Citifinancial Retail Services Division of Citicorp Trust Bank, FSB v. Richard Weiss, in his Official Capacity as Director, Arkansas Department of Finance and Administration; and Timothy J. Leathers, in his Official Capacity as Commissioner of Revenue, Arkansas Department of Finance and Administration
Annotate this Case
Download PDF
SUPREME COURT OF ARKANSAS
No. 07551
CITIFINANCIAL RETAIL SERVICES
DIVISION OF CITICORP TRUST BANK,
FSB
APPELLANT,
VS.
RICHARD WEISS, in his Official Capacity
as Director, Arkansas Department of
Finance and Administration; and
TIMOTHY J. LEATHERS, in his Official
Capacity as Commissioner of Revenue,
Arkansas Department of Finance and
Administration,
APPELLEES,
Opinion Delivered January 17, 2008
AN APPEAL FROM THE CIRCUIT
COURT OF PULASKI COUNTY,
ARKANSAS, NO. CV200510060 and
CV20047720, HONORABLE
TIMOTHY DAVIS FOX, CIRCUIT
JUDGE
AFFIRMED.
TOM GLAZE, Associate Justice
Citifinancial Retail Services Division of Citicorp Trust Bank (Citifinancial) appeals
a Pulaski County Circuit Court order granting summary judgment in favor of the Arkansas
Department of Finance & Administration (DF&A). The circuit court found that Citifinancial
was not a “taxpayer” under Ark. Code Ann. § 2652309 (Supp. 2005), and therefore was not
entitled to a refund for sales taxes paid on defaulted consumer credit accounts. The circuit
court also determined that the absence of a statutory provision allowing for the assignment
of tax refunds barred Citifinancial’s claim that it qualified as a taxpayer as an assignee. We
affirm.
This case arises from consumer sales transactions Citifinancial financed through its
credit programs with Arkansas retailers. Citifinancial paid the retailers the full amount of
these purchases, including the sales taxes, and the consumers agreed to repay Citifinancial
on an installment or credit basis. Under these financing agreements, the retailers assigned
all rights associated with the credit contracts to Citifinancial; in return, Citifinancial paid the
retailers the full amount of the purchases, including the sales tax, and the retailers remitted
the sales tax to the State. When purchasers defaulted on their payment obligations and
Citifinancial determined that the debts were uncollectible, the debts were written off by
Citifinancial on its federal income taxes.
Citifinancial filed claims for baddebt refunds under Ark. Code Ann. § 2652309, the
“Bad Debt Statute,” which is a provision within the Arkansas Gross Receipts Act, Ark. Code
Ann. § 2652101 et seq., that allows taxpayers to receive a salestax refund proportionate
to the defaulted amounts of consumer purchases. DF&A denied Citifinancial’s applications
for salestax refunds, because it determined that Citifinancial was not a taxpayer under the
statute. As a result of DF&A’s denial of its refund requests, Citifinancial filed complaints
that were consolidated by the Pulaski County Circuit Court. Citifinancial and DF&A filed
cross motions for summary judgment, and the Pulaski County Circuit Court issued an order
on February 7, 2007, granting DF&A’s motion for summary judgment, determining that the
material facts were undisputed and that DF&A was entitled to judgment as a matter of law.
The circuit court granted DF&A’s motion for summary judgment based on its
interpretation of the Arkansas Gross Receipts Act and the Bad Debt Statute. However, issues
2
07551
of statutory interpretation are reviewed de novo, because this court determines statutory
meaning. City of Maumelle v. Jeffrey Sand Co., 353 Ark. 686, 120 S.W.3d 55 (2003). While
we are not bound to the trial court's ruling, we will accept the trial court's interpretation of
a statute unless it is shown that the trial court erred. R.N. v. J.M., 347 Ark. 203, 61 S.W.3d
149 (2001).
Citifinancial first argues that it is a “taxpayer” under the Bad Debt Statute, §
2652309 (Supp. 2005), which provides in pertinent part:
(a)
In computing the amount of tax due under the Arkansas Gross
Receipts Act, § 2652101 et seq., and any act supplemental
thereto, taxpayers may deduct bad debts from the total amount
upon which the tax is calculated for any report. Any deduction
taken or refund paid which is attributed to bad debts shall not
include interest.
