Weiss v. Mcfadden, ___ S.W.3d ___ (Ark. 6/26/2003)

Decision Date26 June 2003
Docket Number02-1231
Citation___ S.W.3d ___
PartiesRichard WEISS, Director, Department of Finance and Administration v. Jimmy R. MCFADDEN, William W. Joplin, and James T. French, <I>et al</I>.
CourtArkansas Supreme Court

1. JUDGMENT — SUMMARY JUDGMENT — WHEN GRANTED. — Summary judgment is granted only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law.

2. JUDGMENT — SUMMARY JUDGMENT — MEETING PROOF WITH PROOF. — Once a moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact.

3. JUDGMENT — SUMMARY JUDGMENT — APPELLATE REVIEW. — Upon review, the supreme court determines if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion leave a material fact unanswered; the supreme court views the evidence in a light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party.

4. STATUTES — INTERPRETATION — EFFECT OF AMBIGUOUS &AMP UNAMBIGUOUS LANGUAGE. — When reviewing issues of statutory interpretation, the first rule in considering the meaning and effect of a statute is to construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language; when the language of a statute is plain and unambiguous, there is no need to resort to rules of statutory construction; a statute is ambiguous only where it is open to two or more constructions, or where it is of such obscure or doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning; when a statute is clear, however, it is given its plain meaning, and the supreme court will not search for legislative intent; rather, that intent must be gathered from the plain meaning of the language used.

5. STATUTES — INTERPRETATION — EFFECT OF DRAFTING ERROR OR OMISSION. The supreme court is very hesitant to interpret a legislative act in a manner contrary to its express language, unless it is clear that a drafting error or omission has circumvented legislative intent.

6. STATUTES — PRESUMED CONSTITUTIONAL — CHALLENGER'S BURDEN. Statutes are presumed constitutional, and the burden of proving otherwise is on the challenger of the statute; if it is possible to construe a statute as constitutional, the supreme court must do so; because statutes are presumed to be framed in accordance with the Constitution, they should not be held invalid for repugnance thereto unless such conflict is clear and unmistakable.

7. TAXATION — INCOME — DEFINED. — Income for purposes of income taxation income may be defined as the gain derived from capital, from labor, or from both combined.

8. TAXATION — INCOME — WHEN SUBJECT TO TAXATION. — Where gain from labor or capital has not become an investment, or in other words a permanent addition to the wealth of a person, it is income subject to taxation.

9. TAXATION — INCOME — PROPERTY DISTINGUISHED FROM. — Property is to be distinguished from gain or, in other words, income.

10. TAXATION — AFTER-TAX CONTRIBUTIONS — NOT INCOME SUBJECT TO TAXATION. — After-tax contributions are not income subject to income taxation; the after-tax contributions are property or, in other words, capital that is to be distinguished from the gain from the capital.

11. TAXATION — AFTER-TAX-CONTRIBUTIONS — NO TAX CONSEQUENCES FOR RECOVERY OF CAPITAL. — Money that a taxpayer has paid state and federal income taxes on is property owned by the taxpayer; where the taxpayers in this case had already paid federal and state income taxes on the money contributed to the retirement plan, they were simply receiving their own property when the after-tax contributions were returned; there are no tax consequences for recovery of capital.

12. TAXATION — GAIN OR REVENUE FROM PROPERTY — TO BE DISTINGUISHED FROM PROPERTY. — The gain or revenue from the property is to be distinguished from the property.

13. TAXATION — AFTER-TAX CONTRIBUTIONS — NOT SUBJECT TO INCOME TAX. — The return of after-tax contributions is recovery of capital; such contributions are property, not income or gain; therefore, they are not subject to income taxation.

14. TAXATION — AD VALOREM TAX — TAX ON VALUE OF PROPERTY. Amendment 47 to the Arkansas Constitution prohibits the State from levying an ad valorem tax on property; an ad valorem tax taxes property found in the State; it is a tax on the value of property.

