Justia Tax Law Opinion Summaries

Murphy Oil USA (Murphy) and the Arkansas Department of Finance and Administration (DFA) disputed the categorization of interest expenses related to a corporate spin-off. Murphy, a retail motor-fuel and convenience-store operator, spun off from its parent company in 2013, resulting in interest expenses from issuing senior notes and borrowing funds. Initially, Murphy apportioned these expenses among all states where it conducted business. In 2018, Murphy amended its Arkansas tax returns for 2014 and 2015 to allocate all interest expenses to Arkansas, seeking a tax refund of nearly $4 million.The Union County Circuit Court granted summary judgment in favor of Murphy, allowing the amended tax returns and the allocation of 100% of the interest expenses to Arkansas. DFA appealed, arguing that the interest expenses were business-income expenses under the Uniform Division of Income for Tax Purposes Act (UDITPA) and should be apportioned among all states, that a state statute made the expenses non-deductible if allocable to Arkansas, and that it was unfair to allow Murphy a tax refund in Arkansas without amending returns in other states.The Supreme Court of Arkansas affirmed the circuit court's decision. The court held that Murphy's spin-off was an extraordinary, nonrecurring event, classifying the interest expenses as nonbusiness income under UDITPA, thus allocable entirely to Arkansas. The court also found that Arkansas Code Annotated section 26-51-431(c) did not prohibit the deduction of these expenses, as the statute was intended to prevent deductions for expenses related to tax-exempt income, which was not applicable in this case. Finally, the court rejected DFA's fairness argument, stating that it was not the court's role to adjust Arkansas tax returns based on potential unfairness to other states. View "Hudson v. Murphy Oil USA, Inc." on Justia Law

A group of online travel companies (OTCs), including Hotels.com, Expedia, and Priceline, were found liable by the Jefferson County Circuit Court for unpaid taxes under several Arkansas tax statutes. The court ordered the OTCs to pay the unpaid taxes, along with penalties, interest, and attorney's fees. The OTCs appealed, arguing that the court erred in imposing the taxes and awarding penalties.The case began in 2009 when the Pine Bluff Advertising and Promotion Commission and Jefferson County, Arkansas, filed a declaratory-judgment action against the OTCs, seeking a declaration that the OTCs were liable for local gross receipts tax and local tourism tax. The City of North Little Rock intervened in the case in 2011, alleging a similar claim. The circuit court granted class certification in 2013. In 2018, the circuit court denied the OTCs' motion for summary judgment and granted the class appellees' motion, finding that the OTCs were liable for the taxes.The Supreme Court of Arkansas reversed the lower court's decision. The court found that the OTCs were not entities subject to the pre-2019 versions of the state and local gross receipts tax and the state tourism tax. The court also found that the OTCs did not rent, lease, or furnish rooms under the plain meaning of the local tourism tax statute. Therefore, the court held that the OTCs were not liable for the pre-2019 hotel taxes. The court did not address the OTCs' remaining arguments for reversal. View "HOTELS.COM, L.P. V. PINE BLUFF ADVERTISING AND PROMOTION COMMISSION" on Justia Law

The case involves a group of appellants who allegedly purchased luxury vehicles with funds provided by Dilmurod Akramov, the owner of CBC and D&O Group. The appellants would then transfer the vehicle titles back to Akramov's D&O Group without receiving cash or equivalent in exchange. They would then claim a "trade-in credit" against the sales tax due on the purchase of a vehicle. The Arkansas Department of Finance and Administration (DFA) argued that these were not valid sales as required by Arkansas law and denied the sales-tax-refund claims.The appellants challenged the DFA's decision through the administrative review process, which affirmed the DFA's decision. The appellants then appealed to the Pulaski County Circuit Court for further review. The circuit court found that the appellants' attorney, Jason Stuart, was a necessary witness and therefore disqualified him from further representing the appellants. The court also held the appellants in contempt for failing to provide discovery per the court's order.The Supreme Court of Arkansas affirmed the circuit court's decision. The court held that the circuit court did not abuse its discretion in disqualifying Stuart. The court applied the three-prong test from Weigel v. Farmers Ins. Co., which requires that the attorney's testimony is material to the determination of the issues being litigated, the evidence is unobtainable elsewhere, and the testimony is or may be prejudicial to the testifying attorney’s client. The court found that all three prongs were satisfied in this case. The court also affirmed the circuit court's decision to strike the third amended and supplemental complaint filed by Stuart after his disqualification. View "STUART v. WALTHER" on Justia Law

The Supreme Court of Arkansas ruled in favor of the county assessor and other similarly positioned defendants, affirming the lower court's dismissal of a lawsuit brought by Ronald and Mitzi Kimbrough. The plaintiffs, representing themselves and other similarly situated taxpayers, had argued that the county assessor's method of calculating property tax assessments for homeowners over 65 or who are disabled violated the Arkansas Constitution's Amendment 79. In their view, the amendment should freeze the assessment on a homeowner's principal residence at the time of purchase. However, the defendants argued that the plaintiffs had failed to exhaust their administrative remedies, as required by law, before taking the case to court.The Supreme Court agreed with the defendants, noting that the plaintiffs' complaint must be handled by the County Court according to the Arkansas Constitution due to its relation to county taxes. The Court held that the plaintiffs had failed to exhaust the necessary administrative remedies before bringing the case to court, which deprived the court of subject-matter jurisdiction. The Court dismissed the plaintiffs' arguments about the potential policy implications of its ruling, noting that public policy is declared by the General Assembly, not the courts. Thus, the Court affirmed the lower court's dismissal of the case and dismissed the defendants' cross-appeal as moot. View "KIMBROUGH V. GRIEVE" on Justia Law

