State v. Staton

STATE of Arkansas, Department of Finance and
Administration v. Debora STATON

96-215                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered July 15, 1996
   Substituted Opinion on Rehearing delivered October 28, 1996


1.   Taxation -- gross-receipts tax -- service contracts are not
     taxable. -- Although Ark. Code Ann.  26-52-301(3)(C)(i)
     (Repl. 1992) plainly levies a "tax ... upon the gross proceeds
     or gross receipts derived from all sales to any person of ...
     service of ... and repair of motor vehicles," an extended
     warranty is not "service" of a motor vehicle; because the
     promised repairs were completely contingent upon events that
     may not transpire, the contracts at issue could not be said to
     be for service or repairs to automobiles; consequently, the
     supreme court affirmed the part of the chancellor's order
     ruling that the service contracts were not taxable.

2.   Constitutional law -- sovereign immunity -- doctrine is rigid.
     -- Article 5, section 20, of the Constitution of Arkansas
     provides that "[t]he State of Arkansas shall never be made
     defendant in any of her courts"; this sovereign immunity may
     be waived only in limited circumstances; the doctrine of
     sovereign immunity is rigid.

3.   Constitutional law -- sovereign immunity -- waived only in
     appellee's case. -- Arkansas Code Annotated  26-18-
     507(e)(2)(A) (Supp. 1992) grants legislative permission to a
     taxpayer to sue the State after a claim for refund has been
     filed and refused or the Commissioner has not acted upon it;
     there must be full compliance with this type of statute before
     sovereign immunity is waived; because appellee's claim for
     refund was the only one filed and rejected, sovereign immunity
     was waived only in that one case.  

4.   Jurisdiction -- trial court acquires no jurisdiction in suit
     against State absent waiver of sovereign immunity -- no
     subject-matter jurisdiction over entire class. -- A trial
     court acquires no jurisdiction where the suit is one against
     the State and there is no waiver of sovereign immunity; thus,
     the trial court in this case had no subject-matter
     jurisdiction over the entire class of taxpayers who had
     purchased vehicle service contracts; subject-matter
     jurisdiction based on sovereign immunity is an issue that is
     always open, and it is the duty of an appellate court to raise
     the issue of its own volition.

5.   Taxation -- public policy -- taxpayer must comply with
     statutory requirements before sovereign immunity is waived. --
     Interwoven with the doctrine of sovereign immunity in tax
     cases is sound fiscal public policy; the supreme court, with
     one exception, has held that a taxpayer must comply with the
     statutory requirements before sovereign immunity is waived;
     this procedure places the government on notice of the claim
     and informs it that it may be required to refund the money;
     consequently, it should make appropriate financial allowances.

6.   Constitutional law -- sovereign immunity -- earlier case
     reversed in part where supreme court had failed to raise
     sovereign-immunity issue. -- The supreme court reversed part
     of its decision in Pledger v. Bosnick, 306 Ark. 45, 811 S.W.2d 286 (1991), which held that Ark. Code Ann.  26-18-507, the
     statute by which the State can waive sovereign immunity, did
     not require each member of a class to file a request for a
     refund; in that case, the supreme court did not recognize that
     sovereign immunity was an issue that should have been argued,
     and the court failed to raise it on our its motion; by not
     doing so, the court allowed ARCP Rule 23, the class-action
     rule, to prevail over the constitutional provision granting
     sovereign immunity.

7.   Action -- class action -- certification of class reversed. --
     Where appellee was the only taxpayer who complied with the
     statute that caused the State to waive sovereign immunity, it
     was error to certify a class composed of other taxpayers when
     they had not complied with that statute; the supreme court
     reversed the certification of the class.

8.   Appeal & error -- issues moot on cross-appeal. -- Where, on
     cross-appeal, appellee contended that the chancellor erred in
     refusing to grant an injunction against the collection of the
     tax and in refusing to order an accounting, the issues were
     rendered moot by the supreme court's reversal of the class
     certification.


     Appeal from Pulaski Chancery Court; Vann Smith, Chancellor;
affirmed in part and reversed and remanded in part; cross-appeal
deemed moot.
     Beth B. Carson, Revenue Legal Counsel, for appellant.
     Michael A. Skipper, for appellee.

     Robert H. Dudley, Justice.
     In January 1994, Debora Staton purchased a car and an extended
service contract on the car and paid State sales tax on the sale of
both the car and the service contract.  The State sales tax
attributable to the service contract was $49.28.  On April 21,
1994, Ms. Staton filed a claim with the Department of Finance and
Administration for refund of the $49.28 on the ground that, under
the language of the sales-tax statute, the tax did not apply to the
extended service contract.  The Department denied the refund.
     On July 7, 1994, Ms. Staton filed suit in chancery court and
asked for judgment of $49.28.  In addition, she sought class
certification for all other taxpayers similarly situated.  On May
8, 1995, the chancellor certified a class of taxpayers under Ark.
R. Civ. P. 23 as "all of those who have, since July 7, 1991,
purchased vehicle service contracts, sometimes referred to as
extended warranties, covering motor vehicles within the State of
Arkansas."   
     On November 21, 1995, the chancellor ruled that the service
contracts were not taxable and that each class member could submit
a claim to the chancery court for refund, dating back to 1991.  The
Department appeals to this court.  Staton cross-appeals.  We affirm
the ruling that service contracts are not taxable and reverse the
ruling certifying the class, causing the cross-appeal to be moot. 
     The Department argues that the chancellor erred in ruling that
the service contracts were not taxable.  It argues that Ark. Code
Ann.  26-52-301(3)(C)(i) and  26-52-103(4) (Repl. 1992),
together, provide the basis for taxation.  The chancellor ruled
correctly.  Arkansas Code Annotated  26-52-301(3)(C)(i), in
material part, plainly levies a "tax...upon the gross proceeds or
gross receipts derived from all sales to any person of...service
of...and repair of motor vehicles."  An extended warranty is not
"service" of a motor vehicle.  As the promised repairs are
completely contingent upon events that may not transpire, the
contracts cannot be said to be for service or repairs to
automobiles.  Consequently, we affirm this part of the chancellor's
order.
     We turn now to the Department's point for reversal that the
chancellor lacked subject-matter jurisdiction to certify the class.

