Ghegan & Ghegan v. Barclay
| Citation | 345 Ark. 514,49 S.W.3d 652 |
| Decision Date | 09 July 2001 |
| Court | Supreme Court of Arkansas |
Timothy Davis Fox, PLLC, by: Timothy Davis Fox; and Will Bond, for appellants.
William E. Keadle, for appellee.
Ray Thornton, Justice. This is an illegal-exaction case that involves a challenge on equal protection grounds of the constitutionality of portions of the Soft Drink Tax Act ("Act"), which is codified at Ark. Code Ann. § 26-57-901 et seq. (Repl. 1997). We previously considered in Ghegan v. Weiss, 338 Ark. 9, 991 S.W.2d 536 (1999), the question whether Ghegan & Ghegan, Inc. ("Appellant" or "Ghegan"), had standing to bring an action based upon allegations of violations of constitutional requirements of equal protection. Id. Upon reviewing the trial court's granting of the Department of Finance and Administration's ("DFA") motion to dismiss for lack of standing, we concluded that accepting Ghegan's allegations in the light most favorable to the plaintiff, the matter should not be summarily dismissed, but Ghegan should be given the opportunity to present evidence in support of its claims because the traditional standing requirements had been met. Id.
A trial then ensued in the Pulaski County Chancery Court, at the conclusion of which the chancellor found that Ghegan had failed to establish that the disparity between the taxes imposed upon syrups used in making soft drinks and the taxes imposed upon both finished soft drinks made from powders and bottled soft drinks resulted in an unconstitutional violation of the Equal Protection Clauses of the Fourteenth Amendment to the Constitution of the United States or Article 2, Section 3, of the Constitution of the State of Arkansas. Appellant argues that a rational basis test is applicable, and further argues that: (1) the trial court erred in its determination that the Act does not treat persons differently, (2) the trial court erred in its determination that there are rational bases for the discrimination against retailers selling soft drinks made from syrup, (3) the DFA is violating the Act and its own regulation by taxing cherry syrup and vanilla syrup used to flavor soft drinks, and (4) the Act's border city exemption as written violates equal protection. We find no reversible error and affirm.
Ghegan is a corporation that runs a small pizzeria in Hot Springs and is a retailer that sells soft drinks made from syrup. During the pendency of this litigation, Ghegan has sold both Coca-Cola soft drinks made from syrup and Pepsi soft drinks made from syrup. Ark. Code Ann. § 26-57-904 (Repl. 1997) provides, in relevant part:
(a) There is hereby levied and there shall be collected a tax upon every distributor, manufacturer, or wholesale dealer, to be calculated as follows:
(1) Two dollars ($ 2.00) per gallon for each gallon of soft drink syrup or simple syrup sold or offered for sale in the State of Arkansas;
(2) Twenty-one cents (21 cents ) per gallon for each gallon of bottled soft drinks sold or offered for sale in the State of Arkansas;
(3) Where a package or container of powder or other base product, other than a syrup or simple syrup, is sold or offered for sale in Arkansas, and the powder is for the purpose of producing a liquid soft drink, then the tax on the sale of each package or container shall be equal to twenty-one cents (21 cents ) for each gallon of soft drink which may be produced from each package or container by following the manufacturer's directions. This tax applies when the sale of the powder or other base is sold to a retailer for sale to the ultimate consumer after the liquid soft drink is produced by the retailer.
(b)(1) Any retailer or retail dealer, who purchases bottled soft drinks, soft drink syrup, simple syrup, powder, or base product from an unlicensed distributor, manufacturer, or wholesale dealer shall be liable for the tax levied in subsection (a) of this section on those purchases.
Under Ark. Code Ann. § 26-57-904, Ghegan and all other persons who purchase concentrated syrup, to be mixed with water for use as a soft drink, must pay a tax of $ 2.00 per gallon of concentrated syrup. This tax is levied on the concentrated syrup regardless of the amount of soft drink made from the syrup. Retailers that sell bottled soft drinks pay a soft-drink tax of $ .21 per gallon of soft drink. Retailers that use powder to make a resulting soft drink pay a soft-drink tax of $ .21 per gallon of finished product, based upon how many gallons of soft drink should be produced from the powder, assuming that it is mixed according to the manufacturer's mixing directions. With regard to soft drinks made from concentrated syrup, the manufacturers recommend ratios of 4.75:1, 5:1, or 5.25:1 when mixing syrup with water, depending on the manufacturer and whether the soft drink is a diet or sugar soft drink, but these ratios are not mandatory. If mixed according to the suggested ratios, testimony shows that the computation of the effect of the $ 2.00 tax upon each gallon of concentrated syrup would be equivalent to a tax between $ .32 and $ .35 per gallon, for each gallon of finished product.
