Little Rock Cleaning Sys., Inc. v. Weiss

LITTLE ROCK CLEANING SYSTEMS, INC., d/b/a
Rainbow Sales & Service v. Richard WEISS,
Director, Arkansas Department of Finance and
Administration

96-463                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered December 23, 1996


1.   Motions -- motion to dismiss -- trial court's considerations.
     -- Rule 12(b)(6) of the Arkansas Rules of Civil Procedure
     provides that a motion to dismiss a complaint may be made for
     the complaint's failure to state facts upon which relief can
     be granted; when considering a Rule 12(b)(6) motion to
     dismiss, the trial court treats the facts alleged in the
     complaint as true and views them in the light most favorable
     to the party who filed the complaint; in deciding such
     motions, the trial court must look only to the allegations
     contained in the complaint; however, Rule 12(b) provides that
     it is improper for the trial court to look beyond the
     complaint to decide a Rule 12(b)(6) motion unless it treats
     the motion as one for summary judgment. 

2.   Motions -- motion to dismiss not treated as one for summary
     judgment -- chancellor did not look beyond complaint. -- The
     chancellor did not treat the motion as one for summary
     judgment because the express terms of the chancellor's order
     clearly stated that she considered only the motion for
     dismissal and brief in support; in addition, the record on
     appeal contained only the complaint, the motion to dismiss
     based on Rule 12(b)(6), and an answer.

3.   Civil procedure -- motion to dismiss -- must be read in
     conjunction with Ark. R. Civ. P. 8. --  Ark. R. Civ. P.
     12(b)(6) must be read in conjunction with Rule 8, which sets
     out the requirements for a complaint; a complaint that merely
     alleges conclusions without alleging facts does not state
     facts upon which relief can be granted and may therefore be
     subject to a Rule 12(b)(6) dismissal; in testing the
     sufficiency of the complaint on a motion to dismiss, the
     complaint is to be liberally construed as provided in ARCP
     Rule 8(f).

4.   Civil procedure -- complaint stated allegations and supported
     those allegations with facts -- chancellor erred in dismissing
     complaint. -- The facts presented were sufficient to survive
     a motion to dismiss for failure to state facts upon which
     relief can be granted where the complaint did more than state
     mere allegations; it supported those allegations with facts;
     the chancellor therefore erred in dismissing the complaint
     pursuant to appellee's Rule 12(b)(6) motion because, by
     alleging that the discount was not based on the value of the
     vacuum cleaners received by appellant, appellant was receiving
     value from its customers that was less than that assessed by
     appellee; facts alleging a claim for relief had been pleaded;
     the matter was reversed and remanded. 

     Appeal from Pulaski Chancery Court, First Division; Alice
Gray, Chancellor; reversed and remanded.
     Jack, Lyon & Jones, P.A., by:  Eugene G. Sayre, for appellant.
     Nina Orsini, for appellee.