In its argument, the Department contends that the doctrine of
sovereign immunity prohibits taxpayers' suits against the State
except when permission to sue has been granted, and at other
limited times not material to this suit.  The Department contends
that permission to seek a refund of erroneously assessed and
collected sales tax is governed by Ark. Code Ann.  26-18-
507(e)(2)(A) (Repl. 1992), which allows a taxpayer to sue the
sovereign for improperly collected sales tax only after a refund
has been sought and the request is refused or when no response is
made by the Department.  The Department concludes that since Ms.
Staton is the only taxpayer who had sought a refund and the only
taxpayer whose request was denied, the chancery court did not have
subject-matter jurisdiction over other members of the proposed
class.  The argument is well taken.
     Article 5, section 20, of the Constitution of Arkansas
cogently provides: "The State of Arkansas shall never be made
defendant in any of her courts."  This sovereign immunity may be
waived only in limited circumstances.  Arkansas Dep't of Human
Servs. v. State, 312 Ark. 481, 850 S.W.2d 847 (1993); Arkansas Game
& Fish Comm'n v. Lindsey, 299 Ark. 249, 771 S.W.2d 769 (1989).  The
doctrine of sovereign immunity is rigid.  Austin v. Arkansas State
Highway Comm'n, 320 Ark. 292, 895 S.W.2d 941 (1995).  
     Arkansas Code Annotated  26-18-507(e)(2)(A) (Supp. 1992)
grants legislative permission to a taxpayer to sue the State after
a claim for refund has been filed and refused or the Commissioner
has not acted upon it.  There must be full compliance with this
type of statute before sovereign immunity is waived.  Hercules,
Inc. v. Pledger, 319 Ark. 702, 706-07, 894 S.W.2d 576, 578 (1995). 
Because Ms. Staton's claim for refund was the only one filed and
rejected, sovereign immunity was waived in only that one case.  
     A trial court acquires no jurisdiction where the suit is one
against the State and there is no waiver of sovereign immunity. 
McCain v. Crossett Lumber Co., 206 Ark. 51, 174 S.W.2d 114 (1943);
Pitcock v. State, 91 Ark. 527, 121 S.W. 742 (1909).  Thus, the
State is correct in its contention that the trial court had no
subject-matter jurisdiction over the entire class.  Subject-matter
jurisdiction based on sovereign immunity is an issue that is always
open, and it is the duty of an appellate court to raise the issue
of its own volition.  Crossett Lumber Co., 206 Ark. at 61-62, 174 S.W.2d  at 120. 
     Interwoven with the doctrine of sovereign immunity in tax
cases is sound fiscal public policy.  Throughout the years, with
one exception, we have written that a taxpayer must comply with the
statutory requirements before sovereign immunity is waived.  We
have said that this procedure places the government on notice of
the claim and informs it that it may be required to refund the
money; consequently, it should make appropriate financial
allowances.  We fully discussed this policy in the recent case of
Mertz v. Pappas, 320 Ark. 368, 896 S.W.2d 593 (1995), as follows:
We have consistently followed the common law rule that
prohibits the recovery of voluntary paid taxes, except
where a recovery is authorized by a statute, without
regard to whether the payment is voluntary or compulsory. 
See, e.g., City of Little Rock v. Cash, 277 Ark. 494, 644 S.W.2d 229 (1982); Searcy County v. Stephenson, 244 Ark.
54, 424 S.W.2d 369 (1968); Thompson v. Continental
Southern Lines, Inc., 222 Ark. 108, 257 S.W.2d 375
(1953).  We follow this rule even when an illegal
exaction claim is based on constitutional grounds.  Cash,
277 Ark. at 504-05, 644 S.W.2d  at 233.  When recovery is
authorized by statute upon payment "under protest," we
literally require a payment "under protest".  Hercules,
Inc. v. Pledger, 319 Ark. 702, 894 S.W.2d 576 (1995). 
There is an exception for payment under coercion, see
Cash, 277 Ark. at 505, 644 S.W.2d  at 233; Chapman & Dewey
Land Co. v. Board of Directors, 172 Ark. 414, 288 S.W. 910 (1926), but that exception is not applicable to the
case at bar.  
     The reasoning underlying our cases is sound.  When
taxes are paid to a government they are deposited into
that government's general revenues and ordinarily are
spent within that tax year.  However, when the government
is put on notice that it may be required to refund those
taxes, it can make the appropriate allowance for a
possible refund.  See Hercules, Inc., 319 Ark. at 707,
894 S.W.2d  at 578.  If we were to allow refunds for taxes
voluntarily paid in previous years, it would jeopardize
current and future governmental operations because
current and future funds might be necessary for the
refund. 
Id. at 370, 896 S.W.2d  at 594 (emphasis supplied).
     In another case, one involving a claim for refund under the
comparable income-tax statute, we wrote:
     In enacting  28-18-406, the General Assembly had in
mind at least two reasons for requiring a taxpayer to
designate specifically any payment as being under protest
when seeking judicial review of a final deficiency
assessment.  First,  28-28-406(c) mandates that all
taxes and penalties paid under protest are to be held by
the director in an escrow account denominated the "Tax
Protest Fund Account," and that refunds are to be made
from this account.  While we agree with Hercules that the
phrase "paying under protest" is not defined by the Act,
these terms are not ambiguous or difficult to understand. 
Protest is commonly understood to mean a formal
disapproval or objection issued by a concerned party. 
Here, under  28-18-406, it is clear that the protest is
intended to place DF&A on notice that the taxpayer's
payment must be deposited into the Protest Fund account. 
Second, a taxpayer who has protested and pursued an
earlier administrative review of a proposed assessment
under  28-18-404 may reasonably decide not to pursue
further adjustments of the assessment or judicial review
of the final determination.  While a payment which is not
made under protest is deposited into general revenues and
becomes available for immediate use by the state, a
payment made under protest only becomes available for the
state's use after the taxpayer fails to file suit within
the one year period or after judicial determination that
the deficiency assessment was valid.  See  28-18-
406(c)(3).
Hercules, Inc. v. Pledger, 319 Ark. 702, 707, 894 S.W.2d 576, 578
(1995).
     Another case in which we recognized fiscal policy concerns was
City of Little Rock v. Cash, 277 Ark. 494, 644 S.W.2d 229 (1982). 
In that case, which involved a tax that was illegal from its
inception, we pointed out that, even though the tax had always been
illegal, it had been collected and spent by the City; therefore,
the class action could be maintained only from the date the suit
was filed and the City was put on notice that it should make
allowance before spending the money. 
     The anomalous case is Pledger v. Bosnick, 306 Ark. 45, 811 S.W.2d 286 (1991).  In that case it was necessary for each member
of the purported class of taxpayers seeking a refund of income
taxes to file for a refund as a prerequisite for membership in the
class.  At issue there, as here, was Ark. Code Ann.  26-18-507,
the statute by which the State can waive sovereign immunity. We
held that the statute did not require each member of the class to
file a request for a refund.  This court agreed with the argument
that requiring strict compliance with the statute would "ignore one
of the bases for class action suits, i.e., to deal with these types
of issues in a single action rather than requiring all members of
a class to bring suit."   Id. at 56, 811 S.W.2d  at 293.  However,
neither the majority opinion nor the dissenting opinion mentions
sovereign immunity, and the case contains no holding on the issue
of sovereign immunity.  We did not recognize that sovereign
immunity was an issue that should have been argued, and we failed
to raise it on our own motion.  By not doing so, we allowed Ark. R.
Civ. P. 23, the class action rule, to prevail over the
constitutional provision granting sovereign immunity.  But we now
recognize that the issue is before us, and we reverse this part of
Pledger v. Bosnick.
     In the case now before us, Ms. Staton was the only taxpayer
who complied with the statute that caused the State to waive
sovereign immunity.  It was error to certify a class composed of
other taxpayers when they had not complied with that statute, and
for that reason we reverse the certification of the class.       
     On cross-appeal Staton contends that the chancellor erred in
refusing to grant an injunction against the collection of the tax
and in refusing to order an accounting.  Since we hold that it was
error to certify the class, these two issues are moot. 
     This opinion is substituted for the opinion handed down on
July 15, 1996.  See State v. Staton, 325 Ark. 341, 925 S.W.2d 418 
(1996).
     Affirmed in part and reversed and remanded in part for
proceedings consistent with this opinion.
     Newbern, Corbin, and Brown, JJ., dissent.


