Citifinancial Retail Services v. Weiss

• Decision Date: 17 January 2008
• Docket Number: No. 07-551.,07-551.
• Citation: 372 Ark. 128,271 S.W.3d 494
• Parties: CITIFINANCIAL RETAIL SERVICES Division of Citicorp Trust Bank, FSB, Appellant, v. Richard WEISS, in his Official Capacity as Director, Arkansas Department of Finance and Administration; and Timothy J. Leathers, in his Official Capacity as Commissioner of Revenue, Arkansas Department of Finance and Administration, Appellees.
• Court: Arkansas Supreme Court

271 S.W.3d 494

372 Ark. 128

CITIFINANCIAL RETAIL SERVICES Division of Citicorp Trust Bank, FSB, Appellant, v. Richard WEISS, in his Official Capacity as Director, Arkansas Department of Finance and Administration; and Timothy J. Leathers, in his Official Capacity as Commissioner of Revenue, Arkansas Department of Finance and Administration, Appellees.

No. 07-551.

Supreme Court of Arkansas.

January 17, 2008.

Akerman Senterfitt, by Peter O. Larsen, David E. Otero, and Cynthia DeBula Baines; and Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by John Keeling Baker and Jeffrey L. Spillyards, Little Rock, for appellant.

Ronna L. Abshure and Martha G. Hunt, Revenue Legal Counsel, Little Rock, for appellees.

TOM GLAZE, Justice.

Citifinancial Retail Services Division of Citicorp Trust Bank (Citifinancial) appeals a Pulaski County Circuit Court order granting summary judgment in favor of the Arkansas Department of Finance & Administration (DF & A). The circuit court found that Citifinancial was not a "taxpayer" under Ark.Code Ann. § 26-52-309 (Supp.2005), and therefore was not entitled to a refund for sales taxes paid on defaulted consumer credit accounts. The circuit court also determined that the absence of a statutory provision allowing for the assignment of tax refunds barred Citifinancial's claim that it qualified as a taxpayer as an assignee. We affirm.

This case arises from consumer sales transactions Citifinancial financed through its credit programs with Arkansas retailers. Citifinancial paid the retailers the full amount of these purchases, including the sales taxes, and the consumers agreed to repay Citifinancial on an installment or credit basis. Under these financing agreements, the retailers assigned all rights associated with the credit contracts to Citifinancial; in return, Citifinancial paid the retailers the full amount of the purchases, including the sales tax, and the retailers remitted the sales tax to the State. When purchasers defaulted on their payment obligations and Citifinancial determined that the debts were uncollectible, the debts were written off by Citifinancial on its federal income taxes.

Citifinancial filed claims for bad-debt refunds under Ark.Code Ann. § 26-52-309, the "Bad Debt Statute," which is a provision within the Arkansas Gross Receipts Act, Ark.Code Ann. § 26-52-101 et seq., that allows taxpayers to receive a sales-tax refund proportionate to the defaulted amounts of consumer purchases. DF & A denied Citifinancial's applications for sales-tax refunds, because it determined that Citifinancial was not a taxpayer under the statute. As a result of DF & A's denial of its refund requests, Citifinancial filed complaints that were consolidated by the Pulaski County Circuit Court. Citifinancial and DF & A filed crossmotions for summary judgment, and the Pulaski County Circuit Court issued an order on February 7, 2007, granting DF & A's motion for summary judgment, determining that the material facts were undisputed and that DF & A was entitled to judgment as a matter of law.

The circuit court granted DF & A's motion for summary judgment based on its interpretation of the Arkansas Gross Receipts Act and the Bad Debt Statute. However, issues of statutory interpretation are reviewed de novo, because this court determines statutory meaning. City of Maumelle v. Jeffrey Sand Co., 353 Ark. 686, 120 S.W.3d 55 (2003). While we are not bound to the trial court's ruling, we will accept the trial court's interpretation of a statute unless it is shown that the trial court erred. R.N. v. J.M., 347 Ark. 203, 61 S.W.3d 149 (2001).

Citifinancial first argues that it is a "taxpayer" under the Bad Debt Statute, § 26-52-309 (Supp.2005), which provides in pertinent part:

(a) In computing the amount of tax due under the Arkansas Gross Receipts Act, § 26-52-101 et seq., and any act supplemental thereto, taxpayers may deduct bad debts from the total amount upon which the tax is calculated for any report. Any deduction taken or refund paid which is attributed to bad debts shall not include interest.

(b)(1) For purposes of this section, "bad debt" means any portion of a debt for an amount which a taxpayer has reported as taxable which the taxpayer legally claims as a bad debt deduction for federal income tax purposes.

(2) Bad debts include, but are not limited to, worthless checks, worthless credit card payments, and uncollectible credit accounts.

(3) Bad debts do not include financing charges or interest, uncollectible amounts on property that remains in the possession of the taxpayer or vender until the full purchase price is paid, expenses incurred in attempting to collect any debt, debts sold or assigned to third parties for collection, and repossessed property.

. . .