(b)(1) For purposes of this section, “bad debt” means any portion of a
debt for an amount which a taxpayer has reported as taxable
which the taxpayer legally claims as a bad debt deduction for
federal income tax purposes.
(2)
Bad debts include, but are not limited to, worthless checks,
worthless credit card payments, and uncollectible credit
accounts.
(3)
Bad debts do not include financing charges or interest,
uncollectible amounts on property that remains in the possession
of the taxpayer or vender until the full purchase price is paid,
expenses incurred in attempting to collect any debt, debts sold
or assigned to third parties for collection, and repossessed
property.
***
3
07551
(e)
If a deduction is taken for a bad debt and the taxpayer
subsequently collects the debt in whole or in part, the tax on the
amount so collected shall be paid and reported on the next
return due after the collection.
This court previously addressed the meaning of a “taxpayer” under the Bad Debt
Statute in DaimlerChrysler Serv. N.A. v. Weiss, 360 Ark. 188, 200 S.W.3d 405 (2004), and
Weiss v. American Honda Finance Corp., 360 Ark. 208, 200 S.W.3d 381 (2004). In both
cases we held that, to qualify for a right to a refund or deduction under the Bad Debt Statute,
the definition of “taxpayer” in Ark. Code Ann. § 2652103(a)(5)(Repl. 1997) required that
1
the person must be liable to remit the sales tax on purchases. DaimlerChrysler, 360 Ark.
at 19596, 200 S.W.3d at 409; American Honda, 360 Ark. at 21516, 200 S.W.3d at 386.
Although it was undisputed that DaimlerChrysler and Honda were the source of the
payments of sales taxes to the state, neither was required to do so under Ark. Code Ann. §
2652510(a)(1)(A) (Repl. 1997), which provided that the taxes “shall be paid by the
consumer . . . instead of being collected by the dealer or seller.” DaimlerChrysler and Honda
each argued that it effectively paid the sales tax, because it paid the retailers (sellers) the full
of amount of the financed purchases, including the sales tax. However, we held that this fact
did not transfer the ultimate liability for payment of the sales tax, and a taxpayer under the
1
Ark. Code Ann. § 2652103(a) has been amended by Acts No. 154, 181, and 550 of
2007. Effective January 1, 2008, the definition of taxpayer is found at § 2652103(a)(22)
(Supp. 2007). These Acts are not argued and do not appear to reveal any relevant changes in the
issues presented in this appeal. Although the numbering of the definitions cited in
DaimlerChrysler and American Honda has been altered, the definitions relevant to this appeal
are not significantly changed.
4
07551
Bad Debt Statute must have that ultimate liability. Id.
Citifinancial attempts to distinguish our decisions in DaimlerChrysler and American
Honda from this case on appeal, contending that those prior cases involved the sale of motor
vehicles where purchasers were expressly and statutorily designated as the taxpayer, whereas
the purchases Citifinancial financed at issue here were “tangible personal property,” and the
retailers (sellers) were the statutorily designated taxpayers. This distinction is without merit.
DaimlerChrysler and American Honda control: a taxpayer under the Bad Debt Statute is the
person liable to report and remit sales taxes, and the person liable to remit taxes on sales of
the tangible personal property Citifinancial that financed is the retailer (seller). See Ark.
Code Ann. § 2652508(a) (Repl. 1997 and Supp. 2005). Accordingly, Citifinancial has no
independent right to a statutory baddebt deduction.
Next, Citifinancial argues that it is an assignee under its financing agreements with
the retailers (sellers), allowing Citifinancial to be a “taxpayer” entitled to relief under the Bad
Debt Statute. We addressed a similar argument in American Honda. There, Honda argued
that it became a taxpayer entitled to a refund under the Bad Debt Statute by virtue of its
financing agreements with the sellers of motor vehicles. However, having found that Ark.
