Weiss v. Central Flying Serv., Inc.

Richard WEISS, Director of the Department of
Finance and Administration v. CENTRAL FLYING
SERVICE, INC.

96-151                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered November 24, 1996


1.   Taxation --  statutory gross-receipts-tax provisions -- sale
     of all tangible-personal property generally taxable unless
     exemption applies. -- The sale of all tangible personal
     property is generally taxable unless an exemption applies;
     with respect to a purchaser regularly engaged in the business
     of reselling items purchased, a sale for resale exemption is
     provided by law that relieves him of paying tax on such
     purchases; however, if that purchaser withdraws and uses an
     item from his inventory rather than reselling it, such an
     event constitutes a withdrawal from stock, and the purchaser
     is deemed the consumer; items withdrawn from stock become
     subject to gross-receipts tax, usually based on the purchase
     price of the items used; once an item is withdrawn from stock,
     the protection of the resale exemption is lost, and the tax is
     due on or before the 20th of the month following the month in
     which the items or goods were withdrawn. 

2.   Taxation -- aircraft dealer may use plane purchased for resale
     without payment of sales or use tax for one year from purchase
     -- failure to sell aircraft in one-year period results in
     dealer-purchaser liability for tax based on purchase price. -- 
     Arkansas Code Annotated  26-52-409 (Supp. 1995) allows an
     aircraft dealer who purchases a plane for resale to use it for
     rental or charter service without payment of sales or use tax
     for a period not to exceed one year from its purchase date;
     however, if the dealer-purchaser fails to sell the aircraft
     during the one-year holding period, he shall be liable for the
     tax based upon the price he paid for the aircraft.

3.   Taxation -- appellee's argument without merit -- when one-year
     exemption ends general gross-receipts tax becomes applicable.
     -- Appellee's argument that, although it becomes liable for
     the sales tax based upon its purchase price of the aircraft
     after the one-year exemption expires, it need not remit
     payment immediately after its liability accrues, but instead,
     taxes should be collected and remitted only at the time of the
     subsequent sale, was without merit; appellee's argument
     ignored the fact that the exemption specifically provided in
     Ark. Code Ann.  26-52-409(a)(1) ends and the airplanes are
     considered a withdrawal from stock when they have not been
     resold after the prescribed one year; accordingly, the general
     gross-receipts tax provision, Ark. Code Ann.  26-52-501, then
     becomes applicable, making appellee's tax due on or before the
     20th of the month following the end of the one-year period.  

4.   Statutes -- interpretation of -- unambiguous statute to be
     given effect just as it reads. -- The supreme court is duty
     bound to reject any interpretation of a statute that results
     in absurdity or injustice, leads to contradiction, or defeats
     the plain purpose of the law; a statute is given effect just
     as it reads, if no ambiguity exists.

5.   Taxation -- appellee's interpretation of law would have absurd
     results -- intent of General Assembly clear. -- Where
     appellee's reading of Ark. Code Ann.  26-52-409 tended to
     blur the statute's plain language by arguing that the statute
     allowed them to take the place of the consumer and to remit
     the tax payment within a reasonable time after the one-year
     holding period, and no such language suggesting this procedure
     could be found either in Ark. Code Ann.  26-52-409 or in the
     applicable gross-receipts tax regulation, the chancellor's
     holding in appellee's favor was reversed; when a sale occurs
     during the one-year period, the purchaser must then remit
     payment; otherwise, after the one-year period ends, the
     taxpayer must remit payment on or before the 20th day of the
     following month.


     Appeal from Pulaski Chancery Court, Fifth Division; Ellen
Brantley, Chancellor; reversed.
     Beth B. Carson, Revenue Legal Counsel, for appellant.
     Wright, Lindsey & Jennings, by:  John R. Tisdale and Troy A.
Price, for appellee.

