               IN THE SUPREME COURT OF IOWA
                              No. 14–0494

                           Filed April 10, 2015

                         Amended June 12, 2015

LSCP, LLLP,

      Appellant,

vs.

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

      Appellee.


      Appeal from the Iowa District Court for Polk County, Rebecca

Goodgame Ebinger, Judge.



      An ethanol producer appeals after the Iowa Department of Revenue

and the district court both concluded Iowa’s excise tax on natural gas

delivery is constitutional. AFFIRMED.



      Christopher E. James and William E. Hanigan of Davis, Brown,
Koehn, Shors & Roberts, P.C., Des Moines, for appellant.



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

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

General, for appellee.
                                              2

HECHT, Justice.

         Iowa taxes the delivery of natural gas at variable tax rates

depending on volume and the taxpayer’s geographic location within the

state.    In this appeal, we confront several constitutional challenges to

that statutory framework.

         I. Background Facts and Proceedings.

         LSCP, LLLP 1 operates an ethanol manufacturing plant near

Marcus, Iowa.          Operations began in April 2003.             The ethanol LSCP

manufactures at its Marcus plant is sold primarily through a marketing

firm for use as fuel. LSCP also produces several ethanol byproducts, all

of which are marketed for use as feed for livestock.

         LSCP’s manufacturing processes use a substantial volume of

natural gas. The gas supplies energy for the plant’s steam boilers and is

burned to provide ambient heat for the plant in the winter months. The

relevant unit of measurement for the natural gas LSCP consumes is a

therm. Between 2007 and 2010, LSCP consumed millions of therms of

natural gas each year. 2

         There are no natural gas producers in Iowa.                 Accordingly, all

natural gas consumed in the state necessarily comes from out-of-state
suppliers        through    federally    regulated    interstate   pipelines.   Most

consumers receive their natural gas from a state-regulated local

distribution company (LDC).             LDCs connect to the interstate pipeline,


         1LSCP   is an acronym for Little Sioux Corn Processors.
       2One therm equals 100,000 British thermal units (Btu). One Btu represents the

amount of heat required to raise the temperature of one pound of water by one degree
Fahrenheit.      U.S.   Energy     Info.  Admin.,    Frequently  Asked    Questions,
http://www.eia.gov/tools/faqs/faq.cfm?id=45&t=8 (last updated Mar. 30, 2015).
Because it consumes millions of therms of natural gas per year, LSCP is a very high-
volume consumer of natural gas.
                                     3

redirect the natural gas at a reduced pressure into pipes that are smaller

in diameter, and move it to the locations where it is ultimately

consumed. In other words, in the delivery of natural gas, the role of an

LDC is analogous to the role played by utility companies delivering

electricity to consumers. MidAmerican Energy is an example of an LDC.

      Some consumers of natural gas bypass LDCs and connect directly

to an interstate pipeline.   Companies owning interstate pipelines must

allow direct connections to any consumer agreeing to certain terms and

conditions.    See 18 C.F.R. § 284.8(a), (e) (2014).     Some industrial

consumers of natural gas connect directly because they require natural

gas service at higher pressures not available from an LDC. Although the

record does not reflect whether a need for higher pressure was a reason

for LSCP’s choice, it is undisputed that LSCP bypassed an LDC and

connected directly to an interstate pipeline.

      In 1998, five years before LSCP began operations, the legislature

restructured the statutes authorizing taxes on electricity and natural gas

providers.    See 1998 Iowa Acts ch. 1194, § 3 (codified at Iowa Code

§ 437A.2 (1999)). The new framework took effect January 1, 1999. Id.

§ 40. As the district court explained:

            Prior to 1998, natural gas utility companies were taxed
      on the property they owned in the area the utility serviced—
      an ad valorem tax. . . . [C]hapter 437A replaced the ad
      valorem property tax system with an excise tax on the
      delivery, consumption, or use of natural gas—the
      “Replacement Tax.” Iowa Code § 437A.3(26).

Whereas the former system taxed property, the new system taxes

activity. The general assembly expressly intended the new replacement

tax scheme to preserve revenue neutrality, approximate the amount of

taxes that were paid under the former ad valorem framework, and
                                    4

“remove tax costs as a factor in a competitive environment.” Id. § 3; Iowa

Code § 437A.2 (2007).

      Under the new replacement tax framework, the state is divided into

fifty-two natural gas competitive service areas (CSAs).        Iowa Code

§ 437A.3(22). Within each CSA, “[a] replacement delivery tax is imposed

on every person who makes a delivery of natural gas to a consumer

within th[e] state.” Id. § 437A.5(1). The statute contains a formula for

calculating the amount of replacement tax due. See id. The amount of

tax is equal to the number of therms a taxpayer delivered into a

particular CSA multiplied by the delivery tax rate for that CSA.      Id. §

437A.5(1)(a).

      The Iowa Department of Revenue (the Department) calculated each

CSA’s initial delivery tax rate using a statutorily-prescribed mathematical

formula. See id. § 437A.5(3). First, the Department calculated average

“centrally assessed property tax liability allocated to natural gas service

of each taxpayer, other than a municipal utility, principally serving a

natural gas [CSA] for the assessment years 1993 through 1997 based on

property tax payments made.” Id. § 437A.5(3)(a). The Department next

determined “the number of therms of natural gas delivered to consumers

which would have been subject to taxation . . . in calendar year 1998” in

each CSA had the replacement tax been in effect.        Id. § 437A.5(3)(b).

Finally, the initial tax rate was determined by dividing the number

computed under subsection (3)(a) by the number of therms calculated

under subsection (3)(b).     See id. § 437A.5(3)(c).     With this initial

determination as a baseline, any CSA’s delivery tax rate can be adjusted

each tax year based upon the number of therms delivered within that

CSA. See id. § 437A.5(1)(a), (8).
                                     5

       Typically, the replacement tax applies to LDCs because they

remove natural gas from the interstate pipeline and deliver it to

consumers.    However, LSCP has bypassed an LDC.            Thus, section

437A.5(1) does not directly apply to LSCP, because strictly speaking,

LSCP does not deliver natural gas; the interstate pipeline does.

       Interstate pipeline companies are exempt from the replacement

tax.   See id. § 437A.5(7) (providing the replacement tax in section

437A.5(1) does not apply to natural gas delivered by a pipeline other than

those governed by chapter 479); id. § 479.2(2) (excluding interstate

natural gas pipelines from the definition of “pipeline” under chapter 479).

Yet, those who bypass LDCs by directly connecting to an interstate

pipeline do not avoid the replacement tax under section 437A.5. Section

437A.5(2) imposes the replacement tax on consumers who directly

connect and draw natural gas from an interstate pipeline.               Id.

§ 437A.5(2) (“If natural gas is consumed in this state . . . and the

delivery, purchase, or transference of such natural gas is not subject to

the tax imposed in subsection 1, a tax is imposed on the consumer at the

rates prescribed under subsection 1.”). Accordingly, because LSCP is a

direct-connect consumer and the interstate pipeline company is exempt,

LSCP is required to pay the replacement tax on the therms of natural gas

it consumes. As the district court noted, the statute essentially “treats a

direct-connect consumer as delivering the natural gas to itself.”