           David Newbern, Associate Justice, dissents.
     The petition for rehearing filed by the Department of Finance
and Administration (DFA) in this case does little more than reargue
the points as they were argued in DFA's original brief.  Those
points were fully aired in the original majority and dissenting
opinions. (The original majority opinion appears as an appendix to
this dissenting opinion.)  The petition for rehearing, therefore,
is distinctly violative of Rules of the Supreme Court and Court of
Appeals of the State of Arkansas 2-3(f), and it should be denied
summarily.  Not only does the majority ignore our established rule
on that point, it overrules recent precedent and rides roughshod
over taxpayers whose money may have been illegally collected by the
State.  All of that is done in the name of sovereign immunity,
which has been waived by the General Assembly.    
     The majority opinion rehashes the arguments which led to our
original decision in this case.  It states as a main point that the
majority and dissenting opinions in Pledger v. Bosnick, 306 Ark.
45, 811 S.W.2d 286 (1991), a case upon which the original majority
opinion relied, did not mention sovereign immunity.  The suggestion
seems to be that, because the decision did not mention sovereign
immunity, it does not apply to this case.  That is incorrect.  
     A main issue in the Pledger case was whether it was necessary
for each member of the purported class of taxpayers seeking a
refund of state income taxes to have filed for a refund as a
prerequisite for membership in the class.  At issue there, as here,
was Ark. Code Ann.  26-18-507, the statute by which the General
Assembly waived sovereign immunity.  While the opinion did not
mention sovereign immunity, it held that the statute did not
require a refund request by each member of the class.  This Court
agreed with the argument that requiring strict compliance with the
statute would "ignore one of the bases for class action suits,
i.e., to deal with these types of issues in a single action rather
than requiring all members of a class to bring suit."
     The opinion granting rehearing concludes that government might
have to "shut down some essential services" if the taxpayers are
allowed to proceed as a class in a case such as this one.  The
argument is not convincing.  The opinion focuses on the need of
government to have notice of its possible liability.  It does not,
however, suggest why, as in a case such as this one, the notice
given by one taxpayer should not be sufficient to inform the
government that it may owe all who are similarly situated.  
     The sky is indeed not falling in this case or in others for
which the Pledger decision should be precedent.  Ed Hicks, the
Excise Tax Administrator, testified that the General Assembly
appropriates $50,000,000 biennially for the miscellaneous tax
account for the purpose of making refunds.  In response to a
question by the Chancellor, Mr. Hicks stated there was plenty of
money in that account to satisfy the claims at issue in this case. 
Contrary to the conclusion of the majority, government obviously
has the ability to plan for and accommodate claims such as the one
under consideration.
     The Chancellor's order, approved by the original majority
opinion in this case, would have required notice to the taxpayers
of the facts giving rise to claims, i.e., the allegation that the
tax had been illegally collected.  It would have then required each
taxpayer seeking membership in the class to present proof of
payment of the tax at issue and make a claim to a master for
refund.  
     The effect of the majority opinion granting rehearing
is to suggest that DFA may sit by smugly and entertain the claims
of the one or two taxpayers who may have information about the
possible illegality of the tax in question, knowing all the while
that there are thousands of others who may be owed but with whom it
will never have to reckon.  
     Once again, it must be pointed out that it is the announced
policy of DFA to treat all taxpayers alike.  Assuming that is the
policy to be applied, it should make no theoretical difference to
DFA or the State's coffers whether the action proceeds as a class
action or as a single claim by Ms. Staton if she prevails.  It
will, however, make a great practical difference to the others to
whom the money may be owed.  If the class action were allowed to
proceed, taxpayers would be afforded notice pursuant to Ark. R.
Civ. P. 23(c) which requires "the best notice practicable under the
circumstances."  Denial of the class action will undoubtedly result
in many persons who may be owed refunds remaining ignorant of the
fact.  As the majority of the members of this Court stated in the
original opinion in this case, avoidance of payment of money owed
is not a good reason for refusal of a class action. 
     I respectfully dissent.
     Corbin and Brown, JJ., join.

