Federal Exp. Corp. v. Skelton

• Decision Date: 26 February 1979
• Docket Number: Nos. 78-79,78-83,s. 78-79
• Parties: FEDERAL EXPRESS CORPORATION and North American Car Corporation v. Walter SKELTON, Commissioner of Revenues, Department of Finance and Administration, State of Arkansas.
• Court: Arkansas Supreme Court

Page 1

578 S.W.2d 1

265 Ark. 187

FEDERAL EXPRESS CORPORATION and North American Car Corporation v. Walter SKELTON, Commissioner of Revenues, Department of

Finance and Administration, State of Arkansas.

Nos. 78-79, 78-83.

Supreme Court of Arkansas, In Banc.

Feb. 26, 1979.

Rehearing Denied April 2, 1979.

Paul F. Henson, North Little Rock, Waring, Cox, James, Sklar & Allen by Frank L. Watson, Jr., Memphis, Tenn., for appellants.

Jack East, III, Little Rock, for appellee.

MARION S. GILL, Special Justice.

This case is a sequel to Skelton v. Federal Express Corporation, 259 Ark. 127, 531 S.W.2d 941 (1976). Reference is made to that decision for the relevant facts concerning Federal Express Corporation. Following the decision of this Court in the foregoing case, but before the mandate was filed with the Pulaski Chancery Clerk, on February 16, 1976, the Governor signed into law Act 1237 of 1975, Extended Session, the provisions of which constitute the subject matter of this controversy. By said Act the Arkansas Compensating Tax Act, Ark.Stats. 84-3105(a) was amended to read as follows:

Section 1. (a) There is hereby levied and there shall be collected from every person in this State a tax or excise for the privilege of storing, using or consuming, within the State, any article of tangible personal property, after the passage and approval of this Act (§§ 84-3101 84-3128), purchased for storage, use or consumption in this State at the rate of three percent (3%) of the sales price of such property. This tax will not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this State until the transportation of such article has finally come to rest within this State or until such article has become commingled with the general mass of property of this State. This tax shall apply to the use, storage or consumption of every article of tangible personal property, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured within the State of Arkansas or are available for purchase within the State of Arkansas, and irrespective of any other condition. Provided, however, that the tax levied in this Act shall not apply to aircraft, aircraft equipment, and railroad parts, cars, and equipment, or to tangible personal property owned or leased by aircraft, airmotive or railroad companies brought into the State of Arkansas solely and exclusively for (i) refurbishing, conversion or modification within this State and is not used or intended for use in this State, and the presence of such tangible personal property within this State shall not be construed as storage, use, or consumption in this State for the purpose of this Act, if such aircraft, aircraft equipment, and railroad parts, cars, and equipment, or tangible personal property, is removed from this State within sixty (60) days from the date of the completion of such refurbishing, conversion, or modification, or (ii) storage for use outside or inside the State of Arkansas regardless of the length of time any such property is so stored in the State of Arkansas. If any such property is subsequently initially used in the State of Arkansas, the tax levied by this Act shall be and become applicable to the property so used in Arkansas. Provided, further, that nothing in this subsection is intended to exempt from taxation any materials used or services furnished in the refurbishing, conversion, or modification of such property in this State which is subject to the Arkansas Gross Receipts Tax. (Emphasis added)

Section 2. The General Assembly hereby determines that it was not the intent of Act 487 of 1949 (Ark.Stats. §§ 84-3101 84-3128), as amended, to impose the compensating use tax upon aircraft, aircraft equipment, and railroad parts, cars, and equipment, or to any tangible personal property owned or leased by aircraft, airmotive or railroad companies, as provided in Section 5(a) of Act 487 of 1949, as amended, and as classified by this Act, and any claim that the State of Arkansas now has for collection of compensating use taxes upon any such aircraft, aircraft equipment, and railroad parts, cars, and equipment, or to tangible personal property owned or leased by aircraft, airmotive or railroad companies brought into the State of Arkansas solely and exclusively for refurbishing, conversion, or modification shall not be collected, whether the same is pending in the Revenue Services Division of the Department of Finance and Administration or is pending and unpaid as a result of any court litigation or court decision of this State, it being the intent of the General Assembly that the State of Arkansas should not pursue collection of any claim now pending or the execution of any court order with respect to any such claim for the collection of compensating use taxes upon such property. Provided, however, that no person shall have a claim against the State of Arkansas for any compensating use tax paid to the State of Arkansas on or before the effective date of this Act with respect to such tangible personal property.