       In 2010, LSCP filed with the Department a claim for a refund of

replacement tax LSCP paid for tax years 2007 through 2010, asserting

the replacement tax in section 437A.5(2) is unconstitutional because it is

based on the CSA in which a taxpayer is located. In particular, LSCP

asserted the replacement tax violates the Federal Equal Protection
                                           6

Clause, article I, section 6 of the Iowa Constitution, and the dormant

Commerce Clause. 3

       Chapter 437A establishes a limitations period of three years for

taxpayers filing claims for refunds of replacement tax due to clerical or

mathematical errors. Iowa Code § 437A.14(1)(b). However, the chapter

also establishes a shorter limitations period of ninety days for making

refund claims based on an assertion the tax is unconstitutional.                     Id.

LSCP’s claim for refunds filed with the Department contended the shorter

limitations period for refund claims based on constitutional grounds

violates the Federal Equal Protection Clause and article I, section 6 of the

Iowa Constitution.        Therefore, LSCP asserted its refund claims were

timely filed within the broader three-year limitations period.

       An administrative law judge (ALJ) denied LSCP’s refund claims and

rejected the constitutional challenges to both the refund limitations

period and the replacement tax itself. The ALJ reasoned that under both

the Federal Equal Protection Clause and article I, section 6 of the Iowa

Constitution, any unequal treatment in the statutory framework was

supported by a rational basis; that the shorter limitations period for filing

refund claims was rationally related to encouraging prompt filing of

claims that may impact many other taxpayers; and that the replacement

tax framework does not violate the dormant Commerce Clause because it

taxes the activity of natural gas delivery without regard to the supplier’s

location.




       3Initially, LSCP also raised a due process challenge to the replacement tax. The

due process challenge is not asserted in this appeal, and we therefore do not address it.
                                     7

      LSCP sought judicial review in the district court. The district court

denied each of LSCP’s constitutional challenges. LSCP appealed, and we

retained the appeal.

      II. Scope of Review.

      “We generally review a district court’s decision on a petition for

judicial review of agency action for correction of errors at law. However,

in cases . . . where constitutional issues are raised, our review is

de novo.” Qwest Corp. v. Iowa State Bd. of Tax Review, 829 N.W.2d 550,

557 (Iowa 2013) (citation omitted). This is one such case.

      III. The Parties’ Positions.

      A. LSCP.

      1. Equal protection.     LSCP first contends the natural gas

replacement tax violates both the Federal Equal Protection Clause and

article I, section 6 of the Iowa Constitution. LSCP asserts it is similarly

situated to other directly connected ethanol plants within the state, but

is taxed at a different rate than other such plants solely because of its

geographic location within a particular CSA. See Racing Ass’n of Cent.

Iowa v. Fitzgerald (RACI I), 648 N.W.2d 555, 559 (Iowa 2002) (focusing on

the main activity being taxed—slot machine gambling—rather than

dissimilar scenery surrounding different facilities), rev’d, Fitzgerald v.

Racing Ass’n of Cent. Iowa, 539 U.S. 103, 110, 123 S. Ct. 2156, 2161,

156 L. Ed. 2d 97, 105 (2003); see also Racing Ass’n of Cent. Iowa v.

Fitzgerald (RACI II), 675 N.W.2d 1, 15 (Iowa 2004) (“In the end, we return

to the fact that the item taxed—gambling revenue—is identical.”).       In

particular, LSCP compares itself to a biorefining plant located in

Emmetsburg. Like LSCP, the Emmetsburg plant is directly connected,

but because it is situated within two miles of the city of Emmetsburg, it

is in the Emmetsburg CSA and therefore benefits from a replacement tax
                                           8

rate of zero. 4     See Iowa Code § 437A.3(22)(a)(1)(j) (establishing the

Emmetsburg CSA). This disparity of taxation, LSCP posits, violates our

constitutional command that “[a]ll persons in like situations should

stand equal before the law.” Chi. & Nw. Ry. v. Fachman, 255 Iowa 989,

1002, 125 N.W.2d 210, 217 (1963).

       2. Limitations period for refund claims. LSCP contends the shorter

limitations period for refund claims based on a constitutional objection

also violates the Federal Equal Protection Clause and article I, section 6

of the Iowa Constitution. In LSCP’s view, the shorter limitations period

draws a classification between constitutional claims and other types of

claims, and therefore impedes its fundamental right of meaningful access

to the courts to resolve constitutional claims.             Because it contends a

fundamental right is at stake, LSCP urges our application of strict

scrutiny analysis rather than the less demanding rational basis

standard.

       3.    Dormant Commerce Clause.             Finally, LSCP posits that the

natural gas replacement tax penalizes consumers purchasing natural gas

from nonresident suppliers. The penalty arises, LSCP asserts, because

LDCs have freedom to allocate their replacement tax burden among their

customers at different rates—and, because LDCs often do allocate the tax

burden differently, many high-volume LDC customers pay tax at a lower

rate than does LSCP.         Because there are no natural gas suppliers in

Iowa, LSCP contends the statutory framework establishing the higher

rate it pays as a directly connected consumer is applied only to

       4A witness for the Department explained that the replacement tax formula under
sections 437A.5(3)(a)–(c) utilizes only “centrally assessed” tax liability. See Iowa Code
§ 437A.5(3)(a). Because municipalities are locally assessed, the witness explained, the
numerator in the fraction prescribed in section 437A.5(3) would always be zero for
many municipal CSAs.
                                       9

transactions involving nonresident suppliers in violation of the dormant

Commerce Clause.

      B. The Department.

      1. Equal protection.     The Department first asserts LSCP is not

similarly situated to any “individuals who are allegedly treated differently

under the challenged statute.”       Timberland Partners XXI, LLP v. Iowa

Dep’t of Revenue, 757 N.W.2d 172, 175 (Iowa 2008); see City of Coralville

v. Iowa Utils. Bd., 750 N.W.2d 523, 531 (Iowa 2008) (“Dissimilar

treatment of persons dissimilarly situated does not offend equal

protection.”). In City of Coralville, we said “[c]itizens serviced by different

public utilities are not similarly situated.” City of Coralville, 750 N.W.2d

at 531. Relying on this language, the Department asserts LSCP is not

similarly situated to ethanol plants in other CSAs, even if those other

ethanol plants are directly connected natural gas consumers. In other

words, the Department contends each directly connected ethanol plant is

a customer of a different public utility: itself.

      But even assuming LSCP is similarly situated to other replacement

taxpayers, the Department contends ample rational bases for the

replacement tax regime are elucidated in the legislature’s 1998

enactment. In particular, the Department relies on legislative findings

accompanying the enactment and a separate section of the statute

entitled “PURPOSES.”      1998 Iowa Acts ch. 1194, §§ 1, 3.        With these

expressly stated legislative purposes as a backdrop, the Department

asserts the tax need only be applied uniformly, and the fact that the

consequences may not be uniform is of no moment.                 See City of

Coralville, 750 N.W.2d at 530–31.

