Sanford v. Walther , 467 S.W.3d 139 ( 2015 )


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  •                                       Cite as 
    2015 Ark. 285
    SUPREME COURT OF ARKANSAS
    No.   CV-14-1056
    GARY SANFORD; LINDA YEAGER;                        Opinion Delivered   June 25, 2015
    WAYNE LILLEY; LILLEY PAINT CO.,
    INC., AN ARKANSAS                                  APPEAL FROM THE PULASKI
    CORPORATION; AND AIRMOTIVE,                        COUNTY CIRCUIT COURT
    INC., AN ARKANSAS                                  [NO. 60CV-10-3462]
    CORPORATION
    APPELLANTS                    HONORABLE WENDELL GRIFFEN,
    JUDGE
    V.
    AFFIRMED.
    LARRY WALTHER, DIRECTOR,
    ARKANSAS DEPARTMENT OF
    FINANCE AND ADMINISTRATION
    APPELLEE
    JIM HANNAH, Chief Justice
    Appellants, Gary Sanford, Linda Yeager, Wayne Lilley, Lilley Paint Co., Inc., and
    Airmotive, Inc., appeal an order of the Pulaski County Circuit Court dismissing their
    complaint brought against Richard Weiss, in his official capacity as Director, Arkansas
    Department of Finance & Administration (“DF&A”),1 in which they alleged illegal-exaction
    claims and due-process violations. We affirm the circuit court’s order.
    On November 1, 2013, appellants filed a “Second Amended & Restated Complaint
    for Declaratory and Injunctive Relief Against Illegal Exactions Imposed by” DF&A.
    Appellants alleged that DF&A’s method of imposing, levying, and collecting interest on
    1
    In January 2015, Weiss was succeeded by the current director, Larry Walther.
    Cite as 
    2015 Ark. 285
    certain state tax-delinquencies is unlawful, unconstitutional, and usurious and constitutes an
    illegal exaction in violation of article 16, section 13, of the Arkansas Constitution.2 DF&A
    filed a motion to dismiss the second amended complaint pursuant to Arkansas Rule of Civil
    Procedure 12(b)(1) and (6), alleging that appellants had failed to plead facts necessary to
    establish subject-matter jurisdiction and that appellants had failed to plead facts on which
    relief may be granted. The circuit court set forth the facts as follows that must be taken as
    true in evaluating appellants’ second amended complaint:
    (a) Plaintiffs are taxpayers within the meaning of Arkansas law;
    (b) Plaintiffs are persons who are or have been indebted to the State of Arkansas for
    delinquent tax debts and against whom interest on such state tax debts has been
    imposed or collected by the Defendant;
    (c) Interest was assessed on some Plaintiffs prior to the filing of certificates of
    indebtedness;
    (d) Defendant filed certificates of indebtedness against the plaintiffs with respect to the
    tax delinquencies; and
    (e) Defendant assessed interest on Plaintiffs’ tax delinquencies after the filing of
    certificates of indebtedness.
    Following a hearing on the motion to dismiss, the circuit court entered an order
    dismissing with prejudice appellants’ second amended complaint.
    2
    Count I(A)(1) of the second amended complaint alleged an illegal exaction based on
    the violation of Arkansas statutes in the imposition of interest upon tax “underpayments,” as
    that term is defined in Arkansas Code Annotated section 26-18-104(18) (Repl. 2012). Count
