Iowa Supreme Court Overturns Decades’ Old Precedent Regarding Interpretation of Tax Statutes

For decades, attorneys and accountants practicing before the Iowa Department of Revenue (“Department”) got used to the same ol’ defense argued by the Department regarding tax statutes.

Statutes which impose taxes are construed liberally in favor of the taxpayer and strictly against the taxing body and conversely, tax exemptions are construed strictly against the taxpayer and liberally in favor of the taxing body.

The Iowa Supreme Court made this statement 45 years ago in Iowa Auto Dealers Ass'n v. Iowa Dep't of Revenue, 301 N.W.2d 760, 762–63 (Iowa 1981) and this has been a significant tool used by the Department in defending its positions, particularly when taxpayers are relying on exemption statutes. However, the Iowa Supreme Court recently overturned 45 years of precedent in Chickasaw Cnty. Bd. of Rev. v. Prop. Assessment Appeal Bd., 36 N.W.3d 273, 283 (Iowa 2026). 

There, the Iowa Supreme Court stated that “these principles of construction may actually contradict each other, as well as the plain language of the Iowa Code” and “[i]n the rare case where we have provided a justification for these principles of construction, our justifications were rooted in policy, an area better left to the legislature.”  As a result, “[m]oving forward, . . . tax statutes [will be construed] according to their ordinary meaning and apply the same principles of construction we apply to any other type of statute.”  And the court explicitly “overrule[d] . . . prior cases to the extent they say otherwise.”  This case applies to all types of taxes (e.g., income tax, property tax, sales/use tax, excise taxes). 

Taxpayers and practitioners should be cognizant of this change and ensure the tax statutes are being construed according to their ordinary meaning.