      2. Limitations period for refund claims. The Department concedes

chapter 437A provides a shorter limitations period for refund claims
                                     10

based on constitutional objections. However, it contends rational basis

analysis—not strict scrutiny—is the appropriate test for constitutional

challenges involving different limitations periods. See Fed. Land Bank of

Omaha v. Arnold, 426 N.W.2d 153, 156 (Iowa 1988) (applying the rational

basis test to “different redemption periods for ‘member’ and ‘nonmember’

institutions”); Conner v. Fettkether, 294 N.W.2d 61, 62 (Iowa 1980)

(applying the rational basis test to a limitations period for tort claims

that depended upon the plaintiff’s age).      Applying that standard, the

Department asserts the legislature had a rational basis for subjecting

constitutional claims to a shorter limitations period.     Specifically, it

contends a shorter limitations period for constitutional challenges

launched against tax statutes limits the amounts of refunds to which

state coffers are potentially exposed and promotes predictable fiscal

planning for governmental entities. See Am. States Ins. Co. v. State, 560

N.W.2d 644, 650 (Mich. Ct. App. 1996) (“Protection of the state treasury

is certainly a legitimate state purpose.”).

      3. Dormant Commerce Clause.         The Department contends LSCP

lacks standing to bring a dormant Commerce Clause challenge because

it is not an out-of-state supplier being taxed discriminatorily. Further,

the Department contends LSCP lacks standing because the statutory

framework does not impose an additional sales tax only on out-of-state

transactions, like the tax scheme at issue in General Motors Corp. v.

Tracy, 519 U.S. 278, 282, 117 S. Ct. 811, 816, 136 L. Ed. 2d 761, 770

(1997).

      On the merits, the Department asserts LSCP mischaracterizes the

necessary comparison under the dormant Commerce Clause. It states

the comparison is not between LSCP and customers who obtain gas

through an LDC; rather, the comparison is between LSCP and LDCs
                                     11

themselves. While individual LDC customers may pay lower rates than

LSCP, they do so only because LDCs are allowed to pass their delivery

tax costs to their customers through tariffs, and can do so at varying

rates. LDCs, however, are ultimately liable for the entire amount of their

respective delivery tax at the same rate as LSCP.            Therefore, the

Department asserts, the replacement tax formula does not discriminate

against LSCP for its decision to bypass the LDC, nor does it discriminate

against interstate commerce in general.

      IV. Analysis.

      We address only the substantive constitutional challenges to the

replacement tax itself. Our conclusions on those issues obviate any need

to address the limitations period issue.

      A. Equal Protection.        LSCP raises claims under both the

Fourteenth Amendment to the United States Constitution and article I,

section 6 of the Iowa Constitution. It relies principally on our decision in

RACI II, in which we distinguished between the two provisions. RACI II,

675 N.W.2d at 5–7.       We may conclude the state provision is more

protective. See id. at 6–7. However, on a basic level, both constitutions

establish the general rule that similarly situated citizens should be

treated alike. Qwest Corp., 829 N.W.2d at 558.

      1. Fourteenth Amendment.       The Equal Protection Clause of the

Fourteenth Amendment provides that no state shall “deny to any person

within its jurisdiction the equal protection of the laws.”      U.S. Const.

amend. XIV, § 1. The United States Supreme Court has explained that

“state tax classifications require only a rational basis to satisfy the Equal

Protection Clause.” Tracy, 519 U.S. at 311, 117 S. Ct. at 830, 136 L. Ed.

2d at 787; accord Fitzgerald, 539 U.S. at 106–07, 123 S. Ct. at 2159, 156

L. Ed. 2d at 102–03; see also Armour v. City of Indianapolis, ___ U.S. ___,
                                    12

___, 132 S. Ct. 2073, 2080, 182 L. Ed. 2d 998, 1005 (2012) (applying the

rational basis test because “Indianapolis’[s tax] classification involves

neither a ‘fundamental right’ nor a ‘suspect’ classification”). Under the

rational basis test,

      the Equal Protection Clause is satisfied so long as there is a
      plausible policy reason for the classification, the legislative
      facts on which the classification is apparently based
      rationally may have been considered to be true by the
      governmental decisionmaker, and the relationship of the
      classification to its goal is not so attenuated as to render the
      distinction arbitrary or irrational.

Nordlinger v. Hahn, 505 U.S. 1, 11, 112 S. Ct. 2326, 2332, 120 L. Ed. 2d

1, 13 (1992) (citations omitted).

      The rational basis standard as applied in equal protection claims

grounded in the Fourteenth Amendment “is especially deferential in the

context of classifications made by complex tax laws.”         Id.; see also

Madden v. Kentucky, 309 U.S. 83, 88, 60 S. Ct. 406, 408, 84 L. Ed. 590,

593 (1940) (“[I]n taxation, even more than in other fields, legislatures

possess the greatest freedom in classification.”).     It does not require

optimal or perfect line-drawing, instead requiring “only that the line

actually drawn be a rational line.” Armour, ___ U.S. at ___, 132 S. Ct. at
2083, 182 L. Ed. 2d at 1008. “But there is a point beyond which the

State cannot go without violating the Equal Protection Clause. The State

. . . may not resort to a classification that is palpably arbitrary.” Allied

Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 527, 79 S. Ct. 437, 441, 3

L. Ed. 2d 480, 485 (1959).

      The Supreme Court’s decision in Fitzgerald provides an illustration

of geographic tax rate differences that have been found consistent with

the Federal Equal Protection Clause. Fitzgerald, 539 U.S. at 110, 123 S.

Ct. at 2161, 156 L. Ed. 2d at 105.       In Fitzgerald, Iowa assessed slot
                                        13

machine gambling revenue from riverboat casinos at a maximum rate of

twenty percent. Id. at 105, 123 S. Ct. at 2158, 156 L. Ed. 2d at 102.

The legislature later passed a law authorizing additional slot machine

gambling at racetracks 5—yet taxed revenue from those machines at a

higher rate of thirty-six percent.      Id.   The Supreme Court emphasized

that tax legislation must be viewed as a whole. Id. at 108, 123 S. Ct. at

2160, 156 L. Ed. 2d at 103. Thus, although the racetracks were subject

to a higher tax rate based on geographic location, the Court concluded

that, under the Fourteenth Amendment, the differential in statewide tax

rates was rationally related to promoting economic development in

certain communities or protecting a reliance interest the riverboat

operators had developed. Id. at 109, 123 S. Ct. at 2160, 156 L. Ed. 2d at

104. Accordingly, the Court found the differential tax rate did not violate

the Fourteenth Amendment’s Equal Protection Clause. Id. at 110, 123 S.

Ct. at 2161, 156 L. Ed. 2d at 105.

