               IN THE SUPREME COURT OF IOWA
                                  No. 09–0166

                            Filed July 2, 2010


IOWA NETWORK SERVICES, INC.,

      Appellant,

vs.

IOWA DEPARTMENT OF REVENUE,

      Appellee.


      Appeal from the Iowa District Court for Polk County, Donna L.

Paulsen, Judge.



      Competitive long distance telephone provider seeks refund for sales

and use tax paid on purchases of computer equipment. AFFIRMED.



      Bruce W. Baker, Denise M. Ment, and Dwayne Vande Krol of

Nyemaster, Goode, West, Hansell & O’Brien, P.C., Des Moines, for

appellant.


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

Attorney General, for appellee.
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APPEL, Justice.

         Iowa Network Services, Inc. (INS), a competitive long distance

telephone provider, seeks a refund for sales and use taxes it paid on

purchases of computer equipment over the course of several years. The

Iowa Department of Revenue denied the refund.          INS sought judicial

review of the final agency action in the district court. The district court

affirmed the decision of the department, and INS appealed.           After a

review of the record in this case, we affirm the decision of the district

court.

         I. Factual and Procedural History.

         INS is an Iowa telephone company with its principal place of

business in West Des Moines, Iowa.          As a long distance telephone

provider, INS is required under Iowa Code chapter 433 (2003) to submit

an annual report to the department.         Because telephone companies

operate in multiple parts of the state, their property is centrally assessed

by the department.

         Between October 1, 1998, and December 31, 2003, INS purchased

computer equipment for use in its telephone business.         The computer

purchases were included in three standard, separate accounts—central

office equipment, support computers, and other work equipment—

maintained by the telephone industry. These accounts were submitted

to the department as part of INS’s annual report.

         INS filed a claim with the department for a refund of sales and use

taxes paid on these purchases.       Iowa generally imposes a tax on the

gross receipts from all sales of tangible personal property sold at retail in

the state to consumers or users except as otherwise provided. In making

its claim for refund, INS asserted that its purchases of computer

equipment were exempt from sales and use tax under Iowa Code section
                                          3

422.45(27)(a)(4), which provides that “[c]omputers used in the processing

or storage of data or information by . . . [a] commercial enterprise” are

exempted. The department denied the refund claim, and INS launched

an administrative appeal.

      An administrative law judge (ALJ) issued a proposed decision,

denying INS’s refund claim. While the ALJ recognized the tax exemption

contained in Iowa Code section 422.45(27)(a)(4), 1 he found that this

exemption     did    not   apply   as     a    result    of   Iowa   Code   sections

422.45(27)(c)(3) and 427A.1(1)(h). Under these provisions, the exemption

from sales and use tax does not apply if the property is assessed by the

department      pursuant     to    Iowa       Code      chapter   433.      Sections

422.45(27)(c)(3) and 427A.1(1)(h) create an exception to the exemption in

section 422.45(27)(a)(4).      Because INS is a competitive long distance

telephone company, the ALJ determined that it was assessed pursuant

to chapter 433, and, therefore, was not entitled to the exemption.

      The ALJ supported this interpretation by noting that in 2006 the

legislature enacted a new subsection that exempted the central office

equipment of competitive long distance telephone companies from sales

and use tax.        2006 Iowa Acts ch. 1162, § 1 (codified at Iowa Code
§ 423.3(47A)(a) (2007)). The ALJ asserted that this statute would have

been unnecessary if such equipment had been previously exempt.

      INS appealed to the director.            The director largely adopted the

findings and reasoning of the ALJ in denying INS’s claim, with some

expansions and modifications.           The director specifically rejected the

notion that an amendment, passed as part of the deregulation of the


      1In  2003, the Iowa General Assembly passed the Streamlined Sales and Use
Taxes Act. 2003 First Extraordinary Session Iowa Acts ch. 2, §§ 94–150. As a result,
many of the code sections relevant to this opinion have been renumbered. Unless
otherwise specified, all references are to the 2003 Code of Iowa.
                                      4

Iowa telephone industry, removed competitive long distance telephone

companies from the scope of chapter 433.         The amendment’s relevant

language stated that after January 1, 1996, the director of revenue “shall

assess” the property of a long distance telephone company “in the same

manner as all other property assessed as commercial property by the

local assessor” under various chapters of the Iowa Code.           Iowa Code

§ 476.1D(10). According to the director, this provision simply provided

the director with a method of valuation of property. The amendment did

not alter the department’s assessment authority under chapter 433. As

a result, INS was not entitled to the sales and use tax exemption.

         INS filed a petition for review of agency action with the district

court.     The district court affirmed the director’s decision, and INS

appealed.

         II. Standard of Review.

         Although the parties agree that the Iowa Administrative Procedure

Act, chapter 17A, governs our review of decisions of the Iowa Department

of Revenue, they nevertheless dispute the proper standard of review. See

AOL LLC v. Iowa Dep’t of Revenue, 771 N.W.2d 404, 407–08 (Iowa 2009).

