Academic journal article The Journal of Gender, Race and Justice

The Return of Lochnerizing: The Iowa Supreme Court's Invalidation of Gambling Taxes

Academic journal article The Journal of Gender, Race and Justice

The Return of Lochnerizing: The Iowa Supreme Court's Invalidation of Gambling Taxes

Article excerpt


The Iowa Supreme Court held that an Iowa tax statute imposing different tax rates on riverboat slot machines and slot machines at racetracks was unconstitutional under the Iowa Constitution's equal protection clause.1 The Iowa Legislature enacted the differential tax rate in 1994 to aid the state's riverboats and racetracks that were suffering economically.2 Simultaneously, the Legislature granted racetracks the right to operate slot machines on their premises.3 A condition placed on this right, however, was the imposition of a higher tax rate on racetracks than on riverboats.4 The unfair tax outraged racing associations, who in turn challenged the tax rate on equal protection grounds.5

The Iowa Supreme Court ultimately agreed with the racing associations, finding that the tax violated the state equal protection clause because the state had no legitimate purpose for taxing the same slot machines differently.6 In finding the tax unconstitutional, the Iowa Supreme Court effectively replaced its judgment for that of the Legislature. This means that the Iowa Supreme Court has brought about the return of Lochnerizing, which, in today's society, is an intolerable technique for judicial control of social and economic legislation.

The first part of this Note will probe the applicability of the rational basis test to the Iowa Code section, the plausibility of the Legislature's policy making, and the Legislature's reasonableness in making the tax classifications. Part II of this Note will analyze the Iowa Supreme Court's use of Lochnerizing to rule that the differential tax rates on slot machines in racetracks and riverboats violate the state equal protection clause. Finally, this Note will delve into the aftershocks that were felt statewide following the Iowa Supreme Court's ruling that the statute was unconstitutional. Such aftershocks might include ramifications for other Iowa taxes that could also be challenged on equal protection grounds. To this end, the Note will conclude with some predictions of what those ramifications might be.


Gambling first became permissible in Iowa with the legalization of wagering at horse and dog tracks in 1983.7 Iowa, capitalizing on the state's riverboat heritage, authorized gambling on riverboats in order to attract economic development to river towns in 1989.8 By 1994, however, both the riverboats and racetracks were struggling economically.9 The Iowa Legislature enacted Iowa Code section 99F.11, which removed the wager and loss limits on riverboats, authorized the use of slot machines at racetracks, and adopted the at-issue tax rate on slot machines at racetracks to aid the riverboats and racetracks.10 Beginning in 1997, a tax rate of 22% was set for adjusted gross receipts over $3 million from gambling at racetracks, with the rate set to increase by 2% each year until it reaches 36%.11 The riverboats, however, are taxed at a constant rate of 22% on adjusted gross receipts over $3 million.12 The racetracks were being taxed at a disproportionate rate compared to the riverboats, but the addition of slot machines dramatically boosted the racetracks' revenue, producing $5 billion by 1999.13

The frustrated and overtaxed racing associations that represent the racetracks eventually brought suit to have the statute declared unconstitutional under the state and federal equal protection clauses.14 The Iowa Supreme Court initially held that Iowa Code Section 99F.11 (which created the differential tax rates on slot machines) violated the state and federal equal protection clauses because riverboats and racetracks are members of the same class and no rational basis existed for the Legislature to tax them differently.15 Despite the Legislature's asserted interests in the differential rates, the Iowa Supreme Court refused to consider any of the reasons as a rational basis for the statute.16 The United States Supreme Court found that the Iowa Code section did not violate the federal Equal Protection Clause because a rational legislature could have concluded that the classification was reasonably related to its goal so as not to render the classification arbitrary or irrational. …

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