      Applying the rational basis analysis articulated by the Supreme

Court in Fitzgerald, we find alternative rational bases for the natural gas

replacement tax structure. For example, the legislature may have wished

to promote economic development in municipalities by creating CSAs

featuring municipal LDCs offering tax advantages for new business

prospects.    See id. at 109, 123 S. Ct. at 2160, 156 L. Ed. 2d at 104

(concluding a lower tax rate for riverboat slot machine revenue was

rationally related to “encourag[ing] the economic development of river

communities”).      Similarly, the legislature may have had reasonable

grounds for exempting from the replacement tax consumers of natural


       5A racetrack that also offers slot machine gambling is called a racino.   See
DePaul v. Commonwealth, 969 A.2d 536, 548 n.14 (Pa. 2009).
                                     14

gas who had directly connected before the new tax formulation was

adopted in 1998 in reliance on the former ad valorem system.             The

legislature could have believed those consumers should be shielded from

the replacement tax under section 437A.5(2) because it would upend

their reliance and significantly—perhaps unfairly—increase their tax

liability. See id. (concluding a difference in tax rates for riverboat slot

machine revenue and racino slot machine revenue was rationally related

to protecting riverboat operators’ reliance interest on the lower rate); City

of New Orleans v. Dukes, 427 U.S. 297, 298, 305, 96 S. Ct. 2513, 2514,

2518, 49 L. Ed. 2d 511, 514, 518 (1976) (per curiam) (concluding a city

ordinance satisfied the rational basis test when it only allowed pushcart

food vendors in the French Quarter to continue operating if they had

been operating for at least eight years, because “newer businesses were

less likely to have built up substantial reliance interests”); see also Iowa

Code   § 437A.5(7)   (exempting    direct-connect   consumers     from   the

replacement tax under section 437A.5(2) if their direct-connect facilities

were already in place on January 1, 1999).

       Because we conclude these objectives supply a rational basis

under the standard expressed by the Supreme Court, we conclude the

variable tax rates survive LSCP’s equal protection challenge based on the

Fourteenth Amendment. See Fitzgerald, 539 U.S. at 110, 123 S. Ct. at

2161, 156 L. Ed. 2d at 105. Thus, we need not consider whether the

replacement delivery tax is also rationally related to other state interests.

See Nordlinger, 505 U.S. at 14 n.5, 112 S. Ct. at 2334 n.5, 120 L. Ed. 2d

at 15 n.5. We conclude Iowa’s natural gas delivery tax does not violate

the Federal Equal Protection Clause when imposed on a directly

connected consumer under section 437A.5(2).
                                             15

       2. Article I, section 6. Article 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. 6            Recognizing that constitutional

command, we have said “[l]aws relating to taxation . . . must have a

uniform operation to meet the requirements of constitutional provisions.”

W.J. Sandberg Co. v. Iowa State Bd. of Assessment & Review, 225 Iowa

103, 109–10, 278 N.W. 643, 646 (1938).                   However, uniform operation

does not necessarily require uniform consequences.                            See City of

Coralville, 750 N.W.2d at 530–31; City of Waterloo v. Selden, 251 N.W.2d

506, 508–09 (Iowa 1977) (“An iron rule of equal taxation is neither

attainable nor necessary.”); Cook v. Dewey, 233 Iowa 516, 519, 10

N.W.2d 8, 10 (1943) (“The constitution requires uniform operation

throughout the State, not uniformity of consequences resulting from

such operation.” (Internal quotation marks omitted.)); W.J. Sandberg Co.,

225 Iowa at 110, 278 N.W. at 646 (“[I]n the matter of taxation, perfect

uniformity, which . . . means an equal distribution of the burdens of

taxation upon all persons of a given class, is impossible of perfect

application.”).

       Like the United States Supreme Court’s application of rational

basis review to Fourteenth Amendment equal protection challenges, we

ensure uniform operation under the Iowa Constitution by reviewing

economic legislation—which includes tax statutes—under a rational

       6In   recent cases, we have “refer[red] to article I, section 6 as the ‘equal protection
clause’ of the Iowa Constitution.” Qwest Corp., 829 N.W.2d at 557 n.4 (collecting
cases). In some instances, we have called article I, section 6 the “equality provision.”
See, e.g., In re A.W., 741 N.W.2d 793, 806 (Iowa 2007); RACI II, 675 N.W.2d at 7; Chi. &
Nw. Ry., 255 Iowa at 996, 125 N.W.2d at 214.
                                           16

basis test. 7 See Qwest Corp., 829 N.W.2d at 558. In Qwest Corp., we

explained to pass the rational basis test, the statute must be “ ‘rationally

related to a legitimate state interest.’ ” Id. (quoting Sanchez v. State, 692

N.W.2d 812, 817–18 (Iowa 2005)); see also City of Coralville, 750 N.W.2d

at 530. A legitimate interest can be any reasonable justification, not just

the one the legislature actually chose. See Qwest Corp., 829 N.W.2d at

558; RACI II, 675 N.W.2d at 8 (“[A] person challenging a statute

shoulders a heavy burden . . . .               This burden includes the task of

negating every reasonable basis that might support the disparate

treatment.” (Citations omitted.)).          Further, the fit between the means

chosen by the legislature and its objective need only be rational, not

perfect. See Qwest Corp., 829 N.W.2d at 558.

       “We have said before the legislature acts with broad authority in

the realm of taxation.” RACI I, 648 N.W.2d at 558; accord Hearst Corp. v.

Iowa Dep’t of Revenue & Fin., 461 N.W.2d 295, 305 (Iowa 1990); Selden,

251 N.W.2d at 508. Thus, “[w]hen we have applied the rational basis test

to tax laws, they have generally been upheld without much difficulty.”

Qwest Corp., 829 N.W.2d at 558; accord Sperfslage v. Ames City Bd. of

Review, 480 N.W.2d 47, 49 (Iowa 1992) (“Th[e rational basis] standard is

easily satisfied in challenges to tax statutes.”); Hearst Corp., 461 N.W.2d

at 306; Heritage Cablevision v. Marion Cnty. Bd. of Supervisors, 436

N.W.2d 37, 38 (Iowa 1989). After all, “[t]axing statutes are presumed to



       7Rational basis analysis under article I, section 6 of the Iowa Constitution is not,
however, constrained by or limited to judicial interpretations of the Fourteenth
Amendment Equal Protection Clause. “[W]e maintain our authority to adopt our own
equal protection analysis under the Iowa Constitution . . . .” City of Coralville, 750
N.W.2d at 530; see also RACI II, 675 N.W.2d at 4 (“It is this court’s constitutional
obligation as the highest court of this sovereign state to determine whether the
challenged classification violates Iowa’s constitutional equality provision.”).
                                       17

be constitutional.” Home Builders Ass’n of Greater Des Moines v. City of

West Des Moines, 644 N.W.2d 339, 352 (Iowa 2002); accord Sperfslage,

480    N.W.2d   at   49   (“We   recognize    a   presumption     favoring   the

constitutionality of taxing statutes.”).

       “These rigorous standards have not, however, prevented this court

from finding economic . . . legislation in violation of equal protection

provisions.” RACI II, 675 N.W.2d at 8–9. “[E]ven in the economic sphere,

a citizen’s guarantee of equal protection is violated if desirable legislative

goals are achieved . . . through wholly arbitrary classifications or

otherwise invidious discrimination.”        Fed. Land Bank, 426 N.W.2d at

156.   Thus, the deference we afford the legislature’s classifications “is

not, in and of itself, necessarily dispositive” under article I, section 6.

Bierkamp v. Rogers, 293 N.W.2d 577, 581 (Iowa 1980).              “It is for the

judicial department to determine whether any department has exceeded

its constitutional functions . . . .” Luse v. Wray, 254 N.W.2d 324, 327

(Iowa 1977) (internal quotation marks omitted).