The department asserts that as it has been vested with the authority to

interpret Iowa Code chapter 422, its decision is entitled to deference and

can only be overturned if it is irrational, illogical, or wholly unjustifiable.

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

590 (Iowa 2003); Iowa Code § 422.68(1) (granting the department “the

power and authority to prescribe all rules not inconsistent with the

provisions of [chapter 422]”).

         While INS acknowledges the deference due the department in

regards to chapter 422, it asserts that resolution of this case depends on

the proper interpretation of Iowa Code section 476.1D(10), a portion of
                                    5

the Code whose interpretation has not been vested in the department.

To that extent, INS argues the department’s decision should be reviewed

for correction of errors of law.

      Although the ultimate issue presented in this case is INS’s

entitlement to a tax exemption under chapter 422, resolution of that

issue is dependent on the interplay between chapter 433 and section

476.1D(10). In order to select the proper standard of review, therefore,

we must determine whether the department has been vested with the

authority to interpret section 476.1D(10).

      We recently discussed the analysis for determining whether an

agency should be afforded deference in Renda v. Iowa Civil Rights

Comm’n, 784 N.W.2d 8, 10–13 (Iowa 2010). First, we must determine

whether the legislature has explicitly granted the agency authority to

interpret the disputed statute or phrase.    Renda, 784 N.W.2d at 11.

Here, as in most cases, there is no such express grant of authority in

section 476.1D(10).      When the legislature has not explicitly vested

authority in an agency to interpret a statute, we must examine “the

phrases or statutory provisions to be interpreted, their context, the

purpose of the statute, and other practical considerations to determine

whether the legislature intended to give interpretive authority to an

agency.” Id. at 11–12.

      We are not convinced that the legislature intended to vest in the

department the authority to interpret section 476.1D(10).         Section

476.1D(10) is part of chapter 476, a chapter of the Code dealing with

public utility regulation. Neither the language nor the purpose of section

476.1D(10) evidences an intent by the legislature to vest authority in the

department of revenue to interpret a section of the utilities code.

Although the legislature vested authority in the department to interpret
                                    6

much of chapter 422, we are not convinced that authority was intended

to extend to all sections of the Code that tangentially relate to chapter

422. See Lange v. Iowa Dep’t of Revenue, 710 N.W.2d 242, 247 (Iowa

2006). As a result, the director’s decision is reviewable for correction of

errors of law. Iowa Code § 17A.19(10)(c).

      III. Discussion.

      A. Competitive Long Distance Telephone Companies and Sales

and Use Tax. Iowa imposes a tax on the gross receipts from the sales of

tangible personal property sold at retail in the state to consumers or

users except as otherwise provided. Id. § 422.43(1). Sales and use tax

exemptions are found in Iowa Code section 422.45.           One of these

exemptions exempts from taxation “[c]omputers used in processing or

storage of data or information by an insurance company, financial

institution, or commercial enterprise.”     Id. § 422.45(27)(a)(4).    The

computers purchased by INS from 1998 to 2003 qualify for this

exemption.

      Chapter 422 goes on, however, to provide for an exception to this

exemption. The sole issue in this case is whether INS falls within the

exception to the sales and use tax exemption. That exception provides:
      [T]he gross receipts from the sale or rental of the following
      shall not be exempt from the tax imposed by this division:
      ....
             (3) Industrial machinery, equipment, and computers
      . . . within the scope of section 427A.1, subsection 1,
      paragraphs “h” and “i”.
Id. § 422.45(27)(c)(3).   Iowa Code section 427A.1(1)(h) includes all

“[p]roperty assessed by the department of revenue and finance pursuant

to . . . [chapter] 433.” Id. § 427A.1(1)(h). As a long distance telephone

company, INS has historically been assessed by the department

pursuant to chapter 433. See id. §§ 433.1–.6. The question presented in
                                     7

this appeal thus becomes whether a 1995 amendment removed INS from

the ambit of chapter 433 assessment—thereby entitling it to the tax

exemption—or whether INS continues to be assessed by the department

pursuant to chapter 433—thereby subjecting INS to the exception to the

tax exemption.

      B. Position of the Parties. In 1995, the Iowa General Assembly

passed an amendment to chapter 476. 1995 Iowa Acts ch. 199, § 1. The

amendment added section 476.1D(10), which states in relevant part:
            The board shall promptly notify the director of revenue
      and finance that a long distance telephone company has
      been classified as a competitive long distance telephone
      company. Upon such notification by the board, the director
      of revenue and finance shall assess the property of such
      competitive long distance telephone company, which
      property is first assessed for taxation in this state on or after
      January 1, 1996, in the same manner as all other property
      assessed as commercial property by the local assessor under
      chapters 427, 427A, 427B, 428, and 441.
Id. § 476.1D(10) (emphasis added).