     Donald L. Corbin, Justice.
     Appellant, Little Rock Cleaning Systems, Inc., d/b/a/ Rainbow
Sales & Service, appeals the order of the Pulaski County Chancery
Court dismissing with prejudice its complaint for a refund of
gross-receipts taxes it paid under protest.  Upon the motion of
Appellee, Richard Weiss, Director of the Arkansas Department of
Finance and Administration, the chancellor dismissed the complaint
pursuant to the provisions of ARCP Rule 12(b)(6).  This appeal
presents a question that requires interpretation of our statutes on
gross-receipts tax; jurisdiction is in this court pursuant to Ark.
Sup. Ct. R. 1-2(a)(3).  Appellant makes three arguments for
reversal.  We find merit to the first argument and therefore
reverse the order and remand for further proceedings.  Accordingly,
we need not address Appellant's other two arguments.
     Appellant is an authorized distributor and wholesaler of
Rainbow vacuum cleaners, which Appellant alleges have a unique
water filtration system that is superior to a regular vacuum
cleaner and bag.  Appellant sells Rainbow vacuum cleaners through
outside sales personnel who demonstrate the vacuums in customers'
homes.  During the audit period at issue in this case, the retail
list price of the Rainbow vacuum cleaner ranged from $1,031.00 to
$1,191.00.  If the customer paid cash, he received a $50.00 cash
discount.  Usually, however, customers purchased under an
installment sales contract.  If these customers allowed the
salesperson to dispose of their old vacuum cleaners, Appellant
offered them a "special discount," which ranged from $100.00 to
$150.00 over the audit period.  It is this special discount that is
at issue in this appeal.
     According to Appellant's complaint, the special discount was
offered as a marketing strategy that was designed to achieve three
objectives from the unavailability of the old vacuum:  (1) to
prevent repossession of a Rainbow vacuum cleaner sold on an
installment basis; (2) to put the customer in the position of using
the Rainbow vacuum cleaner to its full potential; and (3) to ensure
the customer's achievement of Appellant's claims of the Rainbow
vacuum cleaner's performance.   Appellant offered the same special
discount regardless of whether the customer's vacuum was new, old,
or even a nonelectric sweeper.  Appellant disposed of the used
vacuums by selling them in lots on an "as is" basis to the highest
bid from various used vacuum cleaner shops.  Generally, appellant
received an approximate average of $10.00 for each vacuum it sold
to the used vacuum cleaner shops.
     Appellant's salespeople computed and collected the gross-
receipts tax on each sale of a Rainbow vacuum cleaner.  They
calculated the tax based on the retail list price less any cash
discount or special discount taken by the customer.  Appellant's
monthly gross-receipts tax reports reflected this calculation of
the tax.
     Appellee's office audited Appellant's reports for the period
of July 1, 1988, through May 31, 1991, and assessed additional
taxes and interest of $10,279.12 against Appellant on the basis
that Appellant failed to charge and collect tax on the amount shown
on its invoices as a special discount that was deducted from the
retail list price.  The audit did not result in an additional
assessment of tax against the $50.00 cash discount.
     Appellant protested the additional assessment following the
audit, and the administrative law judge upheld the assessment.  The
commissioner of revenues refused Appellant's request pursuant to
Ark. Code Ann.  26-18-405 (Supp. 1995) to revise the
administrative law judge's decision.  Appellant therefore paid
under protest the additional assessment of $10,279.12 and filed
this suit for refund in chancery court pursuant to Ark. Code Ann.
 26-18-406 (Repl. 1992).  Appellant took a voluntary non-suit and
then refiled the suit for refund.
     In Appellee's Rule 12(b)(6) motion, he contended that gross
receipts includes the value of any property taken in lieu of or in
addition to money as consideration for a sale.  Appellee also
contended that Appellant purported to reduce the retail price of
its vacuums by the agreed value of the trade-in vacuums, which is
the amount of the special discount.  Appellee then argued that
Appellant's reduction of its profit margin did not change the tax
consequences of the transaction.  Appellee argued further that
Appellant's complaint was devoid of any authority requiring
Appellee to look beyond Appellant's invoices to determine the
actual value of trade-in merchandise rather than accepting
Appellant's determination of that value as stated in the invoices. 
The chancellor considered Appellee's motion and brief in support
and granted the dismissal with prejudice pursuant to the provisions
of ARCP Rule 12(b)(6).  This appeal followed.
     Appellant's first argument for reversal is that the trial
court erred in granting the Rule 12(b)(6) dismissal because the
complaint does indeed state facts upon which relief can be granted. 
We agree that the complaint states facts sufficient to survive a
Rule 12(b)(6) motion and reverse and remand for further
proceedings.
     In support of the additional assessment, Appellee relies on
the definition of "gross proceeds" or "gross receipts" in Ark. Code
