Ark. Dep't of Fin. & Admin. v. Trotter Ford, Inc.

685 S.W.3d 889

2024 Ark. 31

ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION, Appellant

v.TROTTER FORD, INC.; and Trotter Auto, Inc., d/b/a Trotter Toyota, Appellees

No. CV-23-450

Supreme Court of Arkansas.

Opinion Delivered: March 28, 2024

APPEAL FROM THE JEFFERSON COUNTY CIRCUIT COURT [NOS. 35CV-22-238, 35CV-22-240], HONORABLE JODI RAINES DENNIS, JUDGE

Taylor Duvall, Keith Linder, Jonesboro, and Jackson Taylor, Office of Revenue Legal Counsel, for appellant.

Mitchell, Blackstock, Wright & Alagood, PLLC, by: Michael W. Mitchell, Little Rock, Greg Alagood, and Michael Muskheli, for appellees.

KAREN R. BAKER, Associate Justice

₁Appellant, the Arkansas Department of Finance and Administration (ADFA), appeals from two orders entered by the Jefferson County Circuit Court granting motions for summary judgment filed by the appellees, Trotter Ford, Inc., and Trotter Auto, Inc., d/b/a Trotter Toyota (hereinafter referred to individually as "Trotter Ford" and "Trotter Auto," respectively, and referred to collectively as "Trotter"), and denying ADFA’s motions for summary judgment and motions to strike Trotter’s summary-judgment evidence. ADFA presents two points on appeal: (1) the circuit court erroneously granted Trotter’s motions for summary judgment; and (2) the circuit court applied the wrong standard of review in considering Trotter’s motions for summary judgment. Our jurisdiction is pursuant to Arkansas Supreme Court Rule 1-2(a)(8) (this court required by law to hear appeal) and Arkansas Code Annotated section 26-18-406(c)(2). We reverse and remand.

₂I. Facts and Procedural History

Trotter Ford and Trotter Auto are vehicle dealerships located in Pine Bluff. On January 19, 2021, ADFA’s Office of Field Audit began conducting routine audits of both dealerships, covering the period of July 1, 2015, to December 31, 2020, to determine whether they had complied with Arkansas law concerning the remittance of state sales and use tax. The audits revealed discrepancies in Trotter’s sales tax records, and on August 9, 2021, ADFA issued notices of proposed assessment to both Trotter Ford and Trotter Auto. ADFA found that Trotter Ford had assigned vehicles with dealer license tags to James Bowlin, Jr., its parts service director; Shari Raymick, its office manager; and Ann Trotter Nelson, the owner’s daughter; and that Trotter Auto had assigned a vehicle with dealer license tags to Tammy Harper, the general manager’s wife. Further, ADFA found that these individuals did not qualify as authorized users for dealer tags under Motor Vehicle Rule 2005-7. See Code Ark. R. 006.05.406; see also Ark. Code Ann.§ 27-14-1704 (Supp. 2021). ADFA determined that the assignment and use of the vehicles constituted "withdrawals from stock" requiring the payment of gross receipts tax ("sales tax") pursuant to Arkansas Code Annotated section 26-52-322(a) (Repl. 2020).

On August 12, 2021, Trotter paid the assessed taxes and interest, and on August 19, it formally protested ADFA’s assessments. On December 7, ADFA’s Office of Hearings and Appeals held a consolidated administrative hearing on the assessment of sales tax against Trotter Ford and Trotter Auto for the use of the four vehicles at issue. On March 11, 2022, the administrative law judge issued decisions sustaining ADFA’s assessments. ADFA subsequently issued notices of final assessment to Trotter Ford and Trotter Auto.

₃On April 4, 2022, Trotter filed petitions for review on behalf of each dealership seeking relief under the Administrative Procedure Act.¹ On May 6, ADFA filed separate motions to dismiss the petitions for a lack of subject matter jurisdiction wherein it alleged, in pertinent part, that the decision of the administrative law judge from which Trotter appealed was issued pursuant to the Arkansas Tax Procedure Act ("TPA") and that the provisions of the Administrative Procedure Act were not applicable to tax assessments. Trotter subsequently filed amended and substituted complaints seeking judicial relief from the administrative decision and a refund of its payment of the assessed taxes and interest pursuant to the TPA, specifically Arkansas Code Annotated section 26-18-406 (Repl. 2020). On May 27, ADFA filed answers to the complaints for judicial relief.