Code Ann. § 2652510(a)(1)(A) (Repl. 1997) placed liability for sales taxes for motor
vehicle purchases on the consumers, rather than sellers, we held that Honda, as an assignee,
could not acquire from the sellers a right the sellers themselves did not possess, and therefore
could not become a taxpayer entitled to a refund under the Bad Debt Statute. American
5
07551
2
Honda, 360 Ark. at 217, 280 S.W.3d at 387. Here, Citifinancial revives this argument, but
contends that because the retailers (sellers) of tangible personal property under their
financing agreements are liable to remit sales taxes under § 2652508, Citifinancial
acquired all rights held by these retailers (sellers) — including the right to claim refunds
under the Bad Debt Statute. Citifinancial further argues that because the Bad Debt Statute
does not address the transfer of deductions or refunds or expressly prohibit such a transfer,
the court must turn to the common law to determine if rights under the Bad Debt Statute are
assignable.
Tax exemptions are strictly construed against the exemption, and a strong presumption
operates in favor of the taxing power. Rineco Chemical Industries, Inc. v. Weiss, 344 Ark.
118, 122, 40 S.W.3d 257, 260 (2001) (citing Technical Servs. of Ark., Inc. v. Pledger, 320
Ark. 333, 896 S.W.2d 433 (1995)). In strictly construing tax exemptions, this court has said
that “to doubt is to deny the exemption.” Pledger v. C.B. Form, 316 Ark. 22, 25, 871 S.W.2d
333, 334 (1994)(quoting Pledger v. Baldor Int'l, 309 Ark. 30, 33, 827 S.W.2d 646, 648
(1992)). Additionally, DF&A has interpreted the Bad Debt Statute to preclude assignment
of the bad debt refund or deduction, and review of state agency decisions is allowed only
under narrow circumstances. See Ark.Code Ann. § 2515212(h) (Repl. 2002); Tomerlin v.
Nickolich, 342 Ark. 325, 27 S.W.3d 746 (2000). While a statutory interpretation by the
agency responsible for its execution is not conclusive, it is highly persuasive and should not
2
We did not address the assignment issue in DaimlerChrysler, because it was not
raised on appeal. See DaimlerChrysler, 360 Ark. at 197, 200 S.W.3d at 410.
6
07551
be reversed unless it is clearly wrong. See Pledger v. Boyd, 304 Ark. 91, 93, 799 S.W.2d
807, 808 (1990).
A tax deduction is allowed only as a matter of legislative grace, and one claiming the
deduction bears the burden of proving that he is entitled to it by bringing himself clearly
within the terms and conditions as may be imposed by the statute. American Honda, 360
Ark. at 213, 200 S.W.3d at 384. The language and definitions of the Arkansas Gross
Receipts Act and the Bad Debt Statute are plain and unambiguous, and we conclude that
Citifinancial is not entitled to rights under the Bad Debt Statute by means of assignment.
Additionally, Citifinancial urges that we adopt the holding in Puget Sound National
Bank v. Department of Revenue, 123 Wash. 2d 284, 868 P.2d 127 (1994), a case cited in the
concurring opinion in DaimlerChrysler. In Puget Sound, the Washington Supreme Court
addressed a statute similar to the Arkansas Bad Debt Statute. Washington’s statutory
scheme allowed retailers to apply for refunds for sales taxes on financed debts that were
subsequently deemed uncollectible and written off for federal income tax purposes. The
Washington Supreme Court found that thirdparty financing companies, as the sellers’
assignees, held the same rights as the sellers under their financing agreements and were
eligible to claim tax refunds for bad debts.
3
Puget Sound represents the minority view. The majority of states that have addressed
3
See, e.g., Household Retail Services, Inc., v. Commissioner of Revenue, 448
Mass. 226, 859 N.E.2d 837 (2007) (assignee not a “vendor” as required by bad debt
statute; tax credits are conferred by legislative grace and are not assignable as a
contractual right); Department of Taxation v. DaimlerChrysler Serv. N.A., 121 Nev. 541,
7
07551
this issue have strictly construed baddebt statutes to find that the plain meaning of a tax
statute prevails over general assignment principles unless there is an express provision that
permits an assignment and grants an assignee the benefit of the tax credit. Further, in Puget
Sound, the Washington court emphasized that the definition of “seller” included every
“person” and that the relevant statute defined a “person” as an “ assignee.” 868 P.2d at 129
30 (citing Wash. Rev. Code §§ 82.08.010(2), 82.04.030). In contrast, the Arkansas Gross
Receipts Act does not include “assignee” in the definition of either a “person” or a
4
“taxpayer.” Ark. Code Ann. § 2652103(a)(8), (11) (Supp. 2005).
