609 S.W.3d 397
Ark.2020Background
- Seven licensed Arkansas wholesalers (appellants) paid OTP (other tobacco products) excise taxes from Nov. 2011–Aug. 2013 and sought refunds totaling $3,223,200.58, claiming they overpaid.
- The tax is measured as a percentage (totaling 68%) of the "manufacturer’s selling price" under the Arkansas Tobacco Products Tax Act; appellants bought OTP from USB, which bought from UST (the actual manufacturer).
- USB is a wholly owned subsidiary of UST; UST undisputedly manufactured the OTP. Appellants allege tax should have been calculated on the lower UST→USB price rather than the higher USB→appellants price.
- In 2013 the legislature amended the statute’s definition of "sales entity affiliate" to add that a sales-entity affiliate "sells cigarettes or other tobacco products the entity acquires directly from a manufacturer or importer." Appellants argue the pre-amendment text was limited to cigarettes only.
- Appellants lost administratively, sued under the Tax Procedure Act, and the circuit court—on cross-motions for summary judgment—granted DF&A judgment on the merits and dismissed appellants’ refund claims. Appellants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the statutory phrase "sales entity affiliate" (pre-2013) applies only to entities that sell cigarettes, so OTP tax should be based on UST→USB price (partial refund) | The definition was limited to cigarette sales; read (A) and (B) together and limit (A) to cigarette transactions, so manufacturer’s selling price is UST→USB | The circuit court never ruled on that statutory-construction point; issue not preserved for appeal; USB is a manufacturer/distributor | Not reached on the merits due to preservation; appellate court affirmed circuit court’s dismissal. |
| Whether subsections (A) and (B) are separate stand-alone definitions (making appellants "sales entity affiliates") | If (A) and (B) are separate, appellants are "affiliated" under (A) via contracts and thus statutory manufacturers | DF&A contends this construction was not litigated below and the court should reject it; also USB is a manufacturer/distributor in any event | Claim construed as raised too late / not pleaded below; circuit court correctly denied summary judgment on the new theory; affirmed. |
| Whether appellants can obtain a full refund by being reclassified as statutory manufacturers (claim first asserted in summary-judgment papers) | If appellants are statutory manufacturers, they would not owe the OTP tax and would be entitled to a full refund | The full-manufacturer theory was not pled in the complaints and cannot be raised for the first time on summary judgment | Court refused to consider a new claim raised only in summary-judgment briefing; summary judgment for DF&A affirmed. |
| Proper classification of the parties (wholesaler vs. manufacturer) and effect on tax liability | Appellants argue they were wrongly treated as wholesalers for tax measurement purposes | DF&A and circuit court found appellants are licensed wholesalers; USB (wholly owned by UST) functions as a distributor/manufacturer | Circuit court’s factual/legal classification stands: appellants are wholesalers and taxable accordingly; USB is a statutory manufacturer/distributor. |
Key Cases Cited
- Walther v. FLIS Enters., Inc., 540 S.W.3d 264 (Ark. 2018) (de novo review of circuit-court tax decisions and statutory interpretation)
- Washington Cty. v. Bd. of Trs. of the Univ. of Ark., 480 S.W.3d 173 (Ark. 2016) (cross-motions for summary judgment treated as agreement no material facts remain)
- State v. Cassell, 427 S.W.3d 663 (Ark. 2013) (same principle for cross-motions and summary-judgment review)
- TEMCO Constr., LLC v. Gann, 427 S.W.3d 651 (Ark. 2013) (preservation rule: appellate review requires obtaining a ruling below)
- Eldridge v. Bd. of Corr., 768 S.W.2d 534 (Ark. 1989) (trial court should not decide issues raised for the first time in briefs at summary judgment)
- City of Barling v. Fort Chaffee Redev. Auth., 60 S.W.3d 443 (Ark. 2001) (court will not consider claims first raised in summary-judgment materials)
- Jones v. Flowers, 198 S.W.3d 520 (Ark. 2004) (same limitation on new issues at summary judgment)
- Brock v. Townsell, 309 S.W.3d 179 (Ark. 2009) (statutory construction reviewed de novo)