                            APPENDIX fn1
fn1 Reporter's note: The appended text is that of the supreme
court's original opinion, Newbern, J., delivered on July 15, 1996;
the court's subtituted opinion, Dudley, J., delivered on October
28, 1996, replaces it in the official reports.

     This is a class-action tax-refund case.  The appellee, Debora
Staton, sued the Department of Finance and Administration (DFA) on
behalf of herself and other taxpayers for refunds of sales taxes
paid on purchases of extended warranty agreements.  The Chancellor
certified the class action in accordance with Ark. R. Civ. P.
23(a).  Although requests for an accounting and an injunction
prohibiting the collection of the tax were denied, the Chancellor
held in favor of the class on the merits and ordered refunds to
taxpayers who seek them.

                            1. Appeal
     Several issues are presented.  DFA attacks the jurisdiction of
the Chancellor to hear the suit as a class action because of
failure to name a class of persons who have followed the statutory
procedure to obtain a tax refund.  The class counters with a claim
that the class certification has not been appealed in a timely
manner.  On the merits, DFA contends the tax law, as interpreted
for many years by DFA, permits collection of the tax.  On cross-
appeal, the class contends the Chancellor erred in refusing to
enjoin the DFA from continuing to collect the tax and in refusing
to require an accounting to class members who had paid the tax
rather than to those who come forward with claims.  We hold the
Chancellor did not err on any of the points asserted. 

                     a. Timeliness of appeal
     The order certifying the class was entered May 8, 1995, and
the notice of appeal from the final judgment was not filed until
December 13, 1995.  Although interlocutory, an order granting a
motion to certify a case as a class action "in accordance with Rule
23 of the Arkansas Rules of Civil Procedure" is appealable.  Ark.
R. App. P. 2.(a)9.  DFA does not question the class's compliance
with the basic requirements of Rule 23.  It contends, rather, that
sovereign immunity, Ark. Const. art. 5,  20, precluded the
Chancellor from having subject matter jurisdiction of the claim
made by the class because its purported members have not complied
with the provisions of the statute granting permission to sue the
State and thus waiving sovereign immunity.
     As the issue on appeal goes beyond the technical aspects of
class certification, we do not regard it as untimely.  Even if DFA
had appealed within 30 days of the class certification, it is
doubtful that we would have entertained its sovereign immunity
claim upon interlocutory appeal.  Arkansas State Bd. of Educ. v.
Magnolia Sch. Dist. No. 14, 298 Ark. 603, 769 S.W.2d 419 (1989).

