Justices decide how to tax food for eatery staff
Levy on retail cost, they say
Arkansas’ high court decided Thursday how to tax free hamburgers that Burger King gives its managers, but declined to delve into the sizzling legal issue surrounding the state’s immunity from lawsuits.
The case before the high court involved a $33,000 tax dispute over what a central Arkansas Burger King franchisee, Flis Enterprises, owes for free “manager meals.”
State attorneys for the Department of Finance and Administration said the company owed taxes on the full retail cost of the meals, while Flis Enterprises argued that it owed taxes on the lesser wholesale cost of the ingredients.
Tax attorneys say the case presented a mildly interesting conundrum that could affect many state restaurants. The spotlight, however, came when attorneys for the Department of Finance and Administration filed notice with the court — just days before oral arguments last month — of their intention to raise the issue of sovereign immunity in the case. Sovereign immunity is the doctrine that bars lawsuits against the state and its agencies.
But the majority ruling by three justices — along with two dissents, and a pair of concurring opinions — came with little fanfare Thursday as the ruling stuck mostly to relatively mundane tax law.
In January, the high court ruled in another case, Andrews v. the Board of Trustees of the University of Arkansas System, that sovereign immunity could not be waived by the Legislature through laws.
The Andrews decision overturned two decades of precedent in reading the Arkansas Constitution. Lawyers and lawmakers, as well as a pair of dissenting justices, warned that that opinion could have far-reaching consequences.
In oral arguments, Finance Department attorneys did not make the explicit argument that sovereign immunity barred Flis Enterprises from taking the tax dispute to court. However, Joel DiPippa, the chief attorney for the agency, invited the justices to consider it.
Writing for the majority, Justice Rhonda Wood declined to do so.
“Although counsel and others may desire guidance on the impact of [the sovereign immunity ruling], it would be imprudent of this court to delve into the constitutional doctrine without full development before the
circuit court and when neither party is asserting it,” Wood wrote.
Along with the two other majority justices, Justice Courtney Goodson and Special Justice Lee Watson (filling in for recused Chief Justice Dan Kemp), as well as concurring Justice Robin Wynne, the court sided with the state that the “manager meals” should be taxed at their retail value, and reversed and dismissed Flis Enterprises’ suit.
Responding to the court’s ruling, the Finance Department released a simple statement agreeing with the outcome, while an attorney for Flis Enterprises said it was disappointing.
Both parties, however, pointed to the court filings made by the state regarding sovereign immunity.
“Department policy prefers taxpayers have access to the court should the administrative process be exhausted,” spokesman Scott Hardin said in a statement.
Among the dissents and concurrences, Justice Shawn Womack said he agreed with how the majority addressed sovereign immunity but disagreed with their analysis on the tax issue. Wynne said he would have reached the same conclusion on sovereign immunity but would have taken a different legal approach.
The sharpest critics of the majority’s opinion came from the justices who first raised their concerns in a dissent to the Andrews ruling.
Justice Karen Baker, who penned the dissent in Andrews, wrote in her new opinion “the majority has compounded the problem, and the status of the law on sovereign immunity is incomprehensible.”
Justice Josephine Hart called the majority’s outcome “absurd” in her dual critique of the sovereign immunity and the tax arguments.
Thursday’s decision also did not provide any clarity for Chris Burks, the attorney who represented Michael Andrews, the bookstore clerk whose unsuccessful lawsuit for back-wages was the basis for the court’s sovereign-immunity precedent.
“I think the majority of the current Arkansas Supreme Court is reeking havoc on long-established precedent in the state and creating inconsistency in the law,” Burks said.
Since the Andrews decision was handed down, lower court judges have adopted the decision to dismiss a variety of suits against state agencies. The Supreme Court has yet to follow up its ruling in any of those cases.
Outside of court, a proposed constitutional amendment has been drafted that would change Arkansas’ strict wording regarding sovereign immunity, though it has yet to clear the first step in getting on the November ballot.