      INS asserts that section 476.1D(10) supplants the department’s

assessment authority under chapter 433. While the department retains

the authority to centrally assess the company, it does so under the

mandate of section 476.1D(10) and not chapter 433.          In support, INS
cites the legislative history of 1985 and 1995 amendments to the Iowa

tax code, which expanded property and sales tax exemptions to

numerous industries. According to INS, these exemptions were intended

by the legislature to work in tandem, which is evidenced by the nearly

identical language of the two exemptions.      Because no party disputes

that INS is entitled to a property tax exemption on the computers at

issue here, INS argues that it should likewise be entitled to a sales and

use tax exemption. INS further argues that it would be illogical for the

department to construe the two exemptions differently.
                                    8

      While INS takes an expansive interpretation of section 476.1D(10),

the department advocates for a narrow interpretation.        It contends

section 476.1D(10) does not supplant the department’s power to assess

INS under chapter 433, but merely dictates the manner or method of the

department’s assessment.      The department further asserts that its

interpretation of the sales and use tax exemption is not at odds with the

property tax exemption.    Assessment and taxation are not the same.

Assessment is merely the first step in the taxation process. As a result,

simply because a property is not taxed does not mean it is not assessed.

The department, therefore, asserts that assessing property exempt from

property taxation is not a violation of section 476.1D(10)’s directive to

assess property “in the same manner” as the local assessor. Finally, the

department asserts that the legislature could not have intended section

476.1D(10) to remove its assessment power from chapter 433 and,

thereby, extend the sales and use tax exemption to INS. Had that been

the legislature’s intention in 1995, it would not have been necessary for

it to explicitly exempt central office equipment from sales and use

taxation in 2006.

      C. Application. We agree with the department. A party seeking a

tax exemption bears a heavy burden. As our prior cases demonstrate,

taxation is the rule, exemption is the exception. Van Buren County Hosp.

& Clinics v. Bd. of Rev., 650 N.W.2d 580, 586 (Iowa 2002) (noting that

exemptions exist only as a matter of legislative grace and are generally

disfavored as inequitable and unfair).       Exemptions from taxation,

therefore, are “ ‘construed strictly against the taxpayer and liberally in

favor of the taxing body.’ ” Ranniger v. Iowa Dep’t of Revenue & Fin., 746

N.W.2d 267, 269 (Iowa 2008) (quoting Iowa Auto Dealers Ass’n v. Iowa

Dep’t of Revenue, 301 N.W.2d 760, 762 (Iowa 1981)). The department’s
                                     9

narrow view of the statutes at issue is consistent with the narrow

construction of tax exemption statutes, while the taxpayers’ more

sweeping view is not. Id.

      Entitled “Telegraph and Telephone Companies Tax,” chapter 433 is

a comprehensive chapter governing the assessment and taxation of

telegraph and telephone companies within the State of Iowa.             Section

433.4 directs the department to assess “all property of every kind and

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

the transaction of telegraph and telephone business.”            Iowa Code

§ 433.4. Without a clear expression to the contrary, we cannot assume

that the legislature intended to limit this broad grant of authority.

      No such clear expression exists in section 476.1D(10). All that is

evidenced by the language in section 476.1D(10) is an intention to alter

the manner of the assessment of competitive long distance telephone

companies—not the power of the department to assess. Tellingly, section

476.1D(10) does not reference chapter 433, nor does it refer to the

department’s original power to assess.      In fact, the section seems to

assume that the department already has the power to assess competitive

long distance telephone companies and merely directs the department to

assess the companies’ property “in the same manner” as the local

assessor.   Id. § 476.1D(10).   While INS advances policy arguments in

support of its position, we derive legislative “intent from what the

legislature said, not from what it might or should have said.”            Iowa

Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Shell Oil

Co., 606 N.W.2d 376, 379 (Iowa 2000).

      Finally, the department’s narrow interpretation is supported by a

recent amendment to chapter 423. In 2006, the Iowa General Assembly

added subsection 423.3(47A)(a), which explicitly exempted the central
                                   10

office equipment of telecommunication companies from sales and use

tax. 2006 Iowa Acts ch. 1162, § 1. While INS correctly points out that

the 2006 law was more expansive and applied to more than simply

competitive long distance telephone companies, its interpretation would

render the legislature’s specific inclusion of competitive long distance

telephone companies redundant. See Rojas v. Pine Ridge Farms, L.L.C.,

779 N.W.2d 223, 231 (Iowa 2010) (“We also presume the legislature

included all parts of the statute for a purpose, so we will avoid reading

the statute in a way that would make any portion of it redundant or

irrelevant.”).

       IV. Conclusion.

       We conclude that INS has not met its burden in proving its

entitlement to a tax exemption of its purchases of computer equipment.

For the reasons expressed above, the decision of the district court,

therefore, is affirmed.

       AFFIRMED.
