By Zack Atkins
Reversing a district court decision, the Iowa Supreme Court held that a cable company selling Voice over Internet Protocol (VoIP) service can be assessed centrally as a telephone company for property tax purposes. Historically cable property has been assessed at the local level in Iowa. The property of telephone companies—owners or operators of any “telephone line”—has long been assessed by the Iowa Department of Revenue, which allocates property values among the appropriate local taxing districts. The cable company in question sold cable television, Internet access and VoIP services to Iowa customers over its hybrid fiber-coaxial cable network, which originally had been constructed and installed to provide only cable television service. The company used fiber and coaxial cable to provide VoIP service, but the company maintained that it did not own any traditional telephone lines (i.e., copper wire) and therefore did not qualify for “telephone company” treatment. The Iowa Supreme Court, however, concluded that a cable or wire used to provide telephone service (VoIP service in this case) is a telephone line within the meaning of the state’s central assessment laws, as informed by ordinary dictionary definitions. In so holding, the court said that the state’s central assessment laws did not require that the “line” be made of any particular material. Rather, the meaning of “telephone line” could change with evolving technology as long as there is a “line” and a service comparable to traditional telephone service being provided. The court found further support for its conclusion in the company’s marketing materials, which, in the court’s view, advertised VoIP service as “a standard telephone operation.” The court also disagreed with the company’s argument that its classification should turn on the primary use of a hybrid fiber-coaxial cable network, which the company claimed was in its cable television business. The court held that the Iowa laws governing the property tax treatment of telephone companies did not provide for a primary use test. Kay-Decker v. Iowa State Bd. of Tax Review, No. 13-0925, 2014 WL 7202763 (Iowa Dec. 19, 2014).