imposed upon the service of installing or
      applying tangible personal property in connection with the
      original construction of a building, or facility, the original
      construction,    reconstruction,  restoration,    remodeling,
      renovation, repair, or replacement of a residence or the
      construction, reconstruction, restoration, replacement or
      repair of a bridge or highway.

In re Lowe’s Home Ctrs., L.L.C., No. 2014-34-DT, at 8–9 (Kan. B.T.A. Jan.

21, 2016) (quoting Kan. Stat. Ann. § 79–3603(p) (Supp. 2012)).         The

Kansas Board of Tax Appeals found,

      Lowe’s has satisfied its burdens by presenting substantial
      credible, mostly uncontroverted evidence that the built-in
      transactions at issue all involved improvements to
                                   26
      residential properties and, further, that Lowe’s, in
      undertaking these installations, was acting as a contractor.
      Moreover, the Board finds these installations of real property
      improvements were performed in connection with the
      reconstruction, restoration, remodeling, renovation, repair
      and/or replacement of a residence and are, therefore,
      exempt from the retailers’ sale tax pursuant to [the relevant
      tax statute].

Id. at 14.   The Kansas Court of Appeals, in an unpublished decision,

affirmed the Board of Tax Appeals.      In re Lowe’s Home Ctrs., L.L.C.,

No. 115,254, 2017 WL 1369944, at *26 (Kan. Ct. App. Apr. 14, 2017)

(per curiam). The court declined to rely on decisions cited by Lowe’s from

other jurisdictions, noting “the statutes in those states differ from the

statutes in Kansas.” Id. at *23.

      For the same reason, we decline to rely on cases from other states

interpreting statutes that differ from Iowa Code chapter 423. We must

apply Iowa’s tax statute as written. As explained above, the Department

correctly assessed sales tax on the electrical and plumbing installation

services.

      4. Constitutional claims.    Lowe’s argues that the Department

violated its federal and state constitutional rights to due process and

equal protection.   The district court found that Lowe’s had failed to

preserve the due process issue for review because Lowe’s failed to raise

the issue before the agency. Lowe’s argues that it raised a due process

challenge in paragraphs thirty-nine through forty-five of its amended

protest. These paragraphs discuss Lowe’s’ claim that the Department’s

attempt to apply the electrical services rule to contractors and other

nonelectrical construction services violates the Iowa Administrative

Procedure Act.

      On appeal, Lowe’s argues that the provisions at issue are

unconstitutionally vague.    The void-for-vagueness doctrine has three
                                       27

principles: (1) the “statute cannot be so vague that it does not give

persons of ordinary understanding fair notice that certain conduct is

prohibited[,]” (2) the statute “provide[s] those clothed with authority

sufficient guidance to prevent the exercise of power in an arbitrary or

discriminatory fashion[,]” and (3) the “statute cannot sweep so broadly as

to prohibit substantial amounts of constitutionally-protected activities.”

State v. Nail, 743 N.W.2d 535, 539 (Iowa 2007).

      Lowe’s    argues    that   the        statutes   at   issue   here   are

unconstitutionally vague because, when reading the statutes together

with the applicable regulations and the SSUTA, there was no authority

for the Department to have assessed sales tax against Lowe’s related to

incidental installation labor, thereby violating Lowe’s right to due

process.

      We agree with the district court that Lowe’s failed to raise a due

process challenge before the agency.         Regardless, Lowe’s’ due process

challenge is without merit. When reading the statutes and regulations,

we conclude that a person of ordinary understanding would have fair

notice of what activities are taxable. The Department is not permitted to

exercise its authority arbitrarily or discriminatorily under the statute and

regulations, and Lowe’s has failed to show that the sweep of the statute

is unconstitutionally overinclusive.

      With regard to equal protection, Lowe’s argues that the structural

change requirement directly conflicts with the Department’s published

regulations and subjects Lowe’s to a higher tax burden than other

contractors. For that reason, Lowe’s argues Department has violated its

right to equal protection.    Lowe’s raises this claim under the Equal

Protection Clause of the Fourteenth Amendment of the United States
                                           28

Constitution and article I, section 6 of the Iowa Constitution. 4 “[O]n a

basic level, both constitutions establish the general rule that similarly

situated citizens should be treated alike.” LSCP, LLLP v. Kay-Decker, 861

N.W.2d 846, 856 (Iowa 2015).