Appellant brought a declaratory judgment action seeking a declaration, in relevant part, (1) that Ark. Code Ann. § 26-57-904 is unconstitutional as being violative of the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution and of Article 2, Section 3, of the Arkansas Constitution and, thus, null and void, (2) that an accounting be ordered, (3) that an interest bearing escrow account be established, and (4) that such escrow account be held pending further court order.
At the conclusion of the trial, the trial court found that Ark. Code Ann. § 26-57-904 is not unconstitutional as being violative of the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution or Article 2, Section 3, of the Arkansas Constitution because Ghegan failed to establish that any disparity in the taxing of soft-drink syrups and soft-drink powders resulted in an illegal discrimination between persons similarly situated and denied and dismissed appellant's complaint for declaratory judgment. It is from this order that appellant brings this appeal.
Does Not Treat Persons Differently.
We review decisions of the chancery court de novo, but we do not set aside findings of fact unless they are clearly erroneous. E.g., Wisener v. Burns, 345 Ark. 84, 44 S.W.3d 289 (2001) (citing Kinghorn v. Hughes, 297 Ark. 364, 367, 761 S.W.2d 930 (1988)); Lotz v. Cromer, 317 Ark. 250, 878 S.W.2d 367 (1994). We also review issues of statutory construction de novo, as it is for us to decide what a statute means. Barclay v. First Paris Holding Co., 344 Ark. 711, 42 S.W.3d 496 (citing Hodges v. Huckabee, 338 Ark. 454, 995 S.W.2d 341 (1999)).
The burden of showing a violation of equal protection is very high. Our understanding of this principle was illuminated by the Supreme Court in Madden v. Commonwealth of Kentucky, 309 U.S. 83, 84 L. Ed. 590, 60 S. Ct. 406 (1940), where the Court stated, "The broad discretion as to classification possessed by a legislature in the field of taxation has long been recognized." Id. "The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against persons and classes." Id.
In Davies v. City of Hot Springs, 141 Ark. 521, 217 S.W. 769 (1920), we stated, "The only restriction which the law imposes on the exercise of power is that there shall not be a discrimination between persons in like situations and pursuing the same class of occupation." Id. (citing Waters-Pierce Oil Co. v. Hot Springs, 85 Ark. 509, 109 S.W. 293 (1908)). In addition, in City of Ft. Smith v. Scruggs, 70 Ark. 549, 69 S.W. 679 (1902), we stated, "But the rule of equality only requires that the tax shall be collected impartially of all persons in similar circumstances." Id.
We have outlined on numerous occasions the elements that are necessary in order to determine whether an equal protection challenge is warranted. In Pledger v. Featherlite Precast Corp., 308 Ark. 124, 823 S.W.2d 852 (1992), we stated, "In deciding whether an equal protection challenge is warranted, there must first be a determination that there is a state action which differentiates among individuals." Id. (quoting Bosworth v. Pledger, 305 Ark. 598, 810 S.W.2d 918 (1991)). "No state shall … deny to any person within its jurisdiction the equal protection of the laws." Bosworth, supra (quoting U.S. Const. amend. 14). The federal equal protection clause prohibits arbitrary classifications by the state resulting in different treatment of persons similarly situated in the exercise of its powers. Streight v. Ragland, 280 Ark. 206, 655 S.W.2d 459 (1983).
With regard to appellant's designated "Point I" on appeal, we note that the "rational basis" test is not relevant unless there is a disparate tax treatment between persons similarly situated. Only if there exists a discrimination between persons similarly situated is it necessary that a rational basis for such discrimination be established. Bosworth, supra. Accordingly, we first address appellant's designated "Point II" that the trial court erred in its determination that the Act does not treat persons differently. Appellant argues that the trial court's finding that the discrimination is against products, not people, is contrary to the definitions in the Act, to the testimony and evidence, to the findings made by the trial court, to the law of the case, as well as being contrary to the border city tax statutes. We will briefly...
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