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Iowa State Association of Counties goes to court to avoid paying sales tax

Tax Filing
Posted at 2:33 PM, Apr 02, 2022

The Iowa State Association of Counties is taking the state to court in an effort to avoid paying sales tax.

The dispute between the association and the state dates back 11 years, with state and county taxpayers footing the bill for legal expenses incurred by both sides.

The Iowa State Association of Counties, or ISAC, was organized in 1964 with the purpose of fostering cooperation among counties and strengthening county government. The association is managed by an executive director hired by the ISAC board of directors. The board members are selected by various private associations of county supervisors, sheriffs, treasurers, auditors and other officials.

All of Iowa’s 99 counties pay annual membership dues to the association. With that and other revenue, ISAC lobbies state lawmakers and holds regular educational conferences and training sessions.

ISAC also manages several insurance programs for Iowa counties and has established self-funded insurance pools for health, property and unemployment coverage. The organization also provides counties with mental health case management, and it has established a scholarship fund for the children of county employees.

In December 2010, ISAC sought a declaratory order from the Iowa Department of Revenue on the question of whether it should be exempt from paying sales tax due to its claimed status as an instrumentality of government.

After initially ruling that Iowa’s counties lacked sufficient control of the association for it to be considered tax exempt, the Department of Revenue stated the issue would be best addressed by having ISAC pay the taxes and then claim a refund.

ISAC later filed the first in a series of claims seeking a refund of taxes paid from 2010 through early 2014. The department subsequently denied those requests, concluding ISAC was not exempt from the tax.

ISAC appealed those decisions through a lengthy administrative process, arguing that it was controlled by county officials for the benefit of the counties and was therefore an extension of the county government.

The state argued otherwise, noting that the counties themselves have no voting rights within ISAC, nor do they have authority to appoint individuals to the board of directors.

In January – a full 11 years after the case first went before the Department of Revenue – an administrative law judge, Kristine Dreckman, sided with the state, finding that Iowa counties do not exert “physical control over the organization’s day-to-day activities.”

ISAC, she pointed out, was not created by county government itself, but was founded by multiple county officials and was not wholly owned by the government. Dreckman conceded that some of ISAC’s functions — such as the self-funded insurance pools and mental health case management system — may qualify as essential governmental services. But other activities, such conferences and training and the scholarship fund for members’ children, are for the personal benefit or professional development of members, she ruled.

ISAC has now filed a petition in Polk County District Court, seeking judicial review and a reversal of Dreckman’s decision. The state has yet to file a response.

The available court records give no indication as to how much ISAC feels it has been overcharged in sales taxes. ISAC officials did not return messages seeking comment Friday.

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com. Follow Iowa Capital Dispatch on Facebook and Twitter.

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