                 b. Subject-matter jurisdiction
     Upon the purchase of a vehicle, Ms. Staton, the class
representative, paid a sales tax of $49.28 on the price she paid
for an extended warranty.  She filed a claim for a refund from DFA
which denied the claim.  Ms. Staton then filed an action in
Chancery Court on behalf of herself and on behalf of other
similarly situated taxpayers.  The amended complaint alleged that
DFA was unlawfully imposing a tax on the prices paid by members of
the plaintiff class for extended warranty coverage on automobiles. 
It asserted that the Arkansas Gross Receipts Act did not authorize
the imposition of such a tax and sought a refund of the taxes paid
on the sale of extended warranties.  The complaint also prayed for
an injunction to stop DFA from collecting the tax and for an
accounting to determine which taxpayers had paid the tax.  It would
thus have put the onus of determining who had paid the tax, and
thus of determining who was potentially entitled to a refund, upon
DFA.
     DFA moved to dismiss on the ground that it failed to state
facts upon which relief could be granted and on the ground that Ms.
Staton lacked standing.  After Ms. Staton filed a second amended
complaint, DFA again moved to dismiss.  DFA claimed, as another
reason for dismissal, that "the doctrine of sovereign immunity bars
a class action tax refund lawsuit where not all of the proposed
class members have satisfied the administrative requirements
necessary to confer subject matter jurisdiction on this court." 
     The order certifying the class recognized as members of the
class "all of those parties who have, since July 7, 1991, purchased
vehicle service contracts, sometimes referred to as extended
warranties, covering motor vehicles within the state of Arkansas."
     The essence of DFA's sovereign immunity argument is that
sovereign immunity prohibits suits against the State except when
permission to sue has been granted.  The statute granting
permission to taxpayers such as Ms. Staton is Ark. Code Ann.  26-
18-507(e)(2)(A) (Repl. 1992) which allows a taxpayer to seek
judicial relief from an improperly collected tax after a refund has
been sought and there has been no timely response from "the
director" or the request has been refused.  As the complaint in
this case seeks relief for a class of persons without specifying
that they must have followed the statutory refund procedure, DFA
contends the concept of sovereign immunity precluded subject-matter
jurisdiction in the Chancery Court.
     We recently rejected the same argument in Pledger v. Bosnick,
306 Ark. 45, 811 S.W.2d 286 (1991).  In that case, certain
taxpayers claimed that the State had taxed their pension incomes in
a discriminatory manner.  The challenged law allowed a full
exemption for certain retirees from state government positions
while exempting only a small portion of the pensions of others.  On
appeal it was urged that the Chancellor erred in allowing refunds
to members of the class who had not filed amended income-tax
returns for 1985.  It was argued by the State, as in this case,
that class members had not complied with  26-18-507.  
     The Chancellor's order permitting recovery by the class was
affirmed.  The opinion stated, "Although this court has not ruled
on this precise issue as applicable to tax refunds, there is ample
authority for the appellees' position and we adopt that reasoning. 
See Santa Barbara Optical Co. v. State Bd. of Equalization, 47 Cal. App. 3d 244, 120 Cal. Rptr. 609 (1975); Ware v. Idaho State Tax
Commission, 98 Idaho 477, 567 P.2d 423 (1977); Clark v. Lee, 273
Ind. 572, 406 N.E.2d 646 (1980); Thorn v. Jefferson County, 375 So. 2d 780 (Ala. 1979); and Fiorito v. Jones,  39 Ill. 2d 531, 236 N.E.2d 698 (1968)."  We now review the "reasoning" we adopted from
those cases.
     The opinion in Fiorito v. Jones, supra, concerned amendments
to an Illinois tax statute which gave exemptions to certain service
providers while taxing all others.  Some of the class members were
the service providers who were to pay the tax to the State, and
some were persons who had been charged the tax by the providers. 
It was held that the differences between the class members were not
sufficient to void the class because each group presented common
legal and factual issues, and each would have an interest in the
common fund to be created by a holding that the tax was improperly
collected.
     In Ware v. Idaho State Tax Commission, supra, a group of
taxpayers had failed to claim refunds of sales taxes due to persons
over 65.  The tax authority had failed to make available means to
request the refunds and had even misrepresented the law on the
procedure to be used.  Although those facts are quite different
from the ones now before us, some of the reasoning of the Supreme
Court of Idaho is useful.  

          The record before us shows that the Commission ...
     refused any refund claims such as those which were found valid
     by the trial court.  It admits that it had no intention of
     allowing any such claims.  In these circumstances, we find
     that the requirement of the filing of a claim for the refund
     was the requirement of a useless and futile act. "The law does
     not require useless acts from litigants as prerequisites to
     seeking relief from the courts."  [Citations omitted.]

     In Clark v. Lee, supra, plaintiffs claimed an Indiana
"occupations income tax" discriminated against non-resident
taxpayers by giving a credit to residents against other taxes.  A
question on appeal of a judgment in favor of the plaintiffs was
whether the class was proper in the absence of a showing that all
of the class members had exhausted their administrative remedies.
In holding the class was proper, the following reasoning was
expressed by the Supreme Court of Indiana:

     In the situation with which we are confronted, the named
     plaintiffs personally satisfied the jurisdictional
     requirements of the statute by exhausting their administrative
     remedies before bringing their action.  In so doing they
     afforded the state government the opportunity of reckoning
     with their claim.  The claim itself was constitutional in
     nature and sought to void the statute because it discriminated
     against a class to which plaintiffs belonged, namely non-
     residents.  It was by its nature a claim which would, if
     successfully prosecuted by a lone plaintiff, provide a basis
     for class-wide relief in the absence of certification.  We,
     therefore, conclude that the certification of this action as
     a class action does not vitiate or evade the jurisdictional
     requirements of the statute and is not contrary to the case
     law cited.

     The Alabama case, Thorn v. Jefferson County, supra, cited in
Pledger v. Bosnick, supra, is not as helpful as the others.  In
that case, the Alabama Supreme Court merely held that there was no
requirement that class members have sought a refund when the claim
was that the property-tax statute in question was unconstitutional
and thus void.
     In Santa Barbara Optical Co. v. State Bd. of Equalization,
supra, a group of dispensing optical corporations sued California
for refund of improperly imposed sales taxes.  The State demurred
on several bases including a contention that not all of the
corporations had made timely claims with the State, each stating
its name and the amount of refund due.  The demurrer was sustained.

The California Court of Appeals reversed, holding the claims
statute was satisfied if the representative members of the class
gave "sufficient information to identify and make ascertainable the
class itself."  The Court also declined the State's argument that
some unnamed members of the class could not be "claimants" under
the applicable refund statute because their claims had never been
disallowed in writing, so their claims were not timely.  The
underlying reason recited for the decision sounded familiar.

     If a class suit were not permitted a multiplicity of actions
     will be necessary in order to effectuate recovery by the
     individual purchasers.  Since in many instances, the small
     amount involved may discourage an individual action as
     economically impractical, the state would be unjustly
     enriched, if a class suit were not permitted.