    I(A)(2) alleged an illegal exaction challenging DF&A’s imposition of postjudgment interest.
    Count I(B) alleged an illegal exaction based on the imposition of judgment interest upon
    certificates of indebtedness in violation of the usury prohibitions in the Arkansas Constitution.
    2
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    When reviewing a circuit court’s order granting a motion to dismiss, we treat the facts
    alleged in the complaint as true and view them in the light most favorable to the plaintiff.
    E.g., Downing v. Lawrence Nursing Hall Ctr., 
    2010 Ark. 175
    , at 6, 
    369 S.W.3d 8
    , 13. In testing
    the sufficiency of a complaint on a motion to dismiss, all reasonable inferences must be
    resolved in favor of the complaint, and the pleadings are to be liberally construed. E.g., Born
    v. Hosto & Buchan, PLLC, 
    2010 Ark. 292
    , at 4, 
    372 S.W.3d 324
    , 329. Our rules require fact
    pleading, and a complaint must state facts, not mere conclusions, in order to entitle the
    pleader to relief. E.g., Biedenharn v. Thicksten, 
    361 Ark. 438
    , 441, 
    206 S.W.3d 837
    , 840 (2005)
    (citing Ark. R. Civ. P. 8(a)(1)). In addition, we have made clear that we treat only the facts
    alleged in a complaint as true for purposes of a motion to dismiss but not a party’s theories,
    speculation, or statutory interpretation. E.g., Billy/Dot, Inc. v. Fields, 
    322 Ark. 272
    , 275, 
    908 S.W.2d 335
    , 336 (1995). Finally, our standard of review for the granting of a motion to
    dismiss is whether the circuit court abused its discretion. E.g., Ark. Dep’t of Envtl. Qual. v.
    Oil Producers of Ark., 
    2009 Ark. 297
    , at 5, 
    318 S.W.3d 570
    , 573. As to issues of law presented,
    our review is de novo. E.g., Dollarway Patrons for Better Schs. v. Dollarway Sch. Dist., 
    374 Ark. 92
    , 94, 
    286 S.W.3d 123
    , 125 (2008).
    I. Illegal Exaction
    Appellants first contend that the circuit court erred in dismissing their complaint
    because they pled viable illegal-exaction claims under article 16, section 13, of the Arkansas
    Constitution. DF&A responds that, absent an actual challenge to the underlying tax,
    appellants may not avail themselves of the constitutional class-action provisions of an illegal
    3
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    tax type of illegal exaction. To resolve this issue, we must answer the following question:
    Does an action for an illegal exaction arise under article 16, section 13, of the Arkansas
    Constitution when an Arkansas taxpayer claims that the interest imposed, levied, or
    collected on a tax delinquency is illegal but does not claim that the underlying tax
    itself is illegal?
    An illegal-exaction suit is a constitutionally created class action. Article 16, section 13,
    of the Arkansas Constitution states that “[a]ny citizen of any county, city or town may
    institute suit, in behalf of himself and all others interested, to protect the inhabitants thereof
    against the enforcement of any illegal exactions whatever.” An illegal exaction is defined as
    any exaction that either is not authorized by law or is contrary to law. E.g., Brewer v. Carter,
    
