LARRY WALTHER, DIRECTOR, ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION APPELLANT
FLIS ENTERPRISES, INC. APPELLEE
FROM THE PULASKI COUNTY CIRCUIT COURT [NO. 60CV-14-1628]
HONORABLE CATHLEEN V. COMPTON, JUDGE.
Samuel Carter, Revenue Legal Counsel, and Joel DiPippa,
Revenue Legal Senior Counsel, Office of Revenue Legal
Counsel, for appellant.
Wright, Lindsey & Jennings LLP, by: John R. Tisdale and
Michael A. Thompson, for appellee.
K. WOOD, ASSOCIATE JUSTICE.
Walther, as the Director of the Arkansas Department of
Finance and Administration (DFA), appeals the circuit
court's order granting FLIS Enterprises, Inc.'s
(Burger King) motion for summary judgment in an action
seeking relief from a tax assessment pursuant to Arkansas
Code Annotated section 26-18-406 (Supp. 2017). DFA argues the
circuit court erroneously construed the relevant statutes and
promulgated rules to find that Burger King was only required
to pay taxes on the wholesale value of the food ingredients
removed from stock as opposed to the retail value of the
meals. We hold the circuit court's interpretation was in
error. Accordingly, we reverse and dismiss.
King purchases individual food ingredients used to create its
menu items from third-party suppliers. The ingredients are
stored separately and utilized only as needed to complete
specific orders. At each location, Burger King employs
managers to "oversee the operations of [its]
restaurants." As an additional "perk, " Burger
King allows its managers to consume one meal (manager meal)
per shift at no cost to the manager. The manager selects the
meal from the same menu available to Burger King's
conducted a sales-and-use-tax audit on Burger King's
sixteen central-Arkansas restaurants for a three-year period
and determined it underreported taxes by failing to account
for the manager meals. Burger King did not dispute owing
taxes on the manager meals, only the basis for the
calculation. Burger King paid the full amount assessed but
filed a protest with DFA's Hearing and Appeals Office.
Following a hearing, the administrative law judge sustained
the full assessment. Subsequently, Burger King filed a
complaint in circuit court for judicial relief seeking a
refund of the taxes paid pursuant to provisions of the
Arkansas Tax Procedure Act. The parties filed cross-motions
for summary judgment and agreed that all the material facts
were undisputed. After a hearing, the circuit court entered
an order granting Burger King's motion for summary
judgment and reversing the decision of the administrative law
judge. DFA appealed.
reversal, DFA argues the circuit court erroneously granted
Burger King's motion for summary judgment because (1)
withdrawals from stock of processed goods are subject to tax
at the full retail value, and (2) the circuit court
erroneously relied upon law and argument not raised by the
parties. Additionally, DFA contends that the circuit court
erred by not following the principle of stare decisis and
that Burger King failed to meet its burden of proof.
briefing was completed, DFA filed a notice under Arkansas
Supreme Court Rule 5-1 that it intended to cite the recent
decision of Board of Trustees v. Andrews, 2018 Ark.
12, __S.W.3d__ and Koonce v. Mitchell, 341 Ark. 716,
19 S.W.3d 603 (2000). This court ordered supplemental
briefing by both parties to allow them an opportunity to
fully brief their positions on the impact, if any, of
Andrews on this matter.
general rule is that we will not address an issue raised for
the first time on appeal. See Technical Servs. of Ark.,
Inc. v. Pledger, 320 Ark. 333, 896 S.W.2d 433 (1995).
DFA did not raise the issue of sovereign immunity at the
trial court level nor is it asserting it as a defense on
appeal. Our discussion would normally end there. However, due
to this court's previous language that
"subject-matter jurisdiction based on sovereign immunity
is an issue that is always open and it is the duty of an
appellate court to raise the issue on its own volition,
" DFA claims that the court could, on its own
initiative, dismiss the case on sovereign immunity citing
Dep't of Fin. & Admin. v. Staton, 325 Ark.
341, 942 S.W.2d 804 (1996). The parties cite five cases in
which this court has referenced this duty. In each cited
case, with one exception, this court used this language but
did not actually raise and address sovereign immunity sua
sponte. See id.; Carson v. Weiss, 333 Ark.
561, 972 S.W.2d 933 (1998); Ark. Dep't of Fin. &
Admin. v. Tedder, 326 Ark. 495, 932 S.W.2d 755 (1996);
and Pitcock v. State, 91 Ark. 527, 121 S.W. 742
(1909). As such, the language expressed in those cases was
dicta as it was extraneous to the pending matters. In the
exception, McCain v. Crossett Lumber Co., 206 Ark.