     In Woosley v. State of California, 3 Cal. 4th 758, 13 Cal. Rptr. 2d 30, 838 P.2d 758 (1992), the California Supreme Court
overruled the Court of Appeals decision in the Santa Monica Optical
Co. case on the basis that the California Constitution specifically
provides: "After payment of a tax claimed to be illegal, an action
may be maintained to recover the tax paid, with interest, in such
manner as may be provided by the Legislature."  The Court was also
influenced by the fact that the California legislature had,
subsequent to Woosley's submission of his claim, enacted a law that
required that any class action for refund of vehicle license fees
be authorized by each member of the class who must sign the claim. 
The reasoning of the Court was that the State must know the claims
against it and thus be able to plan its budget accordingly.
     To be sure, there are other cases in other jurisdictions which
use reasoning contrary to that we adopted from the cases we cited
in  Pledger v. Bosnick, supra.  All of the cases we cited are found
in Annot., "Propriety of Class Action in State Courts to Recover
Taxes," 10 ALR 4th 655 (1981).   See also  Annot., "Maintenance of
Class Action Against Governmental Entity as Affected by Requirement
of Notice of Claim," 76 ALR 3d 1244 (1971).       
     Again, we have decided this issue based on the reasons given
in the cases we cited in Pledger v. Bosnick, supra.  We note in
this case that filings for refunds by all the class members would
apparently have been useless acts.  We note also testimony
presented by DFA that, once a decision had been reached by a court
in a suit by a single taxpayer that the tax had been illegally
collected, all taxpayers would be treated the same.  We fail to see
how presentation of requests for refund by way of a class action
could be prejudicial to DFA or the budgeting process in view of
DFA's apparent willingness to give a refund to any taxpayer who
seeks it after such a decision.  It may be that more taxpayers who
have paid the tax will become claimants due to the notices to be
provided through the Court than would have sought refunds absent
such a procedure, but discouraging payment of money owed is hardly
a good reason to deny a class action.
     We hold the Chancellor did not lack jurisdiction of the
subject matter of the claim, as the class certification was proper.

                   c. The merits of the claim
     Arkansas Code Ann.  26-52-301 (Supp. 1995) provides in part:

     There is levied an excise tax of three percent (3%) upon
     the gross proceeds or gross receipts derived from all
     sales to any person of the following:
                             * * * 
     (C)(i) Service of alteration, addition, cleaning,
     refinishing, replacement, and repair of motor vehicles,
     aircraft, farm machinery and implements, motors of all
     kinds, tires and batteries, boats, electrical appliances
     and devices, furniture, rugs, upholstery, household
     appliances, television and radio, jewelry, watches and
     clocks, engineering instruments, medical and surgical
     instruments, machinery of all kinds, bicycles, office
     machines and equipment, shoes, tin and sheet metal,
     mechanical tools, and shop equipment.  [Emphasis added.]

     DFA contends that the sales of extended warranties are taxable
because it has ruled them taxable, and has taxed them for at least
17 years, and because the Court impliedly held that they are
taxable in Ragland v. Miller Trane Service Agency, 274 Ark. 227,
623 S.W.2d 520 (1981).
     In the Ragland case the taxpayer was engaged in the business
of inspecting, servicing, and repairing commercial heating and
cooling devices.  The taxpayer sold two types of contracts.  The
first was an "inspection only" contract which all parties agreed
was exempt from the gross-receipts tax.  The second was a "Full
Coverage Commercial Service Contract" whereby the service agency
agreed with a customer to inspect (a minimum of 3 times a year),
maintain, and repair commercial heating and cooling units.  The
contract provided for an annual or monthly prepayment.  The full
maintenance agreement was designed to assure the maximum service
for the efficient and economical operation of the equipment. 
Contract jobs under the service agreement took priority over other
jobs and were guaranteed prompt action upon request.  
     The State, through the Revenue Department Hearing Board,
determined that the service agency owed a sales-tax deficiency of
$8,253.71, which included interest and a 10% penalty, for failure
to remit the 3% gross-receipts tax on the sale of the commercial
contracts from September 1, 1975, through August 31, 1978.  The
assessment was paid under protest and then made the subject of a
chancery court claim.  The Chancellor found that 75% of the taxes
assessed were improper, including the interest and penalty.  The
State was ordered to repay those funds.
     On appeal, it was stipulated that the issue presented was
whether the total consideration paid pursuant to the contract was
subject to the 3% sales tax, or only that portion which relates to
specific repairs.  The State contended the Chancellor erred in
finding the service agency's full-coverage commercial contract
could be broken down into component parts for the purposes of
collecting the gross-receipts tax.  
     The Court noted that the sales-tax statute in effect provided
for a 3% tax on gross proceeds or receipts derived from the service
of "alteration, addition, cleaning, refurbishing, replacement and
repair of . . . machinery of all kinds . . .."   The Court also
noted that the term "gross proceeds" or "gross receipts" was
defined as "the total amount of consideration for the sale of
tangible personal property and such services as are herein
specifically provided for . . . ."
     Based on the statute, the Court, in concluding that the entire
value of the contract was subject to the sales tax, stated:

     Here, the total consideration paid by appellee's
     customers is for the package of services, i.e.,
     inspection, maintenance and repairs, which it agreed to
     perform during the period covered by the contract.
     Maintenance and repairs of the machinery are taxable
     services.  Inspection of the equipment is a prerequisite
     to the routine maintenance and repair and is an integral
     part of the contract.  This inspection involves labor
     performed pursuant to the sale of taxable services;
     therefore, the cost of such an inspection cannot be
     deducted from the total amount of consideration paid for
     the full service contract. Appellee's insurance coverage
     for reimbursement to it for repairs it made, plus 3%
     sales tax, was for its benefit.  In summary, appellant's
     claim is properly based upon the total consideration
     received by appellee for the sale of its package
     contract. 