On September 9, 2022, Trotter filed motions for summary judgment on behalf of both dealerships, which were accompanied by affidavits of Henry Ford Trotter III, president of Trotter Ford and Trotter Auto; the administrative decision sustaining ADFA’s tax assessments; ADFA’s notices of final assessment that were issued to the respective dealerships; and documentation purporting to evidence the sale of the four vehicles at issue. Trotter conceded to the misuse of dealer license tags and argued that ADFA should have imposed a fine pursuant to Arkansas Code Annotated section 27-14-1704 as opposed to finding that the vehicles had been "withdrawn from stock" and assessing sales tax pursuant to section 26-52-322. Trotter asserted that no sale had taken place to which the imposition of sales tax ₄would apply and noted that the vehicles remained available for sale at all times before eventually being sold to consumers.

On October 14, 2022, ADFA filed motions to strike Trotter’s summary-judgment evidence, alleging, in pertinent part, that the decision of the administrative law judge was irrelevant in light of the de novo standard of review. Trotter responded that a de novo review does not require the circuit court to completely disregard the administrative decision, but rather, it sim- ply means that no deference should be afforded to the decision on review.

On January 6, 2023, ADFA filed motions for summary judgment against both dealerships. ADFA asserted that it was entitled to judgment as a matter of law because the undisputed facts demonstrated that Trotter Ford and Trotter Auto were established businesses; the four vehicles at issue constituted tangible personal property; the vehicles had been withdrawn from stock pursuant to Arkansas Code Annotated section 26-52-322 when the vehicles were used by the assigned drivers; and each withdrawal from stock was a taxable event. ADFA further argued that Trotter could not show, nor had it alleged, that the withdrawals from stock were exempt from sales tax.

On February 13, 2023, the circuit court held a consolidated hearing on the competing motions for summary judgment. On March 9, the circuit court entered an order granting Trotter’s motions for summary judgment and reversing ADFA’s assessments. The circuit court reasoned that

[ADFA’s] decision to impose a sales tax under the facts in this matter was a new and creative interpretation of tax law. In order for [ADFA] to impose the sales tax as they have on Trotter, they ignored A.C.A. § 26-52-510, governing the payment of sales tax on motor vehicles. This statute requires a consumer to pay the sales tax on the purchase of a motor vehicle on or before the time for registration, which is no more than thirty days from the transfer ₅of title. The sales tax on the sale of new automobiles is collected from the buyer at the time the automobile license is issued … Applying the facts to this statu[t]e no tax has accrued because no title was transferred and no application for a license has been sought.

A specific statute like A.C.A. § 26-52-510 takes precedence over a general statute like A.C.A. § 26-52-322.

….

Providing the use of an automobile to an employee or the employee’s family falls within the category of a fringe benefit. Specific tax laws govern the assessment of income tax on fringe benefits. A specific statute has been enacted providing for the assessment of penalties to car dealers who allow the unauthorized use of dealer tags.

The circuit court held that ADFA had substituted a general sales tax statute for the specific statute and that ADFA’s decision to assess taxes pursuant to section 26-52-322 was not supported by a preponderance of the evidence. On March 20, ADFA filed a letter with the circuit court requesting that an order be entered on ADFA’s outstanding motions, including its competing motions for summary judgment and motions to strike Trotter’s summary-judgment evidence. On April 3, the circuit court entered an order denying ADFA’s motions for summary judgment and ruling further that the motions to strike had been rendered moot at the February 13 hearing because the parties advised the circuit court that there were no outstanding issues of material fact.

ADFA timely appealed from the circuit court’s orders in both cases, and on September 14, 2023, we granted ADFA’s unopposed motions to consolidate the appeals.

₆II. Points on Appeal

A. Summary Judgment

Turning to the points on appeal, ADFA asserts that the circuit court erroneously granted Trotter’s motions for summary judgment. This argument is two-fold. First, ADFA contends that the use of the vehicles in Trotter’s inventory was subject to sales tax based on the plain language of Arkansas Code Annotated section 26-52-322. Second, ADFA asserts that the circuit court erred in finding that ADFA had not met its burden of proof regarding Trotter’s sales tax liability and determining that the use of the vehicles was not a taxable transaction.

[1–4] This court reviews a circuit court’s decision in a tax case de novo. Douglas Cos. Inc. v. Walther, 2020 Ark. 365, at 5, 609 S.W.3d 397, 400. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Ark. R. Civ. P. 56(c). Ordinarily, on appeal from a summary-judgment disposition, the evidence is viewed in the light most favorable to the party resisting the motion, and any doubts and inferences are resolved against the moving party. Hendrix v. Mun. Health Benefit Fund, 2022 Ark. 218, at 7, 655 S.W.3d 678, 682–83. However, when the...