    365 Ark. 531
    , 534, 
    231 S.W.3d 707
    , 709 (2006). Two types of illegal-exaction cases can arise
    under article 16, section 13: “public funds” cases, in which the plaintiff contends that public
    funds generated from tax dollars are being misapplied or illegally spent, and “illegal tax” cases,
    in which the plaintiff asserts that the tax itself is illegal. E.g., Bowerman v. Takeda Pharms.
    U.S.A., 
    2014 Ark. 388
    , at 4, 
    442 S.W.3d 839
    , 842.
    Appellants contend that this court has defined illegal exactions in a variety of forms
    and has recognized that illegal-exaction suits are not limited to matters of “taxation” or
    “expenditure of public funds.” The cases they cite, however, do not support their
    contention. See, e.g., City of North Little Rock v. Graham, 
    278 Ark. 547
    , 
    647 S.W.2d 452
    (1983) (holding that a three-dollar “public safety fee” added to residents’ water bills that was
    exacted to raise revenue to pay additional money for services already in effect was a “tax” and
    not a “fee”); Starnes v. Sadler, 
    237 Ark. 325
    , 
    372 S.W.3d 585
    (1963) (holding that, under
    article 16, section 13, a taxpayer was entitled to injunctive relief for the illegal spending of
    4
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    public funds when members of the General Assembly violated the dual-officeholder
    prohibition in article 5, section 10, of the Arkansas Constitution).
    Alternatively, appellants contend that, even if their action may be maintained only by
    challenging an illegal tax,3 then the interest charged by DF&A constitutes an illegal tax.
    Relying on this court’s decision in City of Hot Springs v. Vapors Theatre Restaurant, Inc., 
    298 Ark. 444
    , 
    769 S.W.2d 12
    (1989), appellants claim that interest, like a tax, is a “burden
    imposed by a government upon a taxpayer for the use and benefit of that government.”
    Citing Harris v. City of Little Rock, 
    344 Ark. 95
    , 
    40 S.W.3d 214
    (2001), appellants contend
    that, even though the exaction at issue is labeled “interest,” the exaction is really a tax
    because the government imposes the interest for general revenue purposes. Finally, appellants
    point to provisions in the Arkansas Code to support their contention that the General
    Assembly defines both taxes and interest as revenue for taxation purposes. See Ark. Code
    Ann. § 26-18-208(8) (Repl. 2012) (stating that “[a]ll penalties or additions to tax and interest
    imposed by any state tax law are assessable and collectible by the director as a part of the tax
    due and owing”); Ark. Code Ann. § 19-6-102 (Repl. 2007) (referring to taxes, licenses, fees,
    permits, assessments, royalties, leases, rents, fines, interest, and penalties for the support of the
    state government and its agencies, institutions, boards, and commissions as revenues or other
    income that are required by law to be deposited into the State Treasury).
    City of Hot Springs v. Vapors and Harris v. City of Little Rock do not support appellants’
    3
    It is undisputed that appellants are not pursuing a “public funds” type of illegal-
    exaction claim.
    5
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    2015 Ark. 285
    position that “interest is a tax for illegal-exaction analysis.” The issue in Vapors was whether
    the City of Hot Springs (City) could collect a 3 percent hospitality tax pursuant to an
    ordinance enacted by authority of Arkansas Code Annotated section 26-75-602 (1987), in
    addition to the customary 10 percent mixed-drink tax collected by the City under authority
    of Arkansas Code Annotated section 3-9-213 (1987). The trial court ruled that it could not
    impose the hospitality tax in addition to the mixed-drink tax. The City argued on appeal that
    the trial court erred because “the [hospitality] tax is not a 
    tax.” 298 Ark. at 446
    , 769 S.W.2d
    at 2. Its argument was based on section 2 of Act 976 of 1985, not codified, but mentioned
    in the publishers notes to Arkansas Code Annotated section 26-75-602, which provides,
    “This tax is not a ‘tax’ as ‘taxes’ are ordinarily understood and intended for governmental
    services and support, but is a special levy paid by persons, and collected by entities, peculiarly
    associated with and benefited by tourism.” 
    Id. at 446–47,
    769 S.W.2d at 2. We rejected the
    City’s contention, stating, “The statutory language is farcical. Any burden imposed by a
    government upon a taxpayer for the use and benefit of that government is a tax, whether
    labeled tax, levy, duty, custom, gabelle, or anything else.” 
    Id. at 447,
    769 S.W.2d at 2. Thus,
    despite the attempt by the General Assembly to characterize the hospitality tax as something
    other than a tax, this court recognized that the hospitality tax, which was imposed by the
    City upon taxpayers for the use and benefit of the City, was indeed a tax.
    In Harris, a taxpayer contended that an illegal exaction occurred when the City of
    Little Rock (Little Rock) raised its user fees at its recreational facilities and pledged their
    proceeds to repay the bonds for the William Jefferson Clinton Presidential Park. She argued
    6
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    2015 Ark. 285
    that the increase in fees was not related to the services provided and that the fees were
    actually taxes that Little Rock lacked the authority to impose without prior voter approval.
    In explaining the difference between a tax and a fee, we stated,
    “The distinction between a tax and a fee is that government imposes a tax for general
    revenue purposes, but a fee is imposed in the government’s exercise of its police
    powers.” City of Marion v. Baioni, 
    312 Ark. 423
    , 425, 
    850 S.W.2d 1
    , 2 (1993) (citing
    City of North Little Rock v. Graham, 
    278 Ark. 547
    , 
    647 S.W.2d 452
    (1983)). A city may
    assess a fee for providing a service without obtaining public approval; however, a city
    cannot levy a tax unless it has received approval by the taxpayers. Barnhart v. City of
    Fayetteville, 
    321 Ark. 197
    , 
    900 S.W.2d 539
    (1995) (citing Ark. Code Ann. § 26-73-
    103(a) (1987)). A governmental levy of a fee, in order not to be denominated a tax
    by the courts, must be fair and reasonable and bear a reasonable relationship to the
    benefits conferred on those receiving the services. Id.; Baioni, 
    312 Ark. 423
    , 
    850 S.W.2d 1
    . The fact that the ordinance labels the exaction a “fee,” not a “tax,” is not
    binding; rather, we look to the true character of the levy to determine whether it is
    a fee or a tax. [Baioni, 
    312 Ark. 423
    , 
    850 S.W.2d 1
    ].
    