     DFA argues that, because the contract receipts for future
services were held to be taxable, the implication is that receipts
for services to be performed upon contingency are taxable.  We see
a considerable difference between a prepayment for services to be
rendered and a payment for something like insurance against the
need for services which may or may not arise.  DFA's interpretation
is obviously strained.
     In response to the dissenting opinion, we must also note that
which DFA does not argue.  City of Little Rock v. Cash, 277 Ark.
494, 644 S.W.2d 229 (1983), is cited in DFA's brief solely in
support of this statement:  "This court hears equity cases de novo
on the record and enters such judgment as the chancellor should
have entered on the undisputed facts."  DFA makes no argument
whatever to the effect that, because the tax was "voluntarily" paid
by the class members, they may not succeed in their quest for
refunds.  
     We decline to address the issue in any depth, but point out
summarily that there is good reason for not making such an
argument.  The general statement we adopted in Thompson v.
Continental Southern Lines, Inc., 222 Ark. 108, 257 S.W.2d 375
(1953), from Cooley, The Law of Taxation, Ch. 20,  1282, and
cited
in City of Little Rock v. Cash, supra, was based on Professor
Cooley's recitation that "every man must know the law."  It
included the following:  "It is well settled that if the payment of
a tax is a voluntary payment, it cannot be recovered back, except
where a recovery is authorized by the provisions of a governing
statute regardless of whether the payment is voluntary or
compulsory."  Section 26-18-507(a) authorizes such an action when
a tax is paid under "mistake of law."  See Taber v. Pledger, 302
Ark. 484, 791 S.W.2d 363 (1990), cert. denied, 498 U.S. 967 (1990).

The statute makes no reference to whether the tax was paid
voluntarily or as the result of compulsion.
     The reason we decline further to address this issue raised in
the dissenting opinion is that it was not raised in the Trial Court
or here.  Our reason was stated by the majority of the members of
this Court in Smart v. State, 297 Ark. 324, 761 S.W.2d 915 (1988),
in response to a dissenting opinion raising an issue not argued by
the appellant at trial or on appeal:  
     
          The dissenting opinion asserts that the majority "evades
     the question...."  There are clear and cogent reasons.  The
     argument was not raised in the trial court, nor was it argued
     on appeal.  Either omission, according to literally hundreds
     of our cases, many of which are authored by the dissenting
     justice, obviates our dealing with issues that are not
     presented.  If we undertook to answer arguments that were
     raised neither here nor in the trial court, the process of
     appellate review should doubtless collapse under its own
     weight.  Few principles of appeal and error are more widely
     followed or firmly entrenched than the rule that we do not
     address arguments not raised by the litigants.

See also Smith v. State, 310 Ark. 31, 832 S.W.2d 497 (1992);
Williams v. State, 304 Ark. 279, 801 S.W.2d 296 (1990).
     DFA does argue its interpretation of the statute in question
here is entitled to deference, and we agree.  See Arkansas Public
Service Comm'n v. Allied Telephone Company, 274 Ark. 478, 625 S.W.2d 515 (1981).  The basic rule of statutory construction,
however, is to give effect to the intent of the General Assembly,
and when a statute is clear, it is given its plain meaning. 
Hercules, Inc. v. Pledger, 319 Ark. 702, 894 S.W.2d 576 (1995).
     The statute plainly levies a "tax . . . upon the gross
proceeds or gross receipts derived from all sales to any person of
. . . service of . . .  and repair of motor vehicles."  An extended
warranty is not "service."  As the promised repairs are completely
contingent upon events which may not transpire, the contracts
cannot be said to be for service or repairs to automobiles.
     The judgment is affirmed on appeal.

                         2. Cross-appeal
                          a. Injunction
     The Chancellor was asked to enjoin DFA from collecting the
tax.  The class contends:

     Plaintiff was given judgment for $10,050,759.17 plus
     additional taxes and interest accruing at the rate of
     $6,352.00 per day.  Since defendant was not enjoined from
     collecting the illegal tax on extended warranties, taxpayers
     have, and will, continue to pay State sales tax on extended
     warranties.  It is possible that the total amount of refunds
     will exceed the damages awarded.

The only authority cited on this point is Harkey v. Matthews, 243
Ark. 775, 422 S.W.2d 410 (1967), for the proposition that public
officials may be enjoined from ultra vires acts.
     It is not at all clear that the Chancellor awarded the amount
stated as a "judgment" in favor of the class.  As we read the
order, he found as a matter of fact that the figure stated was the
amount which might have to be refunded.
     The Chancellor was presented with evidence that DFA maintained
a miscellaneous tax account through which it would pay the refund
if ordered.  According to testimony presented by DFA, $50 million
per year was appropriated for the account for the years 1995, 1996,
and 1997, and the State could have at least $30 million available
for each fiscal year.  The refunds, if required, would come out of
that account.  Testimony was also presented that an injunction, if
granted, could disrupt public education and the services performed
by the Department of Human Services.
     The Chancellor denied the request for an injunction, finding
that DFA had "established that sufficient funds are appropriated
from which refunds may be made if ultimately ordered by the Court."

An order granting or denying an injunction is within a chancellor's
discretion.  Smith v. American Trucking Ass'n, 300 Ark. 594, 781 S.W.2d 3 (1989).  The Chancellor did not abuse his discretion.