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

the classes of similarly situated persons singled out for differential

treatment.” 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 and we need not

consider whether the ends are legitimate and the means rationally

related. Timberland Partners, 757 N.W.2d at 175.           However, “[n]o two

groups are identical in every way,” so LSCP is not required to show it

mirrors another class of taxpayers exactly. See Qwest Corp., 829 N.W.2d

at 561 (emphasis added).
                                        18

       In this case, LSCP posits the relevant class consists of all directly

connected ethanol plants located in Iowa who pay tax rates that differ

solely based on their geographic location. The directly connected plants

all bypass an LDC, obtain natural gas directly from an interstate

pipeline, and use that gas to produce ethanol and related byproducts. In

contrast, the Department, relying on our decision in City of Coralville,

contends “[c]itizens serviced by different public utilities are not similarly

situated.”   City of Coralville, 750 N.W.2d at 531.      In other words, the

Department asserts each directly connected ethanol plant acts as its own

utility,   with   itself   as   a   customer—and   therefore,   LSCP   cannot

demonstrate any similarly situated class of taxpayers treated differently

in violation of article I, section 6. See Timberland Partners, 757 N.W.2d

at 175.

       In Qwest Corp., we cautioned against making intricate distinctions

between purported classes of similarly situated individuals, because if we

did so, almost every equal protection claim could be resolved against the

plaintiffs on the “similarly situated” requirement.       Qwest Corp., 829

N.W.2d at 561. We therefore assumed the two proffered groups in Qwest

Corp. were similarly situated, without deciding the question. See id. We

do the same here. We assume (without deciding) for purposes of analysis

that LSCP has identified a class of similarly situated taxpayers subjected

to allegedly different treatment.

       We now proceed to the next step of equal protection analysis. In

this step, “we must examine the legitimacy of the end to be achieved; we

then scrutinize the means used to achieve that end.” Fed. Land Bank,

426 N.W.2d at 156.
                                     19

      At the legitimacy step, our rational basis test under article I,

section 6 is not toothless. See RACI II, 675 N.W.2d at 9. To determine

whether the ends are legitimate, we first ask whether

      the claimed state interest [is] realistically conceivable. Our
      court must then decide whether this reason has a basis in
      fact. Finally, we must consider whether the relationship
      between the classification . . . and the purpose of the
      classification is so weak that the classification must be
      viewed as arbitrary.

Id. at 7–8 (citations omitted) (footnotes omitted).        The “realistically

conceivable” standard requires more than “a purely superficial analysis

and implies that the court is permitted to ‘probe to determine if the

constitutional requirement of some rationality in the nature of the class

singled out has been met.’ ” Id. at 7 n.3 (quoting Greenwalt v. Ram Rest.

Corp. of Wyo., 71 P.3d 717, 731 (Wyo. 2003)). “Basis in fact” means “the

court will undertake some examination of the credibility of the asserted

factual basis for the challenged classification rather than simply

accepting it at face value.”   Id. at 8 & n.4.    In other words, although

“actual proof of an asserted justification [i]s not necessary, . . . the court

w[ill] not simply accept it at face value and w[ill] examine it to determine

whether it [i]s credible as opposed to specious.”         Qwest Corp., 829

N.W.2d at 560; see RACI II, 675 N.W.2d at 7 n.3 (differentiating between

“credible” and “specious”).

      When it enacted chapter 437A, the legislature expressly identified

the interests it sought to advance.          For example, the legislature

announced an objective to “remove tax costs as a factor in a competitive

environment by imposing like generation, transmission, and delivery

taxes on similarly situated competitors who generate, transmit, or deliver

. . . natural gas in the same [CSA].” Iowa Code § 437A.2. In other words,

the legislature sought to promote competition in the natural gas delivery
                                    20

market by preventing companies with no property in the state—and

therefore, few if any assets reached by the ad valorem tax—from enjoying

an unfair advantage due to their comparatively lower tax liability. The

legislature also expressly announced its objective “to preserve revenue

neutrality and debt capacity for local governments and taxpayers” by

creating a new and different system generating tax revenue calculated to

replicate the amount that was collectible under the prior framework. See

id.   The legislature chose to advance this objective by creating a new

variable tax rate dependent on the centrally assessed property tax

liability allocated to the natural gas service of each taxpayer principally

serving each CSA, averaged over tax years 1993 to 1997 under the

former ad valorem tax structure. See Iowa Code § 437A.5(3).

       In adopting the new replacement tax formulation, the legislature

explained its reasons for eschewing “imposition of a single statewide

delivery tax rate [that] would unfairly increase tax costs for some

taxpayers while reducing such costs for others.”      1998 Iowa Acts ch.

1194, § 1.     The legislature expressly rejected LSCP’s preference for

statewide rate uniformity, finding it “would impede a competitive

environment.” Id. In addition to the goals of market competition and

revenue continuity, the legislature noted its policy objective of providing

“a system of taxation which reduces existing administrative burdens on

state government.” Iowa Code § 437A.2.

       Although in the process of rational basis review we do not simply

accept claimed legitimacy of the interests (the ends) legislation purports

to advance, LSCP does not contest the legitimacy of the interests

expressly proffered by the Department in this case.         Rather, LSCP

contends the means and ends bear no rational relation to one another.

See Fed. Land Bank, 426 N.W.2d at 156–57 (“FLB concedes the
                                     21

legitimacy of the challenged legislation’s public purpose. . . .                The

question is whether these legitimate goals are rationally served by [the]

legislative scheme . . . .”). We now turn to that question.

      When applying the rational basis test, we uphold a classification

against an equal protection challenge to a statute if it is rationally related

to at least one legitimate state interest. See City of Coralville, 750 N.W.2d

at 530 (“[W]e will sustain a legislative classification if it is rationally

related to a legitimate state interest.” (Emphasis added.)). Thus, if we

determine rate variation based on the taxpayer’s geographic location is a

rational classification made in furtherance of any legitimate state

interest, we will uphold the replacement tax framework against LSCP’s

challenge.

      Under the Iowa Constitution, we determine whether a classification

rationally furthers a legitimate state interest by evaluating whether the

classification   features     “extreme    degrees      of     overinclusion     and

underinclusion in relation to any particular goal.” Bierkamp, 293 N.W.2d

at 584; see also RACI II, 675 N.W.2d at 10. If a classification involves

extreme overinclusion or underinclusion “in relation to any particular

goal, it cannot [reasonably] be said to . . . further that goal.” Bierkamp,

293 N.W.2d at 584.           Although LSCP does not expressly raise its

challenges in terms of extreme over- or underinclusiveness, its assertions

can be characterized under that framework.                   For example, LSCP

implicitly   asserts   the   replacement    delivery        tax   regime   is   both

overinclusive and underinclusive because LSCP and other directly

connected consumers are shoehorned into the system, while preexisting

directly connected consumers are exempt. In particular, LSCP contends

the replacement tax regime is overinclusive—sweeping in taxpayers that

should not be subject to it—because the rate in LSCP’s CSA is based on
                                       22

historic property values LSCP cannot control; because LSCP cannot

affect its own replacement tax rate; and because LSCP cannot pass tax

costs to customers through a tariff.