The Supreme Court of Arkansas reversed a lower court's ruling in a dispute involving the Arkansas Department of Finance and Administration (ADFA) and two car dealerships, Trotter Ford and Trotter Auto. The case centered on whether the dealerships' assignment of vehicles to certain employees and family members, for personal use, constituted a "withdrawal from stock" subject to sales tax under Arkansas law.The ADFA audited Trotter Ford and Trotter Auto and found that several individuals not qualified as authorized users for dealer tags under Motor Vehicle Rule 2005-7 were using dealer-tagged vehicles. The ADFA considered this a "withdrawal from stock" which required the payment of sales tax and issued notices of proposed assessment to the dealerships. Trotter paid the assessed taxes and interest, but subsequently protested the assessments. After a consolidated administrative hearing and subsequent legal challenges, the Jefferson County Circuit Court granted summary judgment in favor of Trotter, reversing ADFA’s assessments.On appeal, the Supreme Court of Arkansas disagreed with the circuit court. The court held that the use of vehicles from the dealerships' inventory, assigned to unauthorized individuals for personal use, constituted a withdrawal from stock under Arkansas law and was therefore subject to sales tax. The court further held that ADFA met its burden of proving by a preponderance of the evidence that Trotter was subject to sales tax based on the plain language of Arkansas Code Annotated section 26-52-322. Consequently, the court reversed the lower court's decision and remanded the case. View "ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION V. TROTTER FORD, INC." on Justia Law

The Arkansas Supreme Court reversed and remanded a decision of the Phillips County Circuit Court, which had found in favor of Kit and Jole Wilson in their dispute with the Arkansas Department of Finance and Administration (ADFA). The Wilsons had restored a building in Arkansas and were granted a historic-rehabilitation income-tax credit. The ADFA applied this credit to the Wilsons' 2015 tax return before apportionment, reducing their tax liability. The Wilsons protested, asserting that their tax liability should have been zero after applying the credit. The circuit court ruled in the Wilsons' favor, determining that the ADFA must apply the credit after apportioning the Wilsons’ tax due and that certain state codes conflicted with each other.However, the Supreme Court found that the ADFA correctly applied the tax credit before apportionment, in line with state law. The court also held that the state codes did not conflict with each other. The court concluded that the circuit court erred in its statutory interpretation and reversed its decision. View "STATE OF ARKANSAS, DEPARTMENT OF FINANCE AND ADMINiSTRATION v. WILSON" on Justia Law

The Supreme Court reversed the order of the circuit court granting summary judgment to the Department of Finance and Administration (DFA) upholding DFA's amended and corrected notices of final assessment of Appellants' tax burden for the tax years 2015 through 2017, holding that DFA failed to provide sufficient evidence to meet its prima facie burden of proof for summary judgment.Appellants sued DFA in circuit court challenging the notices of final assessment. The circuit court granted summary judgment for DFA. On appeal, Appellants argued that the evidence presented was not prima facie proof of DFA's calculation of Appellants' net taxable income. The Supreme Court agreed and reversed, holding that a material dispute of fact existed regarding the amounts of Appellants' taxable income for 2015 through 2017, and therefore, summary judgment was improper. View "Gates v. Walther" on Justia Law

The Supreme Court reversed the judgment of the circuit court granting summary judgment in favor of Plaintiffs on their illegal-exaction claim related to Amendment 101 to the Arkansas Constitution, holding that the circuit court erred in its interpretation of Amendment 101.Plaintiffs brought this action against State Defendants raising claims related to tax revenue from both Amendment 91 and Amendment 101. The circuit court granted summary judgment in favor of State Defendants on the Amendment 91 illegal-exaction claim and in favor of Plaintiffs on their Amendment 101 claim. The Supreme Court reversed the circuit court's ruling pertaining to Amendment 101, holding that the circuit court erred in its interpretation of Amendment 101 to the Arkansas Constitution. View "Gibson v. Little Rock Downtown Neighborhood Ass'n" on Justia Law

The Supreme Court reversed the order of the circuit court affirming the decision of the Arkansas Department of Finance and Administration (DFA) concerning its adjustments made to A-1 Recovery Towing & Recovery, Inc.'s taxable income and to its shareholders' accounts for tax years 2013-2017, holding that the circuit court failed to follow Ark. Code Ann. 26-18-406 when it affirmed DFA's decision sua sponte.Section 26-18-406 provides that a suit in circuit court to contest a DFA assessment "shall be tried de novo." On appeal, A-1 argued that the circuit court erroneously sua sponte entered its order affirming the DFA's decision because the order deprived A-1 of its right to a trial de novo under section 26-18-406. The Supreme Court agreed and reversed, holding that the circuit court deprived A-1 of its opportunity to meet proof with proof prior to affirming DFA's decision sua sponte. View "A-1 Recovery Towing & Recovery, Inc." on Justia Law

The Supreme Court reversed the order of the circuit court affirming a decision of the Arkansas Department of Finance and Administration (DFA) concerning certain adjustments to Cenark Investment Group, LLC's taxable income and to its shareholders' accounts for tax years 2016-2018, holding that the circuit court misinterpreted Ark. Code Ann. 26-18-406.Specifically at issue was the circuit court's interpretation section 26-18-406, which provides that a lawsuit brought in circuit court to contest a DFA assessment "shall be tried de novo." On appeal, Cenark argued that the circuit court erred in affirming DFA's decision without holding a trial de novo pursuant to section 26-18-406. For the reasons set forth in A-1 Recovery Towing and Recovery, Inc. v. Walther, 2023 Ark.___ (CV-22-281), also decided today, the Supreme Court reversed and remanded this case for further proceedings. View "Cenark Investment Group, LLC v. Walther" on Justia Law