                          b. Accounting
     Again without citation to authority, it is contended that the
Chancellor should have ordered DFA to identify each member of the
group and refund the amount of the tax paid to that member.  
     Evidence was presented that such a requirement would be
extremely burdensome and expensive.  The Chancellor ruled that "the
better method of refund is to require each taxpayer to present
proof of their payment of taxes on an extended warranty during the
time period in question in this lawsuit.  A master is to be
appointed to review and approve each claim filed for refund." 
     We consider the solution reached by the Chancellor to be
consistent with our decision in International Union of Electrical,
Radio, and Machine Workers v. Hudson, 295 Ark. 107, 747 S.W.2d 81
(1988), in which we emphasized the need for discretion in the
management of a class action and the desirability of choosing a
management solution fair to all parties.  
     Affirmed on cross-appeal.
     Dudley, J., not participating.
     Jesson, C.J., and Glaze, J., dissent.

          Robert L. Brown, Associate Justice, dissents.
     The legacy of this opinion is to deny Arkansas taxpayers who
have paid $20, $30, $50, or $100 in illegally assessed taxes a
remedy for recouping those taxes.  This is unjust and unfair in the
extreme.  Until today a remedy was recognized.  See Pledger v.
Bosnick, 306 Ark. 45, 811 S.W.2d 286 (1991).  Now the majority of
this court closes that door and effectively locks these people out
of court and divests them of any practical legal recourse.  I would
deny rehearing and affirm our decision in State v. Staton, 325 Ark.
341, 925 S.W.2d 418 (1996) (Staton I).
     The majority decides as it does for two primary reasons: (1)
an immutable and unshakable conviction that sovereign immunity
allows the Department of Finance and Administration (DFA) to
collect illegal taxes under these circumstances with impunity; and
(2) an amorphous notion that allowing individuals who are part of
a class to file claims for refund for illegal taxes will bankrupt
the State.  I disagree on both counts.
     First, on sovereign immunity.  We do have a provision in our
Constitution that says the State may not be a defendant in her
courts.  Ark. Const. art. 5,  20.  But the General Assembly has
enacted a statute permitting claims for refunds for taxes
erroneously and mistakenly paid and for suits thereafter if the
claims are not paid.  Ark. Code Ann.  26-18-507 (Repl. 1992). 
Thus, sovereign immunity has been waived by the General Assembly
for erroneously paid taxes.  The fact that these taxes were
voluntarily paid is of no moment in light of the statute that
provides a refund remedy after voluntary payment.
     The question then is whether  26-18-507 has been complied
with by virtue of the class-action remedy under Arkansas Rule of
Civil Procedure 23.  I conclude that it has been.  Under comparable
circumstances, we held there was compliance in Pledger v. Bosnick,
supra.  Using the precedent of Bosnick, we decided in Staton I that
a class action was a valid means of claiming refunds under 
26-18-
507 for wrongfully collected taxes.  We further affirmed the
chancellor who required each taxpayer to present proof of payment
of the erroneous tax as a prerequisite to a refund.  That is what
the statute requires.  Hence, the remedy afforded in this case met
the statutory requirements.
     The majority no doubt believes that permitting a class-action
suit before class members have claimed refunds puts the cart before
the horse.  See Ark. Code Ann.  26-18-507(c) (Repl. 1992).  Not
so.  The class representative, Debora Staton, filed this lawsuit on
behalf of the class.  Notice presumably has gone out or will go out
to class members who now must prove their claims.  The net effect
of this, as was emphasized in Staton I, is that notices will be
sent to class members under court auspices as provided by Rule 23. 
Better notification to wronged class members will enhance their
ability to claim refunds and is without question a worthy goal.
     The majority writes, somewhat myopically, that individuals who
have paid a $30 or $40 sales tax on an extended warranty should
have claimed a refund under  26-18-507 prior to the class-action
relief.  But how does that person know the tax is illegal?  That
person does not know.  In addition, prior to the class action
lawsuit, had a class member claimed a refund, that person would
have been rebuffed by DFA because DFA's position was that the tax
was valid.  A claim for refund would have been a totally useless
act.  It was only after the class action lawsuit and the decision
by the chancellor that a claim had viability.  Indeed, a class
action is the only practical way to remedy this illegal tax, since
only the most civic-minded citizen would undertake the arduous
burden of obtaining judicial relief when the recovery could only be
nominal at best.
     The majority plainly fears a catastrophic loss to the State
coffers resulting from class-action claims.  I do not see that.  In
this case, each class member must prove his or her claim, which is
what we held in Staton I.  And consider the alternative.  The
majority is holding that DFA can wrongfully collect taxes, then
build a wall around itself and assert that a taxpayer has no
practical recourse, even when the taxpayer can prove the claim. 
The rationale by DFA is it has already relied on those wrongfully
collected taxes for spending purposes.  Something is severely out
of kilter here.  If a tax is wrongfully assessed and collected
against a person and the taxpayer can prove it, that person
deserves to be repaid.  That is the remedy  26-18-507 provides.
     Again, the anomaly here is that under the decision today these
people who have been wrongfully taxed have no remedy as a practical
matter.  In Pledger v. Bosnick, 306 Ark. 45, 811 S.W.2d 286 (1991),
this court recognized that fact and permitted precisely what the
class attempts to do in this case.  Moreover, that was a 1991
decision and the General Assembly since that decision has taken no
action to disabuse Arkansas taxpayers that that is a correct
interpretation of the law.  Finally, I strongly disagree with the
majority's conclusion that sovereign immunity was not contemplated
by Pledger v. Bosnick, supra.  That is splitting fine hairs.  In
Bosnick, we analyzed  26-18-507, which waives sovereign immunity,
and determined that compliance had occurred.
     In short, the taxpayers of this State are put in a Catch-22
situation when the majority holds that they must first seek a
refund apart from the class for a tax (1) they did not know was
wrongful, and (2) DFA would not have refunded in any event because
DFA believed it to be a valid tax.  I would not give DFA carte
blanche to tax illegally and then deny refunds after class action
notice and proof by the taxpayers.
     I respectfully dissent.
     Newbern and Corbin, JJ., join.