                    IN THE SUPREME COURT OF IOWA

                           No. 115 / 06–1354

                         Filed October 24, 2008

TIMBERLAND PARTNERS XXI, LLP,
EDWARD L. HENDRICKSON, and
JAMES C. CONLIN,

      Appellants,

vs.

IOWA DEPARTMENT OF REVENUE,

      Appellee.
________________________________________________________________________
      Appeal from the Iowa District Court for Polk County, Don C.

Nickerson, Judge.



      Apartment building owners challenge the constitutionality of the

different tax treatment given apartments and condominiums under Iowa

Administrative Code rule 701—71.1(4), (5). AFFIRMED.



      Michael A. Dee and Rebecca A. Brommel of Brown, Winick, Graves,

Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellants.



      Thomas J. Miller, Attorney General, and Donald D. Stanley, Jr.,

Assistant Attorney General, for appellee.
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BAKER, Justice.

      Apartment building owners appeal the district court’s ruling that

Iowa Administrative Code rule 701—71.1(4), (5) (2005), under which

apartment buildings are designated as commercial regardless of their use

and are therefore subject to higher property taxes than non-commercial

condominiums, does not violate the equal protection clauses of the

United States and Iowa Constitutions.           Because apartments and

condominiums are not “similarly situated,” we find their dissimilar

treatment does not violate equal protection.

      I. Background Facts and Proceedings.

      Appellants    Timberland    Partners     XXI,   L.L.P.,   Edward    L.

Hendrickson, and James C. Conlin own numerous multi-unit residential

apartment buildings in Iowa. Timberland filed a petition for declaratory

order with the Iowa Department of Revenue requesting that Iowa

Administrative Code rule 701—71.1(4), (5) be declared unconstitutional

as violative of the equal protection clauses of the United States and Iowa

Constitutions.   This rule classifies apartment buildings as commercial

property, regardless of their use, but classifies condominiums as

commercial if used for a commercial venture and residential if used for

human habitation.    Timberland seeks to have its apartment buildings

taxed as residential because residential properties are taxed at a much

lower percentage of their assessed value than commercial properties.

The department issued a declaratory order finding the rule did not violate

equal protection.   Timberland filed a petition for judicial review.     The

district court concluded that rule 701—71.1(4), (5) does not violate equal

protection.
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      II. Scope of Review.
             We typically review a district court’s decision on a
      petition for judicial review of agency action for correction of
      errors at law. . . . The provisions of the Iowa Administrative
      Procedure Act, particularly the judicial review provisions of
      section 17A.19(8), govern this review. However, in cases
      such as this one, where “constitutional issues are raised, . . .
      we must make an independent evaluation of the totality of
      the evidence and our review . . . is de novo.”
Brummer v. Iowa Dep’t of Corr., 661 N.W.2d 167, 171 (Iowa 2003)

(quoting Simonson v. Iowa State Univ., 603 N.W.2d 557, 561 (Iowa 1999)).

      III. Discussion and Analysis.

      Timberland contends the disparate treatment afforded apartments

and condominiums under rule 701—71.1(4), (5) is unconstitutional and

a violation of the equal protection clauses of the United States and Iowa

Constitutions.

      A. The Rule. “By statute and administrative regulation, taxable

real property in Iowa must be assessed within one of six categories:

agricultural, residential, commercial, industrial, utilities, or railroads.”

City of Newton v. Bd. of Review, 532 N.W.2d 771, 773 (Iowa 1995) (citing

Sperfslage v. Ames City Bd. of Review, 480 N.W.2d 47, 48 (Iowa 1992)).

Property is to be classified and valued “according to its present use and

not according to its highest or best use.”    Iowa Admin. Code r. 701—

71.1(1).
      Rule 701—71.1 provides in relevant part:
      71.1(4) Residential real estate. Residential real estate shall
      include all lands and buildings which are primarily used or
      intended for human habitation . . . .
      An apartment in a horizontal property regime (condominium)
      . . . which is used or intended for use for human habitation
      shall be classified as residential real estate regardless of who
      occupies the apartment. . . .
      71.1(5) Commercial real estate. Commercial real estate shall
      include all lands and improvements and structures located
      thereon which are primarily used or intended as a place of
      business . . . . Commercial realty shall also include hotels,
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      motels,       rest      homes, structures consisting of three
      or more separate living quarters and any other buildings for
      human habitation that are used as a commercial venture. . . .
      However, regardless of the number of separate living
      quarters or any commercial use of the property, single- and
      two-family     dwellings,    multiple  housing   cooperatives
      organized under Iowa Code chapter 499A . . . shall be
      classified as residential real estate.
      An apartment in a horizontal property regime (condominium)
      referred to in Iowa Code chapter 499B which is used or
      intended for use as a commercial venture, other than leased
      for human habitation, shall be classified as commercial real
      estate.
(Emphasis added.)

      In short, under the Iowa Administrative Code, apartment buildings

are classified as commercial, regardless of their use, and condominiums

are classified as commercial if used for a commercial venture and as

residential if used for human habitation. This court has “recognized the

commercial    nature   of   apartment       complexes     and   their   resulting

commercial classification for tax purposes.” Newton, 532 N.W.2d at 773

(citing Sperfslage, 480 N.W.2d at 49).

      Timberland contends the disparate treatment between apartments

and   condominiums     is   a   violation    of   equal    protection   because

condominiums leased for human habitation are classified as residential,

while apartments leased for human habitation are classified as

commercial.

      B.     Equal Protection.       “[T]he Equal Protection Clause ‘is

essentially a direction that all persons similarly situated should be

treated alike.’ ” Racing Ass’n of Cent. Iowa v. Fitzgerald, 675 N.W.2d 1,

7 (Iowa 2004) (quoting City of Cleburne v. Cleburne Living Ctr., 473 U.S.