      We conclude none of these assertions identifies a classification that

is extremely overinclusive and underinclusive.      The 1998 session law

enacting the replacement tax stated in part that the legislature wanted to

ensure fairness in the electricity and natural gas markets.       See 1998

Iowa Acts ch. 1194, §§ 1, 3. For example, the legislature found “a single

statewide delivery tax rate would unfairly increase tax costs for some

taxpayers while reducing costs for others.” Id. § 1. Thus, to prevent an

unjust result, the legislature created geographic CSAs and developed a

formula that would make any changes in tax liability much less drastic

compared to the previous system than a single statewide tax rate would

be. Similarly, the legislature wanted to remove tax costs as a factor in

the competitive market for natural gas service. See id. § 3. Perhaps it

was concerned a natural gas supplier could exploit the ad valorem

system by locating in a low tax state and maintaining little or no property

in Iowa, yet directing substantial service toward Iowa. Additionally, the

legislature may have decided to avoid a potential loophole for consumers

connecting directly to a pipeline after January 1, 1999, if the delivery tax

did not apply to them—a loophole that would make tax costs a factor in

location and bypass decisions.     In other words, while the legislature

created an exemption for “grandfathered” directly connected consumers

and subjected future directly connected consumers to a tax rate they

cannot control, we conclude these features of the classification are

neither overinclusive nor underinclusive to an extreme degree.           No

constitutional violation results unless “a classification involves extreme
                                           23

degrees of overinclusion and underinclusion in relation to any particular

goal.” Bierkamp, 293 N.W.2d at 584 (emphasis added).

       We conclude the legislature could have rationally believed 8 the

replacement tax regime—switching to an excise tax and imposing that

tax on directly connected consumers at rates prevailing within the CSA

where they are located—was rationally related to its goals.                          The

replacement delivery tax may not create uniform results, but “the law

operates uniformly in the constitutional sense.” Cook, 233 Iowa at 519,

10 N.W.2d at 10.         It does not violate article I, section 6 of the Iowa

Constitution.

       B. Dormant Commerce Clause. In KFC Corp. v. Iowa Department

of Revenue, we explained the background of the dormant Commerce

Clause:

             The United States Constitution expressly authorizes
       Congress to “regulate Commerce . . . among the several
       States.” U.S. Const. art. I, § 8, cl. 3. Since the nineteenth
       century, the United States Supreme Court has interpreted
       the Commerce Clause as more than merely an affirmative
       grant of power, finding a negative sweep to the Clause as

       8In   Bierkamp, we explained “changes in underlying circumstances may vitiate
any rational basis.” Bierkamp, 293 N.W.2d at 581. Further, “the passage of time may
call for a less deferential standard of review as the experimental or trial nature of
legislation is less evident.” Id.; see also State v. Groves, 742 N.W.2d 90, 93 (Iowa 2007)
(“[W]hen applying a rational basis test under the Iowa Constitution, changes in the
underlying circumstances can allow us to find a statute no longer rationally relates to a
legitimate government purpose.”). LSCP relies on our statement in Bierkamp and
contends while there may originally have been a rational basis between some ends and
the means used to achieve them, that basis no longer exists—and we can properly
determine the relation using a present-day viewpoint rather than a retrospective one.
        However, we have never applied the Bierkamp reevaluation standard to an equal
protection claim involving a tax statute. See Qwest Corp., 829 N.W.2d at 562 & n.7.
Further, we have stated the standard generally applies when the changed
circumstances are developing legal trends—not simply a look back in time to verify
whether the legislature actually accomplished its goals. Id. at 562 n.7. “There have
been no [major] developments of which we are aware in . . . tax jurisprudence.” Id.
Accordingly, we decline to apply the Bierkamp reevaluation standard in this case.
                                    24
      well. See Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 448–
      49, 6 L. Ed. 678, 688–89 (1827); Gibbons v. Ogden, 22 U.S.
      (9 Wheat.) 1, 72–78, 6 L. Ed. 23, 70–78 (1824). As a result,
      the Supreme Court has applied the “negative” or “dormant”
      Commerce Clause to limit state taxation powers
      notwithstanding the absence of congressional legislation.

KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308, 313 (Iowa 2010).

In short, the dormant Commerce Clause “limits the power of the states to

erect barriers against interstate trade.” Iowa Auto. Dealers Ass’n v. Iowa

State Appeal Bd., 420 N.W.2d 460, 462 (Iowa 1988).

      The Supreme Court has further explained the “dormant” aspect of

the Commerce Clause: “The negative or dormant implication of the

Commerce Clause prohibits state taxation . . . that discriminates against

or unduly burdens interstate commerce . . . .” Tracy, 519 U.S. at 287,

117 S. Ct. at 818, 136 L. Ed. 2d at 773.        In this context, the term

“discrimination” means “differential treatment of in-state and out-of-state

economic interests that benefits the former and burdens the latter.” Or.

Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99, 114 S. Ct.

1345, 1350, 128 L. Ed. 2d 13, 21 (1994); accord NextEra Energy Res. LLC

v. Iowa Utils. Bd., 815 N.W.2d 30, 48 (Iowa 2012).        Before evaluating

whether   chapter   437A   discriminates   against   or   unduly    burdens

interstate commerce, however, we must first determine whether LSCP

has standing to raise this dormant Commerce Clause challenge.

      1. Standing to raise a dormant Commerce Clause claim. Usually,

parties asserting dormant Commerce Clause challenges are out-of-state

entities subjected to an allegedly discriminatory regulation.      See, e.g.,

Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 339, 97 S. Ct.

2434, 2439, 53 L. Ed. 2d 383, 391 (1977) (noting the Washington

plaintiff challenging a North Carolina regulation brought suit in North

Carolina federal court); Complete Auto Transit, Inc. v. Brady, 430 U.S.
                                    25

274, 275–76, 97 S. Ct. 1076, 1077, 51 L. Ed. 2d 326, 328–29 (1977)

(noting the plaintiff was a Michigan company challenging a Mississippi

tax assessment); KFC Corp., 792 N.W.2d at 310 (noting the plaintiff was

“a Delaware corporation with its principal place of business in Louisville,

Kentucky” that owned no properties in Iowa). The Department asserts

because LSCP is not an out-of-state entity allegedly subjected to

discriminatory treatment under chapter 437A, it has no standing to

challenge the statute under the dormant Commerce Clause.

      However, “cognizable injury from unconstitutional discrimination

against interstate commerce does not stop at members of the class

against whom a State ultimately discriminates.” Tracy, 519 U.S. at 286,

117 S. Ct. at 818, 136 L. Ed. 2d at 772. In Tracy, a case also involving

tax on natural gas, the Supreme Court stated customers of the class

subjected to discrimination “may also be injured, as . . . where the

customer is liable for payment of the tax and as a result presumably

pays more for the gas it gets from out-of-state producers and marketers.”