(e) If a deduction is taken for a bad debt and the taxpayer subsequently collects the debt in whole or in part, the tax on the amount so collected shall be paid and reported on the next return due after the collection.

This court previously addressed the meaning of a "taxpayer" under the Bad Debt Statute in DaimlerChrysler Serv. N.A. v. Weiss, 360 Ark. 188, 200 S.W.3d 405 (2004), and Weiss v. American Honda Finance Corp., 360 Ark. 208, 200 S.W.3d 381 (2004). In both cases we held that, to qualify for a right to a refund or deduction under the Bad Debt Statute, the definition of "taxpayer" in Ark.Code Ann. § 26-52-103(a)(5)(Repl.1997) required that the person must be liable to remit the sales tax on purchases.¹ DaimlerChrysler, 360 Ark. at 195-96, 200 S.W.3d at 409; American Honda, 360 Ark. at 215-16, 200 S.W.3d at 386. Although it was undisputed that DaimlerChrysler and Honda were the source of the payments of sales taxes to the state, neither was required to do so under Ark. Code Ann. § 26-52-510(a)(1)(A) (Repl. 1997), which provided that the taxes "shall be paid by the consumer ... instead of being collected by the dealer or seller." DaimlerChrysler and Honda each argued that it effectively paid the sales tax, because it paid the retailers (sellers) the full of amount of the financed purchases, including the sales tax. However, we held that this fact did not transfer the ultimate liability for payment of the sales tax, and a taxpayer under the Bad Debt Statute must have that ultimate liability. Id.

Citifinancial attempts to distinguish our decisions in DaimlerChrysler and American Honda from this case on appeal, contending that those prior cases involved the sale of motor vehicles where purchasers were expressly and statutorily designated as the taxpayer, whereas the purchases Citifinancial financed at issue here were "tangible personal property," and the retailers (sellers) were the statutorily designated taxpayers. This distinction is without merit. DaimlerChrysler and American Honda control: a taxpayer under the Bad Debt Statute is the person liable to report and remit sales taxes, and the person liable to remit taxes on sales of the tangible personal property that Citifinancial financed is the retailer (seller). See Ark.Code Ann. § 26-52-508(a) (Repl. 1997 and Supp.2005). Accordingly, Citifinancial has no independent right to a statutory bad-debt deduction.

Next, Citifinancial argues that it is an assignee under its financing agreements with the retailers (sellers), allowing Citifinancial to be a "taxpayer" entitled to relief under the Bad Debt Statute. We addressed a similar argument in American Honda. There, Honda argued that it became a taxpayer entitled to a refund under the Bad Debt Statute by virtue of its financing agreements with the sellers of motor vehicles. However, having found that Ark.Code Ann. § 26-52-510(a)(1)(A) (Repl. 1997) placed liability for sales taxes for motor vehicle purchases on the consumers, rather than sellers, we held that Honda, as an assignee, could not acquire from the sellers a right the sellers themselves did not possess, and therefore could not become a taxpayer entitled to a refund under the Bad Debt Statute. American Honda, 360 Ark. at 217, 200 S.W.3d at 387.² Here Citifinancial revives this argument, but contends that because the retailers (sellers) of tangible personal property under their financing agreements are liable to remit sales taxes under § 26-52-508, Citifinancial acquired all rights held by these retailers (sellers) — including the right to claim refunds under the Bad Debt Statute. Citifinancial further argues that because the Bad Debt Statute does not address the transfer of deductions or refunds or expressly prohibit such a transfer, the court must turn to the common law to determine if rights under the Bad Debt Statute are assignable.

Tax exemptions are strictly construed against the exemption, and a strong presumption operates in favor of the taxing power. Rineco Chemical Industries, Inc. v. Weiss, 344 Ark. 118, 122, 40 S.W.3d 257, 260 (2001) (citing Technical Servs. of Ark., Inc. v. Pledger, 320 Ark. 333, 896 S.W.2d 433 (1995)). In strictly construing tax exemptions, this court has said that "to doubt is to deny the exemption." Pledger v. C.B. Form, 316 Ark. 22, 25, 871 S.W.2d 333, 334 (1994)(quoting Pledger v. Baldor Int'l, 309 Ark. 30, 33, 827 S.W.2d 646, 648 (1992)). Additionally, DF & A has interpreted the Bad Debt Statute to preclude assignment of the bad debt refund or deduction, and review of state agency decisions is allowed only under narrow circumstances. See Ark.Code Ann. § 25-15-212(h) (Repl.2002); Tomerlin v. Nickolich, 342 Ark. 325, 27 S.W.3d 746 (2000). While a statutory interpretation by the agency responsible for its execution is not conclusive, it is highly persuasive and should not be reversed unless it is clearly wrong. See Pledger v. Boyd, 304 Ark. 91, 93, 799 S.W.2d 807, 808 (1990).

A tax deduction is allowed only as a matter of legislative grace, and one claiming the deduction bears the burden of proving that he is entitled to it by bringing himself clearly within the terms and conditions as may be imposed by the statute....