432, 439, 105 S. Ct. 3249, 3254, 87 L. Ed. 2d 313, 320 (1985)).

      “The first step of an equal protection [analysis] is to identify the

classes of similarly situated persons singled out for differential

treatment.” Ames Rental Prop. Ass’n v. City of Ames, 736 N.W.2d 255,
                                      5
259 (Iowa 2007) (citing Grovijohn v. Virjon,         Inc., 643   N.W.2d   200,

204 (Iowa 2002)). “ ‘If people are not similarly situated, their dissimilar

treatment does not violate equal protection.’ ” Bowers v. Polk County Bd.

of Supervisors, 638 N.W.2d 682, 689 (Iowa 2002) (quoting In re Morrow,

616 N.W.2d 544, 548 (Iowa 2000)). If a plaintiff fails to articulate, and

the court is unable to identify, a class of similarly situated individuals

who are allegedly treated differently under the challenged statute, the

plaintiff “has not satisfied the first step of an equal protection analysis,”

and the court need not address whether the “statute has a rational

relationship to a legitimate government interest.” Grovijohn, 643 N.W.2d

at 204; see also Glen Haven Homes, Inc. v. Mills County Bd. of Review,

507 N.W.2d 179, 183 (Iowa 1993) (noting equal protection does not

require dissimilar entities be treated similarly).

       Timberland contends that “[a]partments and condominiums are

similarly situated in their use, market characteristics, and structure.”

According to the district court, “[t]he similarities of condominiums and

apartments . . . are not as pronounced as they are alleged to be.” The

court concluded that “[c]ondominiums’ characteristics as separate and

identifiable parcels of real property make them rationally more akin to

single family residences than apartments for classification purposes,”

and that “[b]ased on this factor alone, the court believes the agency

clearly has a rational basis for making the distinction . . . .” The trial

court went on to identify other factors that differentiate condominiums

from    apartments,     including    market     characteristics,    structural

differences, and the “bundle of rights” associated with condominium

ownership.    The trial court concluded that “what truly makes the
                                          6
difference in this case is that the two types of property are simply not

similarly situated.”1

       Timberland contends the district court erred in focusing on the

ownership of condominiums rather than focusing on the similar uses of

condominiums and apartments. It argues the market characteristics of

the two “are so similar as to be virtually identical,” because both compete

for the same occupants, i.e., “many condominium units are marketed as

leaseholds, just like apartments,” and they are similar in structural

design and in the rules applied to residents. The State counters that the

“record is totally void of any evidence to support [appellants’] claim that

condominiums are routinely marketed and leased throughout the state

in the same manner as multi-unit apartment complexes.”

       We determine that any similarities between apartments and

condominiums are insufficient to consider them “similarly situated” for

equal protection analysis.        Although condominiums may be marketed

and leased like apartments and are similar in structural design and in

the rules applied to residents, unlike apartments, each condominium

unit is treated as a separate real estate parcel and could be marketed as

a single-family unit. See Iowa Code § 499B.10 (Supp. 2008) (declaring

that in a horizontal property regime, “each individual apartment . . . shall

constitute . . . a separate parcel of real property and shall be . . .

completely and freely alienable . . . .”). In this respect, for classification

purposes, condominiums are more like single-family residences than

apartments.       See Sperfslage, 480 N.W.2d at 49 (recognizing “the




       1Although the district court determined that apartments and condominiums are

not similarly situated, it then engaged in a rational basis analysis to determine “a
rational basis exists for the classification of apartment complexes . . . as commercial
property and condominiums . . . as residential property.”
                                       7
appropriateness of factoring market classifications         into      property

valuations”).

      In addition to the individual ownership rights of condominium

owners, under chapter 499B an owner of a condominium, unlike an

apartment tenant, has certain rights, including the right to participate in

the management and operation of the unit or complex. See Iowa Code §

449B.15 (providing the minimum requirements to be contained in the

bylaws for the governance of the condominium). Condominium owners

also bear increased stewardship expectations.            Iowa Code section

499B.20 outlines the requirements for apartment-to-condominium

conversions. It states:
      [A]n existing structure shall not be converted to a horizontal
      property regime unless the converted structure meets local
      city or county, as applicable, building code requirements in
      effect on the date of conversion or the state building code
      requirements, as adopted pursuant to section 103A.7, if the
      local city or county does not have a building code.
Id. § 499B.20. This statute provides a minimum standard that property

owners must meet when attempting to convert apartment buildings into

condominiums     and      outlines   the   State’s   heightened    stewardship

requirements for owner-occupied property.

      Under the statute, the ultimate question for classification is the

use of the property. A condominium is typically occupied by the owner

whereas an apartment is always a commercial enterprise.                City of

Newton, 532 N.W.2d at 773 (“We, like other jurisdictions, have

recognized the commercial nature of apartment complexes and their

resulting commercial classification for tax purposes.”). The primary use

of each is dissimilar. One is typically residential whereas the other is

exclusively commercial.       As a result, apartments are not similarly

situated to condominiums. Because we, like the district court, cannot
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find a class of similarly situated individuals      who      are   allegedly

treated differently under the challenged statute, Timberland has not

satisfied the first step of the equal protection analysis.    Therefore, we

need not address whether the classification meets “the rational basis

prong of the equal protection analysis.” Bowers, 638 N.W.2d at 690.

      IV. Disposition.

      We affirm the district court judgment in favor of the Iowa

Department of Revenue.

      AFFIRMED.

      All justices concur except Appel, J., who takes no part.