119 P.3d 135 (2005)(plain meaning of a tax statute prevails over general assignment
principles unless there is an express provision permitting the assignment and granting an
assignee the benefit of the tax credit); DaimlerChrysler Serv. N.A., v. Arizona Dep’t. of
Revenue, 210 Ariz. 297, 110 P.3d 1031 (2005)(tax credits are conferred by legislative
grace and are not assignable as a contractual right without explicit statutory language);
Chrysler Financial Co., L.L.C. v. Wilkins, 102 Ohio St.3d 443, 812 N.E.2d 948 (2004)
(precluding Chrysler from taking a bad debt deduction based on an alleged assignment
from car dealers); DaimlerChrysler Servs. N. Amer., L.L.C. v. State Tax Assessor, 817
A.2d 862 (Me. 2003) (finding DaimlerChrysler was not entitled to a bad debt deduction
as assignee of vehicle retailer); In re Appeal of Ford Motor Credit Co., 275 Kan. 857, 69
P.3d 612, 621 (2003) (“Neither the statute or regulation include the assignee of the
retailer. Although not specifically limited to the retailer paying the tax, the definition of
retailer is not broad enough to include the assignee of such retailer.”); SunTrust Bank,
Nashville v. Johnson, 46 S.W.3d 216 (Tenn. Ct. App. 2000) (precluding assignee of
dealers from taking a sales tax credit that is only available to the “‘dealer who has paid
the tax’”) (quoting Tenn.Code Ann. § 676507(E)(1)); Dept. of Rev. v. Bank of Amer.,
N.A., 752 So.2d 637, 643 (Fla. Dist. Ct. App. 2000) (prohibiting an assignee from
claiming a refund by concluding that rules governing tax statutes trump general
assignment principles).
4
Following our decision in DaimlerChrysler, the General Assembly made changes to §§
2652103 and 2652309 by Act 181 of 2007. These changes do not affect prior law, and the
General Assembly did not revise the Arkansas Code to allow assignees to become eligible for bad
debt refunds.
8
07551
Finally, Citifinancial claims that Arkansas now receives a windfall when consumers
default on their accounts because the state receives sales taxes from sellers on purchases that
Citifinancial finances for the full amount. While this may be the practical result of a default
of debt financed by Citifinancial, a person still must meet the definition of taxpayer and
satisfy all the requirements of the Bad Debt Statute to be entitled to a refund. Citifinancial’s
status as an assignee does not transfer liability for payment of the sales tax by sellers, nor
does the statutory definition of “person” or “taxpayer” under § 2652103(a) include
“assignees.” The retailers (sellers) at issue here received payment from Citifinancial for
purchases of tangible personal property, but the retailers remained liable for paying the sales
tax to the state. Although Citifinancial paid the retailers (sellers) the full, outstanding price
for the purchases, including the sales tax, Citifinancial does not file returns to report and
remit Arkansas sales taxes, and Citifinancial is not the party ultimately responsible for the
payment of the sales taxes that arise from the consumer purchases that they finance.
This court has repeatedly held that the determination of public policy lies almost
exclusively with the legislature, and the courts will not interfere with that determination in
the absence of palpable errors. See, e.g., Jordan v. Atlantic Cas. Ins. Co., 344 Ark. 81, 40
S.W.3d 254 (2001); Norton v. Hinson, 337 Ark. 487, 989 S.W.2d 535 (1999); McDonald v.
Pettus, 337 Ark. 265, 988 S.W.2d 9 (1999). While Citifinancial desires that Arkansas
provide tax relief for defaulted debt under its financing agreements for purchases of tangible
personal property, this is an issue of policy that should be addressed by the General
9
07551
Assembly.
Affirmed.
10
07551
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