Id. Further, at least two other Supreme Court cases have demonstrated

that in-state plaintiffs are not precluded from raising dormant Commerce

Clause challenges. See W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186,

190–91, 114 S. Ct. 2205, 2209–10, 129 L. Ed. 2d 157, 165 (1994) (noting

the plaintiffs were Massachusetts milk dealers asserting a monthly

premium payment distributed only to in-state farmers violated the

dormant Commerce Clause); Bacchus Imps., Ltd. v. Dias, 468 U.S. 263,

267, 104 S. Ct. 3049, 3053, 82 L. Ed. 2d 200, 206–07 (1984) (concluding

in-state liquor wholesalers had standing to challenge Hawaii’s liquor tax,

in part because they were “entitled to litigate whether the . . . tax has

had an adverse competitive impact on their business”).
                                     26

       We assume, without deciding, that LSCP has standing in this case.

We do so because we conclude even if LSCP has standing, the

replacement delivery tax framework does not violate the dormant

Commerce Clause. Cf. Qwest Corp., 829 N.W.2d at 561–62 (assuming

equal protection plaintiffs were similarly situated because their claims

failed on the merits). We now explain why that is so.

       2. The Complete Auto Transit test. In Complete Auto Transit, the

Supreme Court stated a tax can survive a Commerce Clause challenge

“when the tax is applied to an activity with a substantial nexus to the

taxing State, is fairly apportioned, does not discriminate against

interstate commerce, and is fairly related to the services provided by the

State.” Complete Auto Transit, 430 U.S. at 279, 97 S. Ct. at 1079, 51 L.

Ed. 2d at 331. We must evaluate whether each of these requirements is

met.

       “Substantial nexus” means more than “a proxy for notice”—its

meaning in due process cases. See Quill Corp. v. North Dakota, 504 U.S.

298, 313, 112 S. Ct. 1904, 1913–14, 119 L. Ed. 2d 91, 107 (1992).

Nonetheless, the replacement tax on natural gas delivery clearly has a

nexus to Iowa because it involves taxation of natural gas delivered into

Iowa for consumption here.        See KFC Corp., 792 N.W.2d at 328

(concluding the Department could tax an out-of-state company’s

“revenue earned . . . from the use of its intangibles by franchisees located

within the State of Iowa”).

       A tax is fairly apportioned when a state only taxes its fair share of

the property or activity. See Okla. Tax Comm’n v. Jefferson Lines, Inc.,

514 U.S. 175, 184–85, 115 S. Ct. 1331, 1338, 131 L. Ed. 2d 261, 271

(1995). A fairly apportioned tax must be both internally and externally

consistent.   Id. at 185, 115 S. Ct. at 1338, 131 L. Ed. 2d at 271–72.
                                       27

Internal consistency occurs when every other state could adopt the same

tax without placing “interstate commerce at a disadvantage as compared

with commerce intrastate.”      Id.   External consistency occurs if a state

does not tax anything “beyond that portion of value fairly attributable to

economic activity within the taxing state.” Id. at 185, 115 S. Ct. at 1338,

131 L. Ed. 2d at 272.       These two requirements are somewhat related

because if a state achieves external consistency, any other state could

adopt the same regime without overburdening interstate commerce.

Here, Iowa only taxes activity within the state—natural gas delivered into

Iowa.      Accordingly,    we   conclude    the   replacement   tax   is   fairly

apportioned.

        A tax is fairly related to services when it “is assessed in proportion

to a taxpayer’s activities or presence in a State.” Commonwealth Edison

Co. v. Montana, 453 U.S. 609, 627, 101 S. Ct. 2946, 2958, 69 L. Ed. 2d

884, 900 (1981); see also Moorman Mfg. Co. v. Bair, 254 N.W.2d 737, 750

(Iowa 1977).     When this occurs, “the taxpayer is shouldering its fair

share of supporting the State’s” services such as police and fire

protection. Commonwealth Edison Co., 453 U.S. at 627, 101 S. Ct. at

2958, 69 L. Ed. 2d at 900. In Commonwealth Edison Co., the Supreme

Court concluded a Montana tax on coal mining satisfied this element

because it was “measured as a percentage of the value of the coal taken.”

Id. at 626, 101 S. Ct. at 2958, 69 L. Ed. 2d at 900. The tax was related

only to the coal mined in Montana, and here the replacement tax is

related only to the natural gas delivered in Iowa. We conclude the tax is

fairly related to services provided by the State.

        We now turn to the question of whether the tax is discriminatory.

        3. Differential   treatment   amounting     to   discrimination.       A

discriminatory regulation can be directly and facially discriminatory or
                                    28

have discriminatory effect.   See Brown-Forman Distillers Corp. v. N.Y.

State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 2084, 90 L. Ed.

2d 552, 559–60 (1986); Iowa Auto. Dealers Ass’n, 420 N.W.2d at 462.

We address each of these features of discrimination in turn.

      A regulation that directly discriminates against out-of-state

economic interests is relatively easy to spot. Regulations or statutes that

are per se discriminatory often make the distinction between in-state and

out-of-state interests expressly. See, e.g., Camps Newfound/Owatonna,

Inc. v. Town of Harrison, 520 U.S. 564, 568, 117 S. Ct. 1590, 1594, 137

L. Ed. 2d 852, 859 (1997) (discussing a Maine statute that expressly

provided fewer tax benefits to charities serving non-Maine residents than

to charities serving Maine residents); Fulton Corp. v. Faulkner, 516 U.S.

325, 333, 116 S. Ct. 848, 855, 133 L. Ed. 2d 796, 806 (1996) (finding

facially discriminatory a North Carolina tax regime that expressly “taxes

stock only to the degree that its issuing corporation participates in

interstate commerce”); Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334,

338–39, 112 S. Ct. 2009, 2012, 119 L. Ed. 2d 121, 129–30 (1992)

(describing an Alabama statute that expressly imposed an additional

hazardous waste disposal fee only on hazardous waste originating

outside Alabama). Iowa’s replacement tax on natural gas delivery does

not make an express distinction because it applies to all therms of

natural gas delivered within the state, regardless of whether the gas goes

directly from an interstate pipeline to a consumer or is first routed

through an LDC.     Accordingly, the natural gas delivery tax does not

directly discriminate against interstate commerce.

      “A state law is discriminatory in effect when, in practice, it affects

similarly situated entities in a market by imposing disproportionate

burdens on out-of-state interests and conferring advantages upon in-
                                    29

state interests.” Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 10

(1st Cir. 2010).   In Family Winemakers, the similarly situated entities

were wine producers and the relevant market was the market for wine

sales in Massachusetts. See id. at 4. “ ‘Small’ ” wineries were allowed to

sell “in three ways: by shipping directly to consumers, through

wholesaler distribution, and through retail distribution.” Id. “ ‘Large’ ”

wineries—none of which were located in Massachusetts—could not sell to

retailers at all, and could only choose either to ship directly to consumers

or to contract with a wholesaler. Id. The First Circuit Court of Appeals

held the distinction between types of wineries and the distribution

networks they were permitted to utilize “significantly alter[ed] the terms

of competition” between in-state and out-of-state entities. Id. at 11.