    Harris, 344 Ark. at 105
    , 40 S.W.3d at 221.
    The instant case, of course, does not involve the issue of whether a certain exaction
    is a fee or a tax. Still, even if we were to apply the “true character” test to the facts of this
    case, we would reject appellants’ contention that its application mandates a finding in their
    favor.
    Taxes and interest are not the same. “Taxes are enforced contributions exacted
    pursuant to statutory authority.” Miles v. Gordon, 
    234 Ark. 525
    , 529, 
    353 S.W.2d 157
    , 160
    (1962). Interest is a charge for the use of tax money that the government was deprived of
    using due to late payment. See Jones v. United States, 
    371 F.2d 442
    , 450 (Ct. Cl. 1967); see also
    Owens v. Comm’r of Internal Revenue, 
    125 F.2d 210
    , 213 (10th Cir. 1942) (stating that interest
    is intended to compensate the government for delay in payment of the tax). Here, the “true
    7
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    character” of the exaction is to compensate the State for the delay in the payment of the tax.
    Unlike taxes, interest on state-tax delinquencies is not levied generally on all taxpayers
    for the purpose of raising revenue. Although the proceeds of any interest paid on delinquent
    tax debts are characterized as general revenue by the Revenue Stabilization Law, Arkansas
    Code Annotated sections 19-5-101 through -1254 (Repl. 2007 & Supp. 2013), the interest
    is not levied to pay for maintaining traditional government functions and services. And while
    interest is assessable and collectable as a part of the tax, see, e.g., Ark. Code Ann. § 26-18-
    208(8), “the interest on a tax is not a tax, but is something in addition to the tax,” see Penrose
    v. United States, 
    18 F. Supp. 413
    , 415 (E.D. Pa. 1937).
    We conclude that an action for an illegal exaction does not arise under article 16,
    section 13, of the Arkansas Constitution when an Arkansas taxpayer claims that the interest
    imposed, levied, or collected on a tax delinquency is illegal but does not claim that the
    underlying tax itself is illegal. Therefore, we affirm the circuit court’s dismissal of appellants’
    illegal-exaction claims. Consequently, we do not address appellants’ remaining illegal-
    exaction arguments on appeal.
    II. Due Process
    We now turn to appellants’ argument that the circuit court erred in dismissing their
    due-process claims. In Count II of their second amended complaint, appellants alleged that
    DF&A violated their due-process rights as guaranteed by the Fourteenth Amendment to the
    United States Constitution and article 2, sections 2, and 8 of the Arkansas Constitution,
    through 42 U.S.C. § 1983 and the Arkansas Civil Rights Act, Arkansas Code Annotated
    8
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    sections 16-123-101 to -108 (Repl. 2006), by failing to provide a forum by which they could
    challenge DF&A’s assessment of the allegedly improper percentage of interest. DF&A
    responds that appellants failed to plead sufficient facts to demonstrate which deprivation of
    rights or lack of due process occurred prior to the alleged deprivation.
    In procedural due process claims, the deprivation by state action of a
    constitutionally protected interest in “life, liberty, or property” is not in itself
    unconstitutional; what is unconstitutional is the deprivation of such an interest without
    due process of law. The constitutional violation actionable under § 1983 is not complete
    when the deprivation occurs; it is not complete unless and until the State fails to
    provide due process. Therefore, to determine whether a constitutional violation has
    occurred, it is necessary to ask what process the State provided, and whether it was
    constitutionally adequate. This inquiry would examine the procedural safeguards built
    into the statutory or administrative procedure of effecting the deprivation, and any
    remedies for erroneous deprivations provided by statute or tort law.
    Zinermon v. Burch, 
    494 U.S. 113
    , 125–26 (1990) (internal citations omitted) (emphasis in
    original).
    A valid due-process claim consists of four elements: action under color of state law;
    a right, privilege, or immunity secured by the constitution such as property; a loss of property
    amounting to a deprivation; and an absence of due process. See Parratt v. Taylor, 
    451 U.S. 527
    , 536–37 (1981). If there is an adequate remedy under state law, there can be no due-
    process violation. See Hudson v. Palmer, 
    468 U.S. 517
    , 529–30 (1984) (stating that a person
    does not have a § 1983 due-process claim if state law provides an adequate remedy).
    The Arkansas Tax Procedure Act, Arkansas Code Annotated sections 26-8-101 to -
    1006 (Repl. 2012) (“TPA”), provides a procedure that satisfies due-process requirements. See
    Ross v. Martin, 
    800 F.2d 808
    (8th Cir. 1986). Under the TPA, certificates of indebtedness
    shall be issued as soon as practicable after a final assessment has been made against the
    9
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    taxpayer. Ark. Code Ann. § 26-18-701(a)(1)(A). A final assessment of a tax delinquency is
    issued at the conclusion of the administrative-hearing process or after the time to request
    administrative relief from a proposed assessment has expired. Ark. Code Ann. §§ 26-18-401,
    -403, -405. A taxpayer may protest the determinations of the director of DF&A before or
    after a final assessment has been issued. A taxpayer may protest a proposed assessment under
    the administrative procedures of the TPA. See 
    id. § 26-18-404.
    After the issuance of a final
    assessment of a final deficiency in tax that is not protested by the taxpayer or a final
    determination of the hearing officer or director, a taxpayer may seek judicial relief from the
    final determination or assessment. See 
    id. § 26-18-406.
    In addition, a taxpayer may challenge
    the filing of a certificate of indebtedness. See 
    id. § 26-18-811.
    The TPA ensures that a hearing is available to taxpayers seeking to protest an
    assessment prior to the filing of a certificate of indebtedness. Appellants did not show that
    they were denied the ability to challenge the determinations of the director either
    administratively or by seeking judicial relief as authorized under the TPA. The circuit court
    correctly ruled that appellants failed to plead facts to support their due-process-violation
    claims; therefore, we affirm the circuit court’s dismissal of those claims.
    Affirmed.
    HART, J., concurs.
    Deininger & Wingfield, P.A., by: Neil Deininger and Reba M. Wingfield; Hatfield & Sayre,
    by: Eugene G. Sayre; and Stephen L. Curry, for appellants.
    Joel DiPippa, Attorney Supervisor, Revenue Legal Counsel, for appellees.
    10
    