15. PROPERTY — MONEY — INTANGIBLE PERSONAL PROPERTY. — Money is intangible personal property.

16. TAXATION — TAX APPELLANT ATTEMPTED TO COLLECT WAS AD VALOREM — APPLICATION OF ARK. CODE ANN. § 26-51-307 TO AFTER-TAX CONTRIBUTIONS WAS UNCONSTITUTIONAL. — In the present case, the tax at issue was not transformed into a lawful income tax just because the State asserted that it was an income tax; the tax that appellant attempted to collect is a tax based on the value of property or, in other words, an ad valorem tax; Ark. Const. amend. 47 prohibits the State from levying an ad valorem tax on property; the conflict with respect to the application of Ark. Code Ann. § 26-51-307 to after-tax contributions returned to retirees was clear and unmistakable and therefore unconstitutional; affirmed.

Appeal from Pulaski Circuit Court, Thirteenth Division; R. Collins Kilgore, Judge; affirmed.

William E. Keadle, for appellant.

Nichols & Campbell, P.A., by: H. Gregory Campbell and Mark W. Nichols, for appellees.

JIM HANNAH, Justice.

The Arkansas Department of Finance and Administration ("DFA") appeals an order of the Pulaski County Circuit Court granting partial summary judgment. The trial court found that the State violated Amendment 47 to the Arkansas Constitution when it attempted to tax benefits paid under an individual retirement account or a public or private employment related retirement system, plan or program ("retirement plan"), where the benefit taxed after-tax contributions being returned to the contributee.

This case involves only that portion of a retirement plan payment identified by the parties as the return of after-tax contributions to the plan beneficiary. In other words, what is at issue is whether a contributee who has paid income tax on the contribution made to the plan may be compelled to pay income tax on that same contribution later when the contribution is returned from the plan to the contributee. DFA agrees that the contribution is being subjected to income tax twice but argues that is the legislative intent. We note that pre-tax contributions on which no income tax was ever paid by the contributee, employer contributions on which no income tax was ever paid by the contributee, and the gain produced over the years by the retirement plan on which no income tax was ever paid by the contributee are not at issue in this case.

Appellee taxpayers represent all taxpayers who have made after-tax contributions to retirement plans, and the action was brought to protect against the State taxing the receipt of after-tax contributions from retirement plans as income. DFA argues that under Ark. Code Ann. §26-51-307 (Supp. 2001), the legislature has declared that the return of retirement plan after-tax contributions to a retiree is income. DFA further argues that the after-tax contributions are not property subject to the protection of Amendment 47. Appellee taxpayers asserted that the after-tax contributions constitute property, not income, and are thus not subject to income tax. Appellee taxpayers further argue that the attempt to levy a tax on the after-tax contributions constitutes an attempt by the State to levy an ad valorem tax on property in violation of Amendment 47 to the Arkansas Constitution.

We hold that when after-tax contributions to a retirement plan are returned to the retiree, that return is recovery of capital, which is not income. We further hold that the attempt to levy a value-based tax on the after-tax contributions constitutes an illegal exaction in that the State is attempting to levy a tax in violation of Amendment 47 to the Arkansas Constitution.

Jurisdiction properly lies in this court because the case requires the interpretation or construction of the Arkansas Constitution. Ark. R. Sup. Ct. 1-2(a)(1) (2003).

Facts

Appellee taxpayers brought an illegal-exaction suit under article 16, section 13, of the Arkansas Constitution, alleging the case was a class action as a matter of law. Appellee taxpayers set out their class as taxpayers who have contributed after-tax contributions to a retirement plan. The class members made after-tax contributions to a retirement plan during the course of their careers. Now that they have retired, the retirees receive retirement benefits that they assert include a return of after-tax contributions. No attempt has been made by the parties to lay out the retirement plans or otherwise show what portion of benefits received is comprised of after-tax contributions.[1] Rather, the parties agree that some portion of the benefits is return of after-tax contributions, and the issue presented is simply whether the after-tax contributions returned constitute property or income.

The partial summary judgment did not resolve all the issues in this case. The circuit court certified this appeal pursuant to Rule 54 of the Arkansas Rules of Civil Procedure.

Standard of Review

Summary judgment is granted only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law. Spears v. City of Fordyce, 351 Ark. 305, 92 S.W.3d 38 (2002). Once a moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Id. Upon review in this court, we determine if...

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