       Here, LSCP asserts the relevant market is for the consumption of

natural gas, and the similarly situated entities are all consumers within

the same CSA as LSCP—especially those that receive natural gas from an

LDC.    LSCP asserts because the LDC passes on its replacement tax

burden to consumers at varying rates, the replacement tax’s effect—

when imposed on a directly connected consumer—is to incentivize

contracting with an LDC and discourage direct connections, which by

definition facilitate interstate transactions.   LSCP analogizes to the

relationship between sales tax and use tax, and contends the two must

be equal. See Associated Indus. of Mo. v. Lohman, 511 U.S. 641, 648,

114 S. Ct. 1815, 1821, 128 L. Ed. 2d 639, 647 (1994) (finding Missouri’s

tax scheme that imposed an additional use tax only on out-of-state goods

“r[an] afoul of the basic requirement that . . . the burdens imposed on

interstate and intrastate commerce must be equal”).          LSCP asserts

section 437A.5(1) creates the functional equivalent of a sales tax, and

section 437A.5(2) establishes the functional equivalent of a use tax—
                                     30

because LDCs subject to section 437A.5(1) engage in in-state delivery,

and directly connected consumers subject to section 437A.5(2) engage in

transactions with out-of-state suppliers. Citing the Lohman rule, LSCP

contends section 437A.5 provides LDC customers with what LSCP terms

“a disguised Replacement Tax rate reduction” because LDCs are allowed

to pass on their tax burden to their customers at varying rates.

      We conclude LSCP’s reliance on Lohman is misplaced. In Lohman,

Missouri imposed “an ‘additional use tax’ of 1.5% on the privilege of

storing, using, or consuming within the State any article of personal

property purchased outside the State.” Id. at 644, 114 S. Ct. at 1819,

128 L. Ed. 2d at 645.         No statewide sales tax accompanied this

additional use tax, but political subdivisions had discretion to impose

additional sales taxes. Id. Thus, sales tax and use tax could be equal

under the statutory scheme, but only if a political subdivision exercised

its discretion to impose additional sales tax and fixed its additional sales

tax at 1.5 percent. See id. By contrast, in this case, the replacement tax

begins from a point of equivalence. Sections 437A.5(1) and (2) expressly

impose the same tax on both LDCs and directly connected consumers.

Iowa Code § 437A.5(1)–(2).     Thus, the natural gas replacement tax is

wholly unlike the scheme at issue in Lohman, and the discretion LDCs

have to allocate their tax burden is wholly unlike the Missouri localities’

discretion to create (or avoid creating) a tax burden in the first place.

      Further, we conclude LSCP has misidentified the entities to which

it is similarly situated for dormant Commerce Clause purposes. It is true

that LSCP and LDC customers both consume natural gas. But the tax

LSCP is challenging applies to the delivery of gas. An LDC’s customers

receive but do not deliver gas. Thus, LSCP is not similarly situated to

LDCs’ customers, but to LDCs themselves. Put another way, the tax is
                                     31

imposed on entities obtaining gas from an interstate pipeline, not all

entities obtaining gas from any source.        To adapt a colloquialism,

equating LSCP with the customers of LDCs in this context is like

comparing apples to cantaloupes. See Hunt, 432 U.S. at 336, 97 S. Ct.

at 2438, 53 L. Ed. 2d at 389–90; Pike v. Bruce Church, Inc., 397 U.S. 137,

139, 90 S. Ct. 844, 845–46, 25 L. Ed. 2d 174, 176–77 (1970).

      A comparison of LSCP and any LDC wishing to provide service in

the same CSA reveals there is no differential tax rate between them. See

Iowa Code § 437A.5(2) (imposing upon directly connected consumers a

tax “at the rates prescribed under subsection 1”—the same rate that

applies to LDCs).      The statutory framework exacts no penalty for

participating in interstate commerce. Indeed, LDCs are participating in

interstate commerce to the same extent—and subject to the same taxes—

as directly connected natural gas consumers. An LDC is free to pass its

tax burden on to customers, but it ultimately remains liable for the

entire amount; the LDC itself is not subject to any rate reduction,

disguised or otherwise. Further, LSCP can pass on the tax costs through

the price of its product, just as LDCs do.

      We conclude the replacement tax framework does not have a

discriminatory effect on interstate commerce. Accordingly, the Complete

Auto Transit test is satisfied and the tax as a whole does not violate the

dormant Commerce Clause.

      4. Extraterritoriality.   Under the extraterritoriality doctrine, “a

statute that directly controls commerce occurring wholly outside the

boundaries of a State” is invalid. Healy v. Beer Inst., 491 U.S. 324, 336,

109 S. Ct. 2491, 2499, 105 L. Ed. 2d 275, 288 (1989).         “The critical

inquiry is whether the practical effect of the regulation is to control

conduct beyond the boundaries of the State.” Id.
                                     32

      LSCP raises the extraterritoriality doctrine, but focuses on different

language from Healy: the effect that “would arise if not one, but many or

every, State adopted similar legislation.”     Id.    LSCP summarizes its

extraterritoriality argument this way:

      [LSCP]’s complaint is not that its therms are taxed more
      than once. Its complaint is that its therms are taxed more.
      If every state would adopt the Iowa Replacement Tax regime,
      and allow its LDCs to discount rates for large general service
      customers, while requiring their taxing authorities to
      demand the full rates from residents bypassing their LDCs,
      then all residents of all states would be rewarded for buying
      locally by saving taxes, thereby impeding interstate
      commerce.

As we have explained in our analysis of discriminatory effect, however,

LSCP’s therms are not taxed more than those an LDC delivers to

customers.    The Department still demands full rates from LDCs, but

LDCs have the option to pass some of those costs on to consumers.

      Further, the replacement tax does not violate the rule announced

in Healy because it does not regulate conduct occurring “wholly outside

the boundaries of a State.” Id. at 336, 109 S. Ct. at 2499, 105 L. Ed. 2d

at 288 (emphasis added).        Because the replacement tax only applies

when natural gas is delivered into Iowa, it does not violate the

extraterritoriality doctrine.

      C. Limitations Period for Tax Refund Claims. “[C]ourts have a

duty to avoid constitutional questions when [the] merits of a case may be

fairly decided without facing such questions.”       Moorman Mfg. Co., 254

N.W.2d at 749; see also Salsbury Labs. v. Iowa Dep’t of Envtl. Quality,

276 N.W.2d 830, 837 (Iowa 1979) (“Avoidance of constitutional issues

except when necessary for proper disposition of [a] controversy is a

bulwark of American jurisprudence.”); City of Des Moines v. Lohner, 168

N.W.2d 779, 782 (Iowa 1969) (“We do not consider constitutional
                                    33

questions unless it is necessary for the disposition of the case.”).

Because we have concluded the replacement tax regime is constitutional

and LSCP is not entitled to receive a refund, we do not reach the

question whether the different limitations period for refund claims based

on constitutional objections is itself constitutional. See Hawkeye Land

Co. v. Iowa Utils. Bd., 847 N.W.2d 199, 209 (Iowa 2014); Lohner, 168

N.W.2d at 782.

      V. Conclusion.

      A rational basis exists for the variable excise tax imposed on the

delivery of natural gas under section 437A.5. Accordingly, we affirm the

district court’s determination that LSCP has failed to establish a violation

of the Fourteenth Amendment of the United States Constitution or

article I, section 6 of the Iowa Constitution. We also affirm the district

court’s determination that the natural gas delivery tax framework does

not obstruct interstate commerce or discriminate against it in violation of

the dormant Commerce Clause.

      AFFIRMED.

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