51, 174 S.W.2d 114 (1943), the court sua sponte raised and
discussed sovereign immunity and determined at the end of the
opinion that it was inapplicable. However, the order of the
sovereign immunity discussion within the opinion is
significant because the language contradicts the court's
treatment of the issue. Subject-matter jurisdiction is a
"threshold issue" that the court must consider
first-not last. Hunter v. Runyan, 2011 Ark. 43, at
8, 382 S.W.3d 643, 648. Therefore, if the McCain
court truly considered the issue as one of subject-matter
jurisdiction, it should have considered it at the outset of
the opinion. In other words, McCain said one thing
but did another. McCain, 206 Ark. at 61, 174 S.W.2d
jurisdiction is the "court's authority to hear and
decide a particular type of case." Hunter, 2011
Ark. 43, at 10, 382 S.W.3d at 649. It relates more
to the nature of the matter than to the identity of the
litigants. Whether the court has jurisdiction over a suit
against the State of Arkansas or whether the defendant has
raised a defense of sovereign immunity, are not matters of
subject-matter jurisdiction. Although sovereign immunity
certainly has jurisdictional qualities, this court
historically has treated it like an affirmative defense that
must be preserved. See Ark. Lottery Comm'n v. Alpha
Mktg., 2012 Ark. 23, at 6, 386 S.W.3d 400, 404
(concluding that the trial court's failure to rule on
sovereign immunity prevented appellate review). For example,
our rules permit interlocutory appeals from a denial of a
motion to dismiss based on the defense of sovereign immunity.
Ark. R. App. P. Civ. 2(a)(10). However, we will not consider
such an interlocutory appeal without a clear ruling from the
circuit court on sovereign immunity. See id. While
one could contend that requiring a specific ruling gives us
appellate jurisdiction over interlocutory appeals, if one
also accepted the proposition that sovereign immunity
deprives the circuit court of subject-matter jurisdiction,
remanding cases for sovereign immunity rulings would be
illogical. This is why continuing to treat sovereign immunity
as an affirmative defense is consistent with our precedent.
we hold that sovereign immunity is not a matter of
subject-matter jurisdiction, as it is not a limit on the
court's authority to hear a particular type of case. As
the parties did not raise the issue below, it is not proper
for us to address it further in this case. Although counsel
and others may desire guidance on the impact of
Andrews, it would be imprudent of this court to
delve into the constitutional doctrine further without full
development before the circuit court and when neither party
is asserting it.
II. Tax Assessment
the merits of the case, we review a circuit court decision in
a tax case de novo. Baker Refrigeration Sys., Inc. v.
Weiss, 360 Ark. 388, 201 S.W.3d 900 (2005). We also
review issues of statutory interpretation de novo, as it is
this court's responsibility to determine what a statute
means. Ryan & Co. AR, Inc. v. Weiss, 371 Ark.
43, 263 S.W.3d 489 (2007). Pursuant to Arkansas Supreme Court
Rule 1-2(b)(6) (2017), we have jurisdiction over this appeal
because it involves a substantial question of law concerning
the construction and interpretation of statutes and the rules
of an administrative agency.
"cardinal" rule of statutory interpretation is to
give effect to the intent of the legislature. Miller v.
Enders, 2013 Ark. 23, 425 S.W.3d 723. To do so, we first
construe the statute just as it reads, giving the words their
ordinary and usually accepted meaning in the common language.
Id. We construe the statute so that no word is left
void, superfluous, or insignificant; and meaning and effect
are given to every word in the statute. Ozark Gas
Pipeline Corp. v. Ark. Pub. Serv. Comm'n, 342 Ark.
591, 29 S.W.3d 730 (2000). When the language of the statute
is plain and unambiguous, there is no need to result to the
rules of statutory construction, but when the meaning is not
clear, we look to "the subject matter, the object to be
accomplished, the purpose to the served, the remedy provided,
the legislative history, and other appropriate means that
shed light on the subject." Miller, 2013 Ark.
23, 425 S.W.3d 723.
general, a sales tax is imposed on all sales of tangible
personal property unless an exemption applies. Ark. Code Ann.
§ 26-52-301 (Repl. 2014). Arkansas provides an exemption
for purchasers regularly engaged in the business of reselling
items purchased, the "sales-for-resale" exemption.
