Walther v. FLIS Enters., Inc.
540 S.W.3d 264
Ark.2018Background
- Burger King (FLIS Enterprises) operates restaurants, purchases ingredients exempt under the sales-for-resale exemption, and gives managers one free meal per shift drawn from those ingredients.
- DFA audited Burger King, concluded manager meals were taxable withdrawals from stock, assessed tax, Burger King paid under protest, and sought refund in circuit court after administrative denial.
- Statute at issue: Ark. Code Ann. § 26-52-322 requires tax on withdrawals from stock and defines gross receipts for such withdrawals as "the value" of goods withdrawn; DFA was authorized to promulgate implementing rules.
- DFA rule GR-18(D) contains two subsections: (1) withdrawals of purchased goods are taxed based on purchase price (wholesale); (2) withdrawals of manufactured/produced goods are taxed on sales price (retail).
- Circuit court granted Burger King summary judgment holding tax should be based on wholesale value; DFA appealed arguing retail value applies when prepared meals are withdrawn.
- Supreme Court reviewed statutory interpretation de novo, addressed but declined to decide sovereign-immunity arguments not raised below, and reversed the circuit court, holding DFA's interpretation controlling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sovereign immunity bars the suit when not raised below | Burger King: suit proceeds because it paid tax under protest and sought refund | DFA: suggested sovereign-immunity issues might be implicated by Andrews | Court: sovereign immunity is an affirmative defense that must be raised below; not addressed on appeal here |
| Proper tax base for withdrawal-from-stock (wholesale vs retail) | Burger King: tax should be on wholesale value of individual ingredients withdrawn | DFA: where a prepared meal is the item withdrawn/given away, tax should be on retail sales price per GR-18(D)(2) | Court: GR-18(D)(2) applies to produced/processed meals; tax is based on retail sales price; circuit court erred |
| Whether manager meals qualify as "produced" or "manufactured" goods under the rule | Burger King: meals are simply combinations of ingredients; subsection (1) applies | DFA: prepared meals are produced/processed products, subsection (2) governs | Court: prepared manager meals are produced goods; subsection (2) applies; taxing at retail value is appropriate |
| Validity of applying DFA rule to supply the statute's undefined "value" | Burger King: statute controls; rule cannot expand tax base to retail value | DFA: General Assembly authorized rules to implement § 26-52-322; rule clarifies "value" | Court: because statute authorized rules and rule interpretation is consistent with plain rule language, DFA's rule controls |
Key Cases Cited
- Bd. of Trs. v. Andrews, 535 S.W.3d 616 (Ark. 2018) (addressed limits on legislative waivers of sovereign immunity and prompted supplemental briefing)
- Ark. Dep’t of Fin. & Admin. v. Staton, 942 S.W.2d 804 (Ark. 1996) (previous discussion of sovereign-immunity considerations)
- Tony & Susan Alamo Found., Inc. v. Ragland, 746 S.W.2d 45 (Ark. 1988) (holding transfers of prepared meals should be taxed at retail value)
- McCain v. Crossett Lumber Co., 174 S.W.2d 114 (Ark. 1943) (suit for refund of taxes paid under protest not barred as action against the state)
- Baker Refrigeration Sys., Inc. v. Weiss, 201 S.W.3d 900 (Ark. 2005) (standard of review for circuit-court decisions in tax cases)