     Tom Glaze, Justice.
     Appellee Central Flying Service, Inc., is in the business of
buying, selling, and leasing aircraft.  Relevant to this case,
Central purchased five airplanes which it held for resale.  Under
Ark. Code Ann.  26-52-409 (Supp. 1995), Central was authorized to
rent or lease these five airplanes for a period not to exceed one
year from the date of purchase, and during that one-year period, it
was exempt from paying a sales or use tax.  None of the airplanes
were resold until more than one year after their purchase.  As a
consequence, appellant Department of Finance and Administration
assessed gross receipts tax on Central's purchase of the aircraft
and requested payment.  Central responded that, while  26-52-409
established Central's liability for sales tax on the aircraft
purchases at the end of the one-year period, the tax was not
actually payable until each airplane was sold to another purchaser.
     After disputing payment of the tax assessment, Central paid
the assessment under protest and filed its complaint for refund in
the Pulaski County Chancery Court, which held in Central's favor. 
DF&A appeals the chancellor's determination, and its sole argument
for reversal asserts that  26-52-409 provides that the gross
receipts tax on the purchase of an airplane used for rental or
charter service and held for more than one year without resale must
be paid immediately after the lapse of one year from the date of
purchase.  We conclude DF&A's argument is correct; therefore we
reverse the chancellor.
      DF&A's and Central's arguments center on their respective
interpretation of  26-52-409, but we first allude to other
statutory gross receipt tax provisions which are helpful to an
understanding of the terms and provisions contained in  26-52-409. 
Thus, we initially note that the sale of all tangible personal
property is generally taxable unless an exemption applies.  Ark.
Code Ann.  26-52-301 (Supp. 1995).  With respect to a purchaser
regularly engaged in the business of reselling items purchased, a
sale for resale exemption is provided which relieves him of paying
tax on such purchases.  See Ark. Code Ann.  26-52-401(12)(A)
(Supp. 1995).  However, if that purchaser withdraws and uses an
item from his inventory rather than resell it, such an event
constitutes a withdrawal from stock and the purchaser is deemed the
consumer.  Georgia Pacific Corp. v. Lay, 242 Ark. 428, 413 S.W.2d 868 (1967).  Items withdrawn from stock become subject to gross
receipts tax, usually based on the purchase price of the items
used.  Ark. Code Ann.  26-52-103(a)(4) (Supp. 1995).  Once an item
is withdrawn from stock, the protection of the resale exemption is
lost, and the tax is due on or before the 20th of the month
following the month in which the items or goods were withdrawn. 
Ark. Code Ann.  26-52-501 (Supp. 1995).
     In 1975, the General Assembly enacted  26-52-409 which was
obviously intended to give aircraft dealers, such as Central, some
tax relief.  Before enactment of  26-52-409, a dealer who
purchased a plane exempt from tax as a sale for resale, but who
withdrew it from inventory for use in his business would have been
required to pay the tax based on the purchase price of the plane,
and the tax was due in the month following the plane's withdrawal
from inventory.  After  26-52-409 was enacted, an aircraft dealer
who purchases a plane for resale can now use it for rental or
charter service without payment of sales or use tax for a period
not to exceed one year from its purchase date.  See  26-52-
409(a)(1).  The full relevant text of  26-52-409 reads as follows:
          (a)(1)  Any person . . . engaged in the business of
     selling aircraft in this state . . . may purchase
     aircraft exempt for resale and use the aircraft for
     rental or charter service without payment of sales or use
     tax for a period of not to exceed one (1) year from the
     date of purchase of the aircraft. 
                     *          *          *
          (b)  The use of the aircraft for rental or charter
     during the applicable one-year . . . holding period . . .
     shall not constitute a withdrawal from stock, and the
     purchaser shall not be required to pay the sales tax on
     the purchase price of the aircraft held in stock and used
     for such purposes.
          (c)  The aircraft purchaser shall collect and remit
     gross receipts and short-term rental tax on the rentals
     and shall subsequently collect and remit the gross
     receipts tax on the aircraft at the time of subsequent
     sale in the manner required by law.
          (d)  If the purchaser fails to sell the aircraft
     during the applicable holding period, the purchaser shall
     be liable for sales or use tax on his purchase price of
     the aircraft.
     Provision (b) above provides that an aircraft dealer's renting
or chartering a plane during the prescribed one-year holding period
does not constitute a withdrawal from stock, and he is not required
to pay the sales tax on the plane's purchase price.  However, under
(d) above, if the dealer-purchaser fails to sell the aircraft
during the one-year holding period, he shall be liable for the tax