Ann.  26-52-103(a)(4) (Supp. 1995), which includes the total
amount of consideration for the sale of tangible personal property,
"whether the consideration is in money or otherwise" and the
Arkansas Department of Finance and Administration's Gross Receipts
Tax Regulation GR-3.C.(3), which provides that gross receipts or
gross proceeds "includes the value of any property taken in lieu of
or in addition to money as consideration for a sale."  In defense
of this appeal, Appellee argues that the chancellor properly
determined that Appellee was correct in its interpretations of
Section 26-52-103(a)(4) and the corresponding regulations and was
therefore correct in granting the dismissal as a matter of law. 
Appellee's argument completely overlooks the fact that this was a
dismissal under Rule 12(b)(6) and not a judgment on the pleadings
or summary judgment.  Appellee, after all, is the one who moved for
the dismissal based on Rule 12(b)(6).
     Rule 12(b)(6) provides that a motion to dismiss a complaint
may be made for the complaint's "failure to state facts upon which
relief can be granted[.]"  When considering a Rule 12(b)(6) motion
to dismiss, the trial court treats the facts alleged in the
complaint as true and views them in the light most favorable to the
party who filed the complaint.  Neal v. Wilson, 316 Ark. 588, 873 S.W.2d 552 (1994).  In deciding such motions, the trial court must
look only to the allegations contained in the complaint.  Id. 
However, Rule 12(b) provides that:
     If, on a motion asserting the defense numbered (6) to
     dismiss for failure of the pleading to state a claim upon
     which relief can be granted, matters outside the pleading
     are presented to and not excluded by the court, the
     motion shall be treated as one for summary judgment and
     disposed of as provided in Rule 56, and all parties shall
     be given reasonable opportunity to present all material
     made pertinent to such a motion by Rule 56.
Thus, it is improper for the trial court to look beyond the
complaint to decide a Rule 12(b)(6) motion unless it treats the
motion as one for summary judgment.  Deitsch v. Tillery, 309 Ark.
401, 833 S.W.2d 760 (1992).  Here, we are confident the chancellor
did not treat this motion as one for summary judgment because the
express terms of the chancellor's order clearly state that she
considered only the motion for dismissal and brief in support.  In
addition, the record before us contains only the complaint, the
motion to dismiss based on Rule 12(b)(6), and an answer.
     Rule 12(b)(6) must be read in conjunction with Rule 8, which
sets out the requirements for a complaint.  Spires v. Members of
the Election Comm'n, 302 Ark. 407, 790 S.W.2d 167 (1990).  A
complaint that merely alleges conclusions without alleging facts
does not state facts upon which relief can be granted and may
therefore be subject to a Rule 12(b)(6) dismissal.  Hollingsworth
v. First Nat'l Bank & Trust Co., 311 Ark. 637, 846 S.W.2d 176
(1993).  In testing the sufficiency of the complaint on a motion to
dismiss, the complaint is to be liberally construed as provided in
ARCP Rule 8(f).  Id.  
     The complaint before us alleges that Appellee's assessment of
additional gross-receipts tax was in violation of the gross-
receipts tax laws and regulations because the amount of the special
discount Appellant granted to its customers was not the value of
the used vacuum that the customer traded in.  Alternatively, the
complaint alleges that if the used vacuum cleaners did constitute
part of the gross receipts of the sale, then Appellee's
determination that the value of the used vacuums was equal to the
amount of the special discount was erroneously overstated.  In
support of these allegations, the complaint alleged the following
facts:  Appellant offered the same special discount of $100.00 or
$150.00 regardless of whether the customer's vacuum was new, old,
or even a nonelectric sweeper; Appellant disposed of the used
vacuums by selling them in lots on an "as is" basis to the highest
bid from various used vacuum cleaner shops; generally, appellant
received an approximate average of $10.00 for each vacuum it sold
to the used vacuum cleaner shops.   
     We conclude that the aforementioned facts are sufficient to
survive a motion to dismiss for failure to state facts upon which
relief can be granted.  The complaint does more than state mere
allegations; it supports those allegations with facts.  The
chancellor therefore erred in dismissing this complaint pursuant to
Appellee's Rule 12(b)(6) motion because, by alleging that the
discount was not based on the value of the vacuum cleaners received
by Appellant, Appellant was receiving value from its customers that
was less than that assessed by Appellee, facts alleging a claim for
relief have been pleaded.  We reverse and remand for further
proceedings.
     We note that both dissents confuse resolution of a question of
law with entering judgment as a matter of law.  Here, although we
have said the complaint is sufficient to survive a Rule 12(b)(6)
dismissal, unlike the dissenting opinions, we express no view as to
whether the proof presented on the claim will entitle Appellant to
the relief it seeks.
     Reversed and remanded.
     DUDLEY, GLAZE, and ROAF, JJ., dissent.