Document Info

Docket Number: CV-14-1056

Citation Numbers: 2015 Ark. 285, 467 S.W.3d 139

Judges: Jim Hannah

Filed Date: 6/25/2015

Precedential Status: Precedential

Modified Date: 1/12/2023

Authorities (17)

Miles v. Gordon , 234 Ark. 525 ( 1962 )

Harris v. City of Little Rock , 344 Ark. 95 ( 2001 )

Biedenharn v. Thicksten , 361 Ark. 438 ( 2005 )

Brewer v. Carter , 365 Ark. 531 ( 2006 )

Standridge v. Standridge , 298 Ark. 494 ( 1989 )

City of North Little Rock v. Graham , 278 Ark. 547 ( 1983 )

Gary E. Ross and Kay Ross v. Mahlon Martin, Director of the ... , 800 F.2d 808 ( 1986 )

Barnhart v. City of Fayetteville, Ark. , 321 Ark. 197 ( 1995 )

Bowerman v. Takeda Pharms. U.S.A. , 442 S.W.3d 839 ( 2014 )

City of Marion v. Baioni , 312 Ark. 423 ( 1993 )

Dollarway Patrons for Better Schools v. Dollarway School ... , 374 Ark. 92 ( 2008 )

Arkansas Department of Environmental Quality v. Oil ... , 318 S.W.3d 570 ( 2009 )

S. M. Jones v. The United States. S. M. Jones & Company, ... , 371 F.2d 442 ( 1967 )

Penrose v. United States , 18 F. Supp. 413 ( 1937 )

Parratt v. Taylor , 101 S. Ct. 1908 ( 1981 )

Zinermon v. Burch , 110 S. Ct. 975 ( 1990 )

Hudson v. Palmer , 104 S. Ct. 3194 ( 1984 )

View All Authorities »