The University of Iowa
The University of Iowa News Services Home News Releases UI in the News Subscribe to UI News Contact Us


300 Plaza Centre One
Iowa City IA 52242
(319) 384-0010; fax (319) 384-0024

Release: Nov. 14, 2002

UI Law Student Finds Local Option Sales Tax Unconstitutional

An article in the most recent issue of the Iowa Law Review supports opponents of the state's Local Option Sales Tax, who claim it violates Iowa's constitution by discriminating against some students because it provides a higher or lesser quality of education based on where they live.

In his article, "LOST and Found: The Unequal Distribution of Local Option Sales Tax Revenue Among Iowa Schools," University of Iowa law student Matthew Craft writes that a lawsuit pending in Warren County should find such a school funding system is unconstitutional and the law authorizing it struck down.

"There is an undeniable connection between educational funding and the quality of education received," Craft writes. "Because a LOST generates substantially different sums of money, similar school districts will provide a different quality of education for children based on the child's parents' residence."

The Local Option Sales Tax is a funding mechanism that allows taxpayers to implement a countywide sales tax of up to 1 percent to supplement what the school districts in that county receive from property tax levies and state aid. That money can be used only for improvements to school facilities, construction of new facilities or property tax relief. While the law authorizing the LOST was intended to give local taxpayers greater control over their school district's funding, opponents say it creates gross funding inequities that provide large sums of additional money to some districts while very little to others.

Craft points to school funding in the neighboring school districts of Norwalk and Bondurant-Farrar in metropolitan Des Moines to demonstrate the inequality. The Bondurant-Farrar school district encompasses two small towns in Polk County with about 1,800 residents, a small retail sector and a stable school enrollment. Norwalk, just over the county line in Warren County, was once similar to Bondurant-Farrar but has become one of the state's fastest-growing cities and school districts with more than 7,000 residents and a rapidly increasing school enrollment. As a result, the school district faces an urgent need to improve existing facilities and construct new ones.

However, the two districts' potential to generate Local Option Sales Tax revenue is vastly different because Bondurant-Farrar receives its LOST money from Polk County, which includes the city of Des Moines and its suburbs, the largest commercial market in the state. Norwalk, meanwhile, is in Warren County, a sleepy suburban and agricultural county with many fewer businesses from which to generate sales tax revenue. As a result, a LOST can only generate about $241 per pupil in Norwalk; Bondurant-Farrar receives more than four times that much from Polk County's LOST.

"The school districts that benefit the least from the LOST collect only approximately $100 per pupil," Craft writes. "This is almost ten times less than Polk County school districts. Furthermore, lower property tax rates contribute to attracting more residents to the area, which in turn generates more sales tax revenue, and thus, the cycle continues."

As a result, Craft writes that such a disparity discriminates against children living in poorer school districts or in counties with small retail sectors because they receive a lower quality of education. Opponents of the current LOST funding system have tried -- so far unsuccessfully -- to change the law to create an equalization system that would be more equitable to more students across the state. Those opponents have since filed suit in Warren County challenging the constitutionality of the law, which is pending.

Comparing, once again, Norwalk to Bondurant-Farrar, Craft writes, "While Norwalk has the power to enact a LOST, the district will not improve its schools at the same rate of Bondurant-Farrar. So long as the retail base of a given county is the major determinant of how much a city therein can spend on its schools, only a county with a large retail base is able truly to decide how much it cares about education….Thus, local control is of little use to the residents of Norwalk, since they cannot take advantage of this discriminatory system."

Craft concludes that "unless a modification is made to the statute, the LOST will disable the system it was allegedly designed to aid."

Craft is a third-year law student at the UI College of Law from LaPorte City, Iowa.

The Iowa Law Review is a student-edited law journal published five times a year by the University of Iowa College of Law.