based upon the price he paid for the aircraft.  Central argues
that, under provision (d), it becomes liable for the sales tax
based upon its purchase price of the aircraft, but it disagrees
that it must remit payment immediately after its liability accrues. 
Instead, Central argues provision (c)'s language suggests such
taxes must be collected and remitted at the time of the subsequent
sale.  Central further submits that, since the airplanes at issue
were not sold during the assessment period in this case, the
chancellor correctly held DF&A prematurely imposed and collected
tax from Central.  Central contends its interpretation of  26-52-
409 is supported by DF&A's own regulation, Gross Receipts Tax
Regulation 14(F), which reads as follows:
          F.  AIRCRAFT RENTAL
          1.  Any person engaged in the business of selling
     aircraft in Arkansas who holds aircraft for resale in
     stock, may rent or use the aircraft in a charter service
     operated by that person for a period of one year from the
     date of purchase of the aircraft without remitting the
     tax on the aircraft so used.  When the aircraft is
     eventually sold, however, the tax must be remitted at the
     time of sale.  If the aircraft is sold within the one
     year period, the tax shall be computed on the actual sale
     price of such aircraft or the price paid for the aircraft
     by the seller, whichever is greater.  If a year passes
     and the rented or chartered aircraft has not been sold,
     then the tax must be remitted by the person engaged in
     the business of selling aircraft in Arkansas on his
     purchase price. 
     In sum, Central claims that the only mention in  26-52-409 as
to when its tax liability must be paid is in provision (c) where it
refers to "the time of subsequent sale."  It also refers to GR14(F)
language which provides, "When the aircraft is eventually sold,
however, the tax must be remitted at the time of sale."  Thus,
Central argues DF&A must await Central's sale of these planes
before collecting the taxes that have accrued on them.
     Central's argument tends to ignore that the exemption
specifically awarded under  26-52-409 is not to exceed one year
from the date Central purchased the five airplanes in issue.  That
exemption is specifically provided in  26-52-409(a)(1) and for
that one-year period, Central's rental and lease of those aircraft
did not constitute a withdrawal from stock, and therefore it was
not required to pay the sales tax on the purchase price of the
aircraft.  Inferentially, that exemption ends and the airplanes are
considered a withdrawal from stock when they have not been resold
after the prescribed one year.  Accordingly, the general gross
receipts tax provision,  26-52-501, then becomes applicable,
making Central's tax due on or before the 20th of the month
following the end of the one-year period.  This interpretation of
 26-52-409 is consistent with DF&A's GR 14(F)(1).  The regulation
first notes that a person, holding an aircraft for resale, may rent
or use it for one year from the date of purchase without remitting
the sales tax and then provides, if a year passes and the rented or
chartered aircraft has not been sold, then the tax must be
remitted.
     Finally, we should point out that Central's reading of  26-
52-409 tends to blur the statute's plain language.  For example,
Central argues the provision (c) language, "the aircraft purchaser
shall collect and remit the gross receipts tax on the aircraft at
the time of subsequent sale," applies to the sales of aircraft made
both during and after the one-year holding period.  Again, we must
disagree.  First, if we accepted Central's interpretation, Central
could avoid payment of any sales tax it owed on its five planes
simply by not reselling them.  Obviously, the General Assembly
never intended such a consequence, and this court is duty bound to
reject any interpretation of a statute that results in absurdity or
injustice, leads to contradiction, or defeats the plain purpose of
the law.  Ragland v. Alpha Aviation, Inc., 285 Ark. 182, 686 S.W.2d 391 (1985).  Central tries to explain that its interpretation of 
26-52-409 would not necessarily allow Central to avoid its
liability for accrued sales taxes by not reselling the planes it
purchased, and does so by suggesting Central would be the consumer
and required to remit the tax payment within a reasonable time
after the one-year holding period.  Of course, no such language
suggesting this procedure can be found either in  26-52-409 or
CR14(F)(1), and we are obliged to give a statute effect just as it
reads, if no ambiguity exists.  See Pledger v. Ethyl Corp., 299
Ark. 100, 771 S.W.2d 24 (1989).  
     We conclude that the reasonable construction of the "at time
of subsequent sale" language in provision (c), relied on by
Central, is that it refers only to those aircraft sold "during the
one-year holding period."  In other words, when a sale occurs
during the one-year period, the purchaser must then remit payment. 
Otherwise, after the one-year period ends, the taxpayer must remit
payment on or before the 20th day of the following month.  
     For the foregoing reasons, we reverse.