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IN THE SUPREME COURT OF IOWA
No. 41 / 06-0026 Filed May 26, 2006 LISA KRAGNES, Appellee, vs. CITY OF DES MOINES, IOWA, Appellant.

Appeal from the Iowa District Court for Polk County, Michael D. Huppert, Judge.

The city appeals a district court ruling granting a citizen's motion for partial summary judgment holding that the city's assessment of franchise fees is an illegal tax. DIRECTIONS. REVERSED AND CASE REMANDED WITH

Mark Godwin, Deputy City Attorney, Des Moines, for appellant.

Bradley P. Schroeder of Hartung & Schroeder, Des Moines, for appellee.

Terrence L. Timmons, Des Moines, for amicus curiae Iowa League of Cities.

2 Ivan T. Webber and James R. Wainwright of Ahlers & Cooney, P.C., Des Moines, for amici curiae Cities of Sioux City, Dubuque, Early, Oskaloosa, Manchester, Algona, and West Des Moines.

John V. Donnelly of Sullivan & Ward, P.C., West Des Moines, for amicus curiae Iowa Association of Electric Cooperatives.

3 WIGGINS, Justice. A citizen of the city of Des Moines brought an action against the city alleging the franchise fees the city assessed in its franchise agreements for gas and electric power services are illegal taxes. Both parties moved for summary judgment on this issue. The district court found the franchise fees were illegal taxes and enjoined the city from collecting the fees. Although we continue to adhere to our view that any franchise fee charged by a city must be reasonably related to the city's administrative expenses in the exercise of its police power in order not to constitute an illegal tax, we find there is a genuine issue of material fact as to whether all or part of the franchise fees in this case are so related. Accordingly, we reverse the

district court's ruling and remand the case for further proceedings. I. Background Facts and Proceedings. In 1960, the City of Des Moines (City) entered into an electric franchise agreement with Iowa Power and Light Company, a predecessor in interest to MidAmerican Energy Company (MidAmerican). The ordinance contained "an annual franchise, occupation or privilege tax" of one percent of the gross receipts derived from the company's distribution and sale of electric energy to customers within the corporate limits of the City. That same year, the City entered into a similar agreement with Iowa Power and Light Company concerning the distribution and sale of natural gas. This ordinance contained "an annual franchise, occupation or privilege tax" of two percent of the gross receipts derived from the company's distribution and sale of natural gas to customers within the corporate limits of the City. After the expiration of the 1960 franchise agreements, the agreements were updated by ordinances. Iowa Power and Light Company retained the electric franchise for a fee equal to one percent of the gross receipts derived

4 from the company's sale of electric energy to customers within the corporate limits of the City. Midwest Gas Company held the gas franchise for a fee equal to one percent of the gross receipts derived from the company's sale of natural gas to customers within the corporate limits of the City. On May 6, 2004, the governor signed a bill phasing out the sales and use taxes on the sale and furnishing of gas and electricity for residential use. 2004 Iowa Acts ch. 1133,

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