       “The equal protection clause . . . protects the individual from state

action which selects him out for discriminatory treatment by subjecting

him to taxes not imposed on others of the same class.”                        Allegheny

Pittsburgh Coal Co. v. Cty. Comm’n, 488 U.S. 336, 345–46, 109 S. Ct.

633, 639 (1989) (quoting Hillsborough Township v. Cromwell, 326 U.S.

620, 623, 66 S. Ct. 445, 448 (1946)). “[T]he legislature acts with broad

authority in the realm of taxation.” LSCP, LLLP, 861 N.W.2d at 859. “We

recognize a presumption favoring the constitutionality of taxing statutes.”

Sperfslage v. Ames City Bd. of Review, 480 N.W.2d 47, 49 (Iowa 1992).

We review the challenged tax statutes under the rational basis test.

LSCP, LLLP, 861 N.W.2d at 860. “The rational basis standard is easily

met in challenges to tax statutes.” Qwest Corp. v. Iowa State Bd. of Tax

Review, 829 N.W.2d 550, 558 (Iowa 2013) (quoting Hearst Corp. v. Iowa

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

       While both the state and federal constitutional provisions on a

basic level establish the general rule that similarly situated citizens

should be treated alike, “[w]e may conclude [article I, section 6] is more

protective” than the [Equal Protection Clause of the Fourteenth

Amendment]. Tyler v. Iowa Dep’t of Revenue, 904 N.W.2d 162, 166 (Iowa

2017) (alterations in original) (quoting LSCP, LLP, 861 N.W.2d at 856);

Racing Ass’n of Cent. Iowa v. Fitzgerald (RACI II), 675 N.W.2d 1, 5–7

        4Article I, section 6 provides, “All laws of a general nature shall have a uniform

operation; the general assembly shall not grant to any citizen, or class of citizens,
privileges or immunities, which, upon the same terms shall not equally belong to all
citizens.” Iowa Const. art. I, § 6.
                                     29

(Iowa 2004).     In RACI II, we applied the rational basis test more

stringently than the United States Supreme Court in a taxation context.

Id. We have applied the RACI II test in other tax cases. See Tyler, 904

N.W.2d at 165–72; LSCP, LLP, 861 N.W.2d at 856–58; Qwest Corp., 829

N.W.2d at 558–66. Here, however, even under the approach of RACI II

and prevailing federal law, Lowe’s has failed to mount a successful equal

protection attack.

      “The first step of [analyzing] an equal protection claim is to identify

the classes of similarly situated persons singled out for differential

treatment.”    LSCP, LLLP, 861 N.W.2d at 859 (alteration in original)

(quoting Grovijohn v. Virjon, Inc., 643 N.W.2d 200, 204 (Iowa 2002)). “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,’ our analysis ends.”       Id. (quoting Timberland

Partners XXI, LLP v. Iowa Dep’t of Revenue, 757 N.W.2d 172, 175 (Iowa

2008)). The district court determined that

      [s]ection 423.2(6)(a) provides that all enumerated services
      are subject to taxation.       The statute provides that the
      enumerated services may be exempt from taxation if the
      taxpayer can establish that the services provided meet the
      Construction Exemption. Thus every contractor including
      Lowe’s is being treated the same. If Lowe’s could have
      established that its installation contracts were performed on
      or in connection with new construction, reconstruction,
      expansion, alteration or remodeling they would have been
      exempt. In this case they could not but Lowe’s inability to
      establish the necessary facts to demonstrate the applicability
      of the exemption does not create an equal protection
      violation.

We agree with the district court that every contractor installing home

improvements faces the same sales tax consequences subject to the

same regulations and exemptions, without disparate treatment.            This
                                   30

legal conclusion is fatal to Lowe’s equal protection claim under the Iowa

and Federal Constitutions. See LSCP, LLLP, 861 N.W.2d at 859.

      IV. DISPOSITION.

      For these reasons, we affirm in part and reverse in part the

judgment of the district court. The Department’s assessment is upheld

except as to those transactions in which the predominant service or only

service provided was carpentry installation work. We remand the case

with instructions for the district court to direct the Department to

recalculate the sales tax assessment consistent with this opinion.

      AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

WITH INSTRUCTIONS.