Ark. Code Ann. § 26-52-401(12) (Supp. 2017). This
provides them with relief from paying taxes on such purchases
and instead requires payment of taxes upon resale. The
"sales-for-resale" exemption also applies to goods
purchased for subsequent use in processing or preparing
different products for sale. Ark. Code Ann. §
26-52-401(12)(B)(i) (Supp. 2017).
if the purchaser who received the exemption later withdraws
the product from stock and does not resell it, Arkansas Code
Annotated section 26-52-322 (Repl. 2014) specifies that tax
must be collected. The parties agree that Burger King
qualifies for the "sale-for-resale" exemption, that
the manager meals were a withdrawal from stock, and that
Burger King was required to report and remit taxes on the
issue here, and DFA's first point on appeal, is whether
the tax for the manager meals should be assessed on the
wholesale cost paid by Burger King to purchase the individual
food ingredients or the retail sales price paid by customers
to purchase identical meals. Ark. Code Ann. § 26-52-322
reads, in pertinent part, as follows:
(b)(2) For purposes of calculating the gross receipts tax or
the compensating use tax . . . the gross receipts or gross
proceeds for a withdrawal from stock is the value of any
goods, wares, merchandise, or tangible personal property
(c) The Director of the Department of Finance and
Administration may promulgate rules to implement this
Ark. Code Ann. § 26-52-322 (b)(2), (c). Both parties
agree that the proper calculation for the tax Burger King
should remit for the meals it gives to the managers is the
"value of goods … withdrawn." However,
because there is nothing in the language of the statute to
indicate whether "value" refers to the wholesale
value or the retail value, we turn to the rules promulgated
by DFA since the General Assembly expressly provides it with
the authority to promulgate rules. Ark. Code Ann. §
promulgated the Arkansas Gross Receipts Tax Rule GR-18(D).
The parties devote their arguments to whether section (1) or
section (2) applies. The rule provides, in pertinent part, as
1. Withdrawal of purchased goods.
If a seller has a retail permit and purchases goods from its
suppliers without paying tax to those suppliers claiming the
"sale for resale" exemption and the seller
withdraws the merchandise from stock and gives the
merchandise to customers or other third parties, or uses the
merchandise itself, then the value of this merchandise is a
part of the seller's gross receipts or gross proceeds and
the seller must remit the tax on the purchase price of the
goods paid by the seller.
2. Withdrawal of manufactured or processed goods.
(a) A business that manufactures or produces products and
sells the products to third parties or at retail may at times
transfer title to certain of those products to itself or give
the products to another person or entity. The business should
report and remit tax on the sales price of the products
rather than the value of the raw materials used to
manufacture or produce the products.
Ark. Admin. Code 006.005.212-GR-18(D)(1), (2) (Westlaw 2017).
(1), which is the more general provision, states that if
"purchased goods" are bought for resale and later
withdrawn from stock, the tax assessed when the goods are
removed and given away is the wholesale price paid by the
seller. However, section (2) specifies that if the goods
withdrawn from stock and given away were "manufactured
or produced" by the seller, then the tax assessed is
based on what would have been the sales price of the goods.
Therefore, the question becomes whether the goods withdrawn
King contends that section (D)(2) cannot apply because the
manager meals could not be accurately described as
"processed, " as used in title of the section or
"produced" goods, which is the term used within the
text of the section. To "produce" simply means
"to create, " and "processed" simply
means "to put through the steps of a prescribed
procedure." Black's Law Dictionary (10th
ed.); American Heritage College Dictionary
(3rd ed.). Either definition is consistent with
Burger King's description of its process. Burger
King's complaint states that it prepares the food fresh
each day and does not store fully-compiled menu items to be
withdrawn and sold. Instead, when a customer orders a meal,
Burger King gathers the necessary ingredients and uses them
to fill the order. Its complaint explains, "[s]imilarly,
when a manager meal is consumed by a manager, [Burger King]
withdraws the necessary ingredients from its stock and
uses them to create the manager meal." Thus,
Burger King uses the Black's Law Dictionary
definition of the word "produce" to explain how it
"creates" the manager meals.
complaint, Burger King refers to the free benefit it provides
its managers as a "meal." Burger King states that
it "creates" a meal from the ingredients it has
purchased and provides that "meal" to the manager
free of charge. It is not providing the manager the
individual ingredients, and as such, it cannot claim it is
proper to assess taxes on the individual ingredients. As the
manager receives the meal, a produced good, section (D)(2)
applies and the tax is assessed on the retail value of the
meal. In ...