Schroeder Oil Co. v. Iowa State Dept. of Revenue and Finance, 89-1139

• Decision Date: 18 July 1990
• Docket Number: No. 89-1139,89-1139
• Parties: SCHROEDER OIL CO., Appellant, v. IOWA STATE DEPARTMENT OF REVENUE AND FINANCE, Appellee.
• Court: Iowa Supreme Court

Page 602

458 N.W.2d 602

SCHROEDER OIL CO., Appellant, v. IOWA STATE DEPARTMENT OF REVENUE AND FINANCE, Appellee.

No. 89-1139.

Supreme Court of Iowa.

July 18, 1990.

Arthur A. Neu and Frank J. Comito of Neu, Minnich, Comito & Hall, P.C., Carroll, for appellant.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and Lucille M. Hardy, Asst. Atty. Gen., for appellee.

Considered by McGIVERIN, C.J., and HARRIS, SCHULTZ, NEUMAN and SNELL, JJ.

HARRIS, Justice.

In this dispute over the assessment of fuel taxes the taxpayer challenges the constitutionality of a system which fails to provide either a predeprivation or postdeprivation hearing in the absence of a bond. We find no constitutional requirement for the predeprivation hearing but agree with the taxpayer's challenge with regard to the absence of an opportunity for a postdeprivation hearing.

The Iowa department of revenue and finance (the department) issued a notice of assessment against the petitioner, Schroeder Oil Co., for delinquent fuel taxes in the amount of $484,020.85 plus a penalty of $111,541 and interest of $170,508.02. See Iowa Code ch. 324 (1987) (motor fuel tax law). Schroeder Oil filed a protest of the assessment with the department, and the department answered, waiving further informal proceedings.

Iowa Code section 421.8A provides generally that a person who wishes to dispute a tax assessment must pay all assessments before commencement of a contested case. The statute then provides:

Upon a showing of good cause, the administrative law judge shall allow the person to post a bond in an amount established by the administrative law judge, but not in excess of all tax, interest, and penalty, in lieu of paying all tax, interest and penalty.

As authorized by the statute the Iowa director of revenue and finance implemented section 421.8A by 701 Iowa Administrative Code 7.14(17A)(a), as follows:

Effective for contested case proceedings for unpaid tax, penalty, interest, or fees commenced in response to assessments made on or after January 1, 1987, the taxpayer must pay prior to the commencement of contested case proceedings, all of the assessed tax, penalty, interest, or fees or, upon a showing of good cause, a bond may be posted in lieu of payment of the amount of the assessment that is in dispute.

Schroeder filed an application pursuant to Iowa Code section 421.8A that it "be permitted to post a bond in an amount as determined by the hearing officer." When the department objected to the application Schroeder raised the claim that the bond requirement before a formal hearing was an unconstitutional denial of due process. The hearing officer allowed Schroeder to post a bond in lieu of paying the tax but set it at an amount equal to that claimed by the department.

Schroeder's constitutional challenge was pursued at an administrative hearing but the hearing officer determined that she had no authority to rule on the due process challenge. Upon Schroeder's petition for judicial review the district court upheld the hearing officer's bond order and rejected Schroeder's constitutional challenge. The matter is before us on Schroeder's appeal from that order. Schroeder vigorously contends the upshot is to deny any practical chance for it to dispute the assessment. The assessment is said to be twice Schroeder's net worth and a bond in such an amount is, for Schroeder, unobtainable.

I. There is a strong presumption of constitutionality of any enactment by the legislature. A person challenging a statute must negate every reasonable basis upon which the statute could be upheld as constitutional. This presumption is especially strong in a taxing statute. Lee Enters., Inc. v. Iowa State Tax Comm'n, 162 N.W.2d 730, 739 (Iowa 1968). The Iowa Administrative Procedure Act governs judicial review of a final agency action. Iowa Code § 17A.19 (1989). Section 17A.20 provides for our review of a district court judgment; review is confined to the corrections of errors of law. Polk Co. Drainage Dist. Four v. Iowa Natural Resources Council, 377 N.W.2d 236, 239 (Iowa 1985). When reviewing an agency decision we apply the standards of Iowa Code section 17A.19(8) to the agency action in order to correct any errors of law made by the agency. Northwestern Bell Tel. Co. v. Iowa State Commerce Comm'n, 359 N.W.2d 491, 495 (Iowa 1984), citing to Lefebure Corp. v. Iowa Dep't of Job Serv., 341 N.W.2d 768, 770 (Iowa 1983). The burden rests upon the petitioner to show that the agency's policy choices were unreasonable. We defer readily to the agency's expertise. Id. at 497.

II. Schroeder grounds its due process challenge on language from Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). Fuentes was the landmark case which pointed out that due process demands a hearing before personal property can be seized in a replevin action. Schroeder cites oft-quoted language taken from Fuentes:

For more than a century the central meaning of procedural due process has been clear: "Parties whose rights are to be affected are entitled to be heard; and in order that they may enjoy that right they must first be notified."

Id. at 80, 92 S.Ct. at 1994, 32 L.Ed.2d at 569 (quoting Baldwin v. Hale, 68 U.S. (1 Wall) 223, 234, 17 L.Ed. 531, 534 (1864)).

We were quick to apply Fuentes....