Iowa Supreme Court Reverses Property Tax Assessment for Feed Mill
On April 30, 2021, the Iowa Supreme Court released an opinion regarding the property tax assessment of a feed manufacturing facility. At issue was whether two stand-alone corn silos and overhead ingredient bins in the feed mill met the definition of machinery under Iowa Code § 427A.1(1)(e). The Court concluded that only the overhead ingredient bins were an integral part of the manufacturing process qualifying as tax-exempt machinery.
The plaintiff owned a large feed mill in Emmet County. Two stand-alone silos hold corn until the grain is transported to the feed mill by conveyors for processing. After the corn is ground, it is directed by a mechanical distributor into one of the 24 overhead ingredient bins. An automated feed batching systems releases the necessary ingredients which are then combined into a feed mixture. The finished feed product is stored in nearby overhead load-out bins until needed for delivery.
During the initial assessment, the county assessor valued the facility at $4,272,900 for property tax purposes. The plaintiff resisted, claiming that much of the feed mill building and both of the corn silos were tax-exempt as machinery used in a manufacturing establishment. After the county Board of Review affirmed the assessment, the plaintiff appealed to the Property Assessment Appeal Board (PAAB).
Although the PAAB found that some items met the definition of machinery under Iowa Administrative Code rule 701-71.1(7)(b)(1)—reducing the feed mill assessment to $3,258,700—it also determined that bins primarily holding raw material until it is needed in the manufacturing process do not themselves constitute “machinery.” The plaintiff appealed to the district court. The district court did not disturb the PAAB’s ruling, but remanded the case for the plaintiff to present additional evidence of the value of the claimed exempt structures.
On remand, the PAAB affirmed its previous decision finding that corn storage silos and overhead ingredient bins did not qualify as machinery because their primary purpose was to store raw material. The PAAB also noted that even if they had been exempt, the plaintiff had not met its burden to show the value of the silos and overhead bins.
The plaintiff again sought judicial review, but the court denied the request. The plaintiff appealed and the case was transferred to the Court of Appeals, which reversed the PAAB’s decision and found that the silos and overhead bins qualified as tax-exempt machinery. Additionally, the Court of Appeals found that the PAAB acted arbitrarily in not assigning value to the claimed exempt machinery, ruling that the plaintiff presented sufficient evidence to support the claimed valuation. The Iowa Supreme Court granted the PAAB’s and the county’s request for further review.
Machinery Used in a Manufacturing Establishment
On review, the Court explained the applicable law. Machinery used in a manufacturing establishment is exempt from property taxes. Iowa Code §§ 427A.1(1)(e), 427B.17(3). While the Iowa Code does not define machinery, the Iowa Department of Revenue has promulgated rules stating that machinery can include either automated or non-automated equipment. Iowa Admin. Code r. 701-71.1(7)(b)(1).
The Iowa Supreme Court has previously found that both attached and unattached equipment can qualify as machinery under Iowa Code chapter 427A.1(1)(e). Griffin Pipe Products Co. v. Board of Review of County of Pottawattamie, 789 N.W.2d 769, 775 (Iowa 2010). The Court noted that several other states differentiate between machinery and storage with the latter subject to property taxation. Equipment that provides temporary storage, but primarily serves as an integral part of the manufacturing process, is often tax exempt. See United States Steel Corp. v. Bd. of Assessment & Revision of Taxes of Bucks County, 223 A.2d 92, 95–96 (Pa. 1966).
Here, the Court found that the two stand-alone silos were not machinery. No processing occurs in the silos themselves and their primary purpose is to store grain before the manufacturing process. The Court did agree, however, with the Court of Appeals finding that the ingredient bins constituted machinery. The ingredient bins release feed materials to be mixed into the final product and do not primarily serve as storage.
Next, the Court considered whether the plaintiff provided adequate evidence of the value of the ingredient bins. Both the county and the plaintiff offered contradicting testimony of the value of the overhead bins. The Court agreed that the PAAB acted unreasonably, arbitrarily, and capriciously in not assigning a value because the PAAB did not find the plaintiff’s valuation method reliable.
However, the Court found that the Court of Appeals did not have the authority to determine the valuation based on the plaintiff’s methodology. An appellate court is tasked with reviewing undisputed facts as a matter of law, not serving as the primary fact-finder. Given the conflicting evidence, the Court concluded that the case should be remanded for the PAAB to determine the proper valuation of the exempt ingredient bins.
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