=================================================================
         Robert H. Dudley, Associate Justice, dissents.

     The facts, taken from the complaint as being true, are that
the taxpayer was in the business of selling vacuum cleaners at
suggested retail prices ranging from $1,031.00 to $1,191.00 per
unit; if the customer paid cash, the customer received a $50.00
cash discount; if the customer traded in a used vacuum cleaner the
customer received a trade-in allowance or "special discount" of
$100 to $150.  The "special discount" given for the trade-in vacuum
cleaners was not included by the taxpayer as part of the total
consideration when the sales tax was calculated on the sale, even
though there is no dispute that the trade-in vacuum cleaner had
value.  The taxpayer did not collect, nor did it remit, sales tax
on the amount of the "special discount."  The issue on appeal is
whether sales tax is due on the amount of the "special discount." 
The chancellor dismissed the taxpayer's suit for a refund because
its complaint did not state a cause of action.
     The majority opinion reverses the ruling of the chancellor and
holds that the taxpayer's complaint states a cause of action
because "the discount was not based on the value of the vacuum
cleaners received by" the taxpayer.  I dissent from that holding.
     As a matter of law, unless expressly exempted, gross proceeds
or gross receipts includes not only the cash consideration, but
also the value of any property traded in and accepted as partial
consideration in the purchase of new property.  Section 26-52-301
of the Arkansas Code Annotated provides: 
          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:
               (1) Tangible personal property ... .
Section 26-52-103 provides: 
          (a)  The following words and phrases, except where the
          context clearly indicates a different meaning, when used
          in this act shall have the following meanings:
                             . . . .
          (4) "Gross receipts" or "gross proceeds" means the total
          amount of consideration for the sale of tangible personal
          property and such services are herein specifically
          provided for, whether the consideration is in money or
          otherwise, without any deduction on account of the cost
          of the properties sold, labor service performed, interest
          paid, losses, or any expenses whatsoever.
Ark. Code Ann.  26-52-103 (Supp. 1996) (emphasis added).
     The Department's Gross Receipts Tax Regulations define "Gross
receipts or gross proceeds" as:
     (1) [T]he total amount of consideration for the sale
of tangible personal property and such services as are
herein provided for, whether the consideration is in
money or otherwise, without any deduction ... [for] ...
losses or any expenses whatsoever.            
                        . . . .
     (3) The term "Gross Receipts" or "Gross Proceeds"
includes the value of any property taken in lieu of or in
addition to money as consideration for a sale.
Arkansas Department of Finance and Administration Gross Receipts
Tax Regulation GR-3.C.(1) & (3) (emphasis added).
     The "total amount of consideration of the sale[,] ... whether
the consideration is in money or otherwise," means the agreed value
of the sale. It can mean nothing else. The amount the customer is
told that he or she is paying for the vacuum cleaner is the agreed
value.  
     Indeed, the gross receipts tax by its very nature is a tax on
the purchaser, not on the seller, and that renders any value that
the seller may later get by reselling the trade-in irrelevant.  The
majority opinion states that the taxpayer stated a cause of action
because the discount was not based on the value of the vacuum
cleaners received by the seller.  The majority opinion fails to
understand that the value ultimately received by the seller is
immaterial.  Under both the statute and the regulation it is the
agreed value that determines the amount of tax.
     The Department has always construed the statute and its
regulations to mean that agreed value is the proper valuation for
trade-in property.  We have frequently held that the interpretation
placed on a statute or regulation by an agency or department
charged with its administration is entitled to great deference and
should not be overturned unless clearly wrong.  Douglass v. Dynamic
Enters., Inc., 315 Ark. 575, 869 S.W.2d 14 (1994).  
     The few courts that have passed on the question agree that
taxing authorities are entitled to accept agreed value in valuing
trade-in property.  See 68 Am. Jur. 2d Sales and Use Tax  180
(1993); Annotation, Computation of Sales Tax where Property is
turned in by Purchaser, 4 A.L.R. 2d 1059, 1063 (1949); Annotation,
Computation of Sales Tax, 150 A.L.R. 1314 (1944); and see the
survey of older cases contained in Hawley v. Johnson, 58 Cal. App. 2d 232, 136 P.2d 638 (1943).  The majority opinion cites no
authority whatsoever for its holding, and the writer of this
dissenting opinion is unable to find any other case in the nation
that holds as does the majority opinion.
     The holding of the majority opinion is also wrong as a
practical matter.  It will result in inconvenience and uncertainty
for both the public and the Department.  A sale will no longer be
valued on the date of the sale and will no longer be at the agreed
sales price, but rather will be valued on the date the trade-in is
ultimately resold and it will then reflect the amount of the trade-
in.  It follows that the amount of sales tax to be paid by the
purchaser cannot be known until the trade-in is resold.  The
purchaser has traditionally paid the tax on the agreed amount on
the date of the sale, but now the amount will not be known on the
date of the sale.  This plight may not cause a significant
inconvenience when a vacuum cleaner is sold, but the majority
opinion will necessarily govern all sales-tax collections and will
apply to the sale of high price items where trade-ins are
frequently accepted, such as automobiles, boats, airplanes, and
diamonds.  Some purchasers may be required to wait months until
they know the amount of the sales tax on their purchase. 
Additional complications may arise when the purchasers must show
that they have paid the sales tax before the property can be
licensed, as is the case when a car or truck is purchased.  Without
doubt, the Department will have a difficult time administering
sales-tax collections under these conditions.  For these reasons,
I dissent.
     Glaze and Roaf, JJ., join in this dissent.

