Fees in the State of Iowa

Fees in the State of Iowa: The Forgotten Rules, Regulations, and Costs on the Taxpayers

By John Hendrickson

The Iowa Department of Revenue reports that 1,451 fees are imposed and collected by the State of Iowa.[1] These various fees are collected by state government agencies in Iowa. The taxpayers of Iowa, who just recently finished filing and paying their state and federal taxes, may not necessarily be aware of the many fees that exist in the Hawkeye state. Most Iowans are aware of fees that we pay on a regular basis such as vehicle registration or plate fees (county fee) or hunting and fishing licenses that are used to enjoy Iowa’s rich outdoor heritage.  Most of the 1,451 fees listed are for some form of service or required regulation, but the danger of fees is that they often can be raised to avoid raising taxes. The Iowa Supreme Court usually tries to protect taxpayers from fees used to generate revenues, but a constitutional amendment is needed to provide more concrete protection for taxpayers. A state constitutional amendment requiring a supermajority vote of the Legislature to raise any fees or taxes would help protect the interests of the taxpayers of Iowa.

Although taxes and fees both represent money coming into the State of Iowa they are different. The Tax Foundation provides a definition of a tax and a fee:

  • Taxes are imposed for the primary purpose of raising revenue, with the resultant funds spent on general government services.
  • Fees are imposed for the primary purpose of covering the cost of providing a service, with the funds raised directly from those benefitting from a provided service.[2]

In fact, fee increases can be a sneaky way for the state Legislature to avoid raising taxes. As a Tax Foundation report described:

Elected and appointed officials, who face the dual reluctance to raise taxes and cut spending, are increasingly turning to a strategy of hiding increased tax burdens through subterfuge: any number of contortions to deny that even an obvious tax is a tax. They label them user fees, fines, surcharges, revenue enhancements, special assessments, and so forth. For an elected official, the best tax can be one that raises lots of money without anyone noticing or, at least, anyone calling it a tax.[3]

In fiscal year 2017 the Department of Revenue reported, at the time of this writing because the fiscal year is not over, $20,890,939.67 in fees collected, which was down from $26,465,992.33 in fiscal year 2016.[4] Most of the fees collected by the various agencies of the State of Iowa fit into broad categories of agriculture, business and finance, and transportation. Public health, Professional Licensing Bureau, and Natural Resources also have several fees related to their respective agencies or divisions.

An examination of the 1,451 state fees demonstrates how much government is involved in not just economic affairs, but also in our daily lives. Granted, some of the fees are for our protection, such as a $90 Iowa Workforce Development fee for elevator inspections to ensure safety. The Department of Education charges a $40 per instance school bus inspection to make sure that children who ride the bus to school are as safe as possible. The agricultural sector of Iowa’s economy also has several fees. Agriculture and Land Stewardship charges several fees ranging from a grain dealers license to an annual $175 fee for a dog and cat auction license. There are over 30 fees dealing with alcoholic beverages.

Most fees collected by the State of Iowa are used for a specific purpose, to promote public safety and well-being of Iowans, or to pay for certain services or activities. The purpose of this article is not to attack all fees as being overbearing, but to draw attention to another fiscal aspect of state government that is often forgotten except by those who must pay the fees. Plus, the cost of fees is often passed onto the consumer as well if they are business related. In addition, fees should not interfere with market competition by making it more difficult for individuals or businesses to compete.

Fees, just as with taxes, should be fair and transparent. In addition, taxpayers must be aware that fee increases need to be watched just as carefully as tax increases. As Joseph Henchman of the Tax Foundation wrote:

Public understanding of what a tax is, what a fee is, and the difference between the two can help strengthen taxpayer protection provisions, contribute to openness in tax policy debates, minimize distortions caused by hidden or mislabeled taxes, and help increase awareness of the full cost of government programs.[5]

The Tax Foundation also notes that the Iowa Supreme Court has been careful in differentiating between a tax and a fee:

In City of Hawarden v. US West Communications, Inc., the Iowa Supreme Court held that a telecommunications fee was in actuality a tax because its purpose was to raise revenue and not recoup costs. The decision expanded on previous holdings that fees are charges designed to compensate for the administrative expense of some regulation while taxes are charges for the primary purpose of raising revenue…. In Kragnes v. City of Des Moines, the Iowa Supreme Court functionally rejected the voluntariness standard as being a feature classifying a charge as a fee. The court discussed other jurisdictions that rely on the voluntariness standard and stated that those decisions were not persuasive.[6]

Joseph Henchman argues that “Iowa courts resolve tax statute ambiguities in favor of the taxpayer.”[7]

This is another reason why Iowa taxpayers deserve protection in the state Constitution. Taxpayers in Iowa should be protected from both tax and fee increases by a constitutional amendment requiring any tax or fee increase to be approved by a supermajority vote of the Legislature. This would provide protection for taxpayers by making it more difficult for the Legislature to raise taxes or fees.

John Hendrickson is a Research Analyst with Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1]For a listing of the fees see Iowa Department of Revenue, “Fees Imposed and Collected by State Agencies,” <https://iafees.iowa.gov/> accessed on May 15, 2017.

[2] Joseph Henchmen, “How is the Money Used? Federal and State Cases Distinguishing Taxes and Fees,” Tax Foundation, Background Paper No. 63, March 2013, p. 3., <https://files.taxfoundation.org/legacy/docs/TaxesandFeesBook.pdf> accessed on May 15, 2017.

[3]Ibid., p. 5.

[4]Iowa Department of Revenue, “Daily Receipts,” <https://www.legis.iowa.gov/publications/fiscal/dailyReceipts> accessed on May 15, 2017.

[5]Henchmen, p. 3.

[6]Ibid., pp.37-38.

[7]Ibid., p. 38.