On August 9, 1977, after the remand in the foregoing case to the Pulaski Chancery Court, the Commissioner of Revenues filed an "Amended Petition for Supplemental Relief" and challenged the constitutionality of Section 2 of Act 1237 of 1975. Federal Express Corporation demurred to this petition on the grounds that the Court lacked subject matter jurisdiction and that the Commissioner lacked the capacity to challenge the constitutionality of a legislative enactment. The Pulaski Chancery Court held that the Commissioner had the necessary authority to raise the constitutional issue involved, that Section 2 of Acts 1237 of 1975 violates Act 12, Section 12, of the Constitution of Arkansas, and awarded judgment to the Commissioner pursuant to the mandate of this Court.

Appellant, North American Car Corporation, hereafter referred to as N A C, is a Delaware corporation authorized to transact business in Arkansas. It is primarily engaged in the business of leasing various types of railroad cars to railroad companies. In order to maintain its railroad cars in proper working condition N A C operates a repair facility in Texarkana, Arkansas. N A C maintains an inventory of repair parts (consisting primarily of railroad car wheels and axles) at its Texarkana facility to make the necessary repairs to railroad cars when needed. Ninety per cent (90%) of the wheels and axles installed upon railroad cars repaired at Texarkana are wheels and axles which have been removed from used cars. The remaining ten per cent (10%) are purchased by N A C outside of Arkansas and brought to the Texarkana facility as needed and are the subject of this action. Following the assessment of the Compensating Use Tax on parts in question, N A C instituted an action for a declaratory judgment in the Chancery Court of Pulaski County, and, among other things, alleged Appellee's assessments to be violative of Art. XVI, Section 13, Constitution of Arkansas in that the property upon which the assessment was made had been exempted, or was not subject to the Compensating Use Tax by reason of Section 2 of Act 1237 of 1975. Appellee alleged that Section 2 of Act 1237 was unconstitutional. The Chancellor found the assessment to be valid; and that the Commissioner had the "standing" to raise the constitutional issue asserted; that Section 2 of Act 1237 was unconstitutional as being violative of Section 2 of Art. 4, Section 12 of Art. 12 and Amendment 14 of the Constitution of Arkansas.

From the Chancellor's decrees in the foregoing cases, Federal Express and N A C bring this appeal. On joint motion of the parties these cases have been consolidated due to similar issues of law presented in both cases. For reversal Appellants contend:

I. Appellee, in his capacity as Director for Revenues, is charged with the administration of the act in question and lacks the requisite standing or authority to challenge its constitutionality.

II. Section 2 of Act 1237 of 1975, extended session, constitutes a valid exercise of legislative power under Article 12, Section 12, of the Constitution of Arkansas.

III. Section 2 of Act 1237 of 1975, extended session, constitutes a valid exercise of legislative power within the limitations imposed by the 14th Amendment of the Constitution of The United States.

IV. Section 2 of Act 1237 of 1975, constitutes a valid exercise of legislative power under the provisions of Article 4, Sections 1 and 2 of the Constitution of Arkansas.

V. The replacement parts were not purchased for "storage, consumption or use" in Arkansas.

VI. The railroad replacement parts were purchased for resale and therefore exempt from the tax.

VII. The replacement parts are exempt from the use tax because such property is exempt from tax under the Arkansas Gross Receipts Tax Act.

VIII. Act 1237 of 1975 exempts railroad parts from the Use Tax Act.

IX. Act 1237 is prospective as to North American Car because no use tax was assessed against it until after Act 1237 was signed into law.

Appellants first assert that the Appellee has no standing or authority to challenge the constitutionality of a legislative enactment. This question is one of first impression for this Court. We recognize the general rule to be that public policy would prohibit an executive branch official from challenging a legislative act based upon his interest as the official charged with administering the statute. However, there is a logical exception to this rule which allows a public officer to question the constitutionality of a legislative enactment where public rights have matured and public interest is involved. Mower Board of Commissioners v. Board of Trustees of P. E. R. A., 271 Minn. 505, 136 N.W.2d 671 (1965); Fulton Foundation v. Wisconsin Department of Taxation, 13 Wis.2d 1, 109 N.W.2d 285 (1961); Blue Earth County...