=================================================================
        Andree Layton Roaf, Associate Justice, dissents.
     I do not agree that Rainbow's complaint is sufficient to
survive a Rule 12(b)(6) motion, because based on the facts pled,
Rainbow does not have a cause of action.  Moreover, I agree with
Justice Dudley that this decision will have adverse consequences on
the assessment of sales taxes where high-priced trade-ins are
involved, and the majority's caveat that Rainbow may not be able to
present proof of its claim does not change the import of this
holding. Although Rainbow takes issue with the trial court's
interpretation of the gross receipt statute, Ark. Code Ann.  26-
52-103(a)(4) (Repl. 1994), the majority claims not to reach this
argument and instead determines that the trial court erroneously
dismissed the complaint pursuant to Rule 12(b)(6) because Rainbow
alleged facts which constitute a claim for relief.
     I do not agree that the trial court erred in granting the
motion to dismiss where the sole issue to be resolved is a matter
of law. Had this court previously adopted the "agreed value"
approach to assessing sales tax where trade-ins are involved, the
Rule 12(b)(6) dismissal would have been appropriate.  It is equally
appropriate for this court to adopt this "agreed-value" approach in
this appeal.
     Moreover, if a motion to dismiss is not a proper mechanism to
resolve a legal issue, we have not drawn this distinction in the
past.  This court has resolved questions of law in the context of
appeals from Rule 12(b)(6) dismissals on a number of occasions. 
See Lawhon Farm Supply Inc., v. Hayes, 316 Ark. 69, 870 S.W.2d 729
(1994) (dismissal affirmed because question of duty owed is a
question of law); Brandt v. St. Vincent Infirmary, 287 Ark. 431,
701 S.W.2d 103 (1986) (dismissal affirmed because court determined
that private hospitals should not be held to the Fourteenth
Amendment reasonableness standard of public hospitals); Allred v.
Arkansas Dep't of Correction Sch. Dist., 322 Ark. 772, 912 S.W.2d 4 (1995) (dismissal reversed -- court held that the Department of
Correction School District is a public school district as a matter
of law); Gordon v. Planters & Merchants Bancshares, Inc., 310 Ark.
11, 832 S.W.2d 492 (1992) (dismissal reversed where interpretation
of law was in dispute -- statute construed to allow cause of action
by a customer against a collecting bank for charge-backs);  Attwood
v. Estate of Attwood, 276 Ark. 230, 633 S.W.2d 366 (1992)
(dismissal reversed - court held for the first time that an
unemancipated minor may sue a parent for a willful tort); Blagg v.
Blagg, 272 Ark. 185, 612 S.W.2d 231 (1981) (dismissal reversed --
court extended liability of builder-vendor for implied warranty of
fitness of habitation to subsequent purchasers).
     Two of these cases resulted in the affirmance of the trial
court's dismissal, not merely for failure to state a cause of
action, but for failure to have a cause of action, as a matter of
law.  In Brandt, supra, this court had the option of affirming the
dismissal or affirming on the basis of summary judgment, as the
appellee had moved for both.  Indeed, the concurring justices in
Brandt took issue with the majority's resolution of the legal
question presented and instead would have affirmed on the basis of
a summary judgment. 
     Here, in arguing that the Rule 12(b)(6) dismissal was
procedurally improper, Rainbow attempts to manufacture a factual
dispute, and the majority has swallowed this argument. However, the
issue is which of the two values pled by Rainbow is appropriate for
tax purposes;  this is clearly a legal, not a factual, dispute.  
     Finally, Rainbow contends that the Rule 12(b)(6) dismissal was
improper because DFA referred to sales tickets, invoices, and bills
of sale in its brief in support of the motion to dismiss, and such
documents were not attached to the pleadings before the court. 
Rainbow's argument ignores the fact that all the necessary facts to
support the trial court's dismissal were contained in its lengthy
and detailed complaint; the trial court did not need to refer to
any other documents in reaching its decision.  Accordingly, the
trial court's Rule 12(b)(6) dismissal was a proper mechanism to
decide this legal question of first impression and is consistent
with prior decisions of this court.
     I would reach the legal question presented now; this court
will eventually have to do so, as this case will likely return on
an appeal from summary judgment. 
     I respectfully dissent.
     Dudley, J., joins in this dissent.