Richard Weiss, Director of Arkansas Department of Finance and Administration v. Charles R. Maples, on Behalf of Himself and All Taxpayers Similarly Situated
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SUPREME COURT OF ARKANSAS
No. 06-742
RICHARD WEISS, DIRECTOR OF
ARKANSAS DEPARTMENT OF
FINANCE AND ADMINISTRATION,
APPELLANT,
Opinion Delivered March 22, 2007
VS.
APPEAL FROM THE PULASKI
COUNTY CIRCUIT COURT,
NO. CV 04-3685,
HON. MARY SPENCER MCGOWAN,
JUDGE,
CHARLES R. MAPLES, ON BEHALF OF
HIMSELF AND ALL TAXPAYERS
SIMILARLY SITUATED,
APPELLEES,
AFFIRMED.
TOM GLAZE, Associate Justice
This case concerns the constitutionality of the Emergency Income Tax Rule 2003-4
(“Emergency Rule”), adopted by the Department of Finance and Administration (DF&A) on
August 29, 2003, and applied in tax years 2003 and 2004. Appellee Charles R. Maples, on
behalf of himself and all taxpayers similarly situated, filed this illegal-exaction lawsuit,
claiming that the Emergency Rule violated the separation-of-powers doctrine and was
unconstitutional. The circuit court agreed and ordered a refund to those who, like Maples,
were improperly taxed in 2003 and 2004. On appeal, Appellant Richard Weiss, in his
capacity as director of DF&A, contends that the circuit court erred in determining that the
Emergency Rule was unconstitutional. We affirm.
To understand the development of this case, some background information is
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necessary. In Weiss v. McFadden, 353 Ark. 868, 120 S.W.3d 545 (2003) (McFadden I), this
court declared Ark. Code Ann. § 26-51-307(c) (Supp. 2003) to be unconstitutional. The
statutory provision at issue stated that no recipient of benefits from an individual retirement
account or from public or private employment-related retirement systems, plans, or programs
was allowed to deduct or recover his or her cost of contribution in the plan when computing
his income for state income tax purposes. In Weiss v. McFadden, 356 Ark. 123, 148 S.W.3d
248 (2004) (McFadden II), this court addressed the appropriate remedy or mechanism for the
tax refund resulting from McFadden I. In Weiss v. McFadden, 360 Ark. 76, 199 S.W.3d 649
(2004) (McFadden III), the issue was, again, the mechanism for the tax refund.
After McFadden I, but before McFadden II and III were decided, DF&A enacted
Emergency Income Tax Rule 2003-4. The Emergency Rule stated in relevant part:
1. For tax years beginning January 1, 2003, and thereafter, individual
recipients of benefits from a public or private employment-related retirement
system, plan or program shall be allowed to deduct or recover their cost of
contribution in the plan when computing income for state income tax purposes.
2. The deduction allowed for Arkansas state income tax purposes for cost of
contribution for each tax year shall be the same amount as allowed as a
deduction for cost of contribution for federal income tax purposes for the same
tax year pursuant to Internal Revenue Code Section 72 as in effect on July 1,
2003.
However, at that time, Ark. Code Ann. § 26-51-404(b)(24) (Supp. 2003) provided that
annuity income from employment-related retirement plans should be taxed in accordance with
Ark. Code Ann. § 26-51-307. See § 26-51-404(b)(24)(B).
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On March 29, 2004, Maples, on behalf of himself and all taxpayers similarly situated,
filed the instant illegal-exaction action in Pulaski County Circuit Court. Maples contributed
money previously taxed (“after-tax contribution”) by the State to a public or private
employment-related retirement system, plan or program. He received an annuity income from
that retirement plan in tax years 2003 and 2004. For those tax years, Maples was bound by
the Emergency Rule, requiring that annuity income from employment-related retirement plans
be taxed in accordance with Internal Revenue Code § 72. Maples’s illegal-exaction suit
requested that the Emergency Rule be declared illegal and unconstitutional, because it
conflicted with Ark. Code Ann. § 26-51-404(b)(24). Weiss responded, contending that there
was no conflict between the Emergency Rule and our statutory law. Both parties filed
motions for summary judgment. In response to Maples’s undisputed facts, Weiss admitted
the following:
[T]he Department of Finance and Administration used [the] Emergency
Income Tax Rule 2003-4, in conjunction with Ark. Code Ann. § 26-51-414, to
determine [Maples’s] Arkansas income tax liabilities for tax years 2003 and
2004, but that either source of authority was sufficient to mandate the use of
[Internal Revenue Code] § 72 for those years.
(Emphasis added). The circuit court eventually entered an order granting Maples’s motion
for summary judgment and denying Weiss’s motion. In the order, the circuit court concluded
that the Emergency Rule was directly contrary to Ark. Code Ann. § 26-51-404(b)(24)(B). As
a result, the court ordered Weiss to refund the income taxes for tax years 2003 and 2004.
From this order, Weiss filed a timely notice of appeal.
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Summary judgment is a remedy that should only be granted when there are no genuine
issues of material fact to litigate and when the case can be decided as a matter of law. Norris
v. Baker, 320 Ark. 629, 899 S.W.2d 70 (1995). Here, there are no factual issues in dispute;
judgment can be entered as a matter of law. Moreover, we review issues of constitutional
interpretation de novo, as it is for us to decide the meaning of a statute. Brewer v. Fergus,
348 Ark. 577, 581, 79 S.W.3d 831 (2002). In the absence of a showing that the circuit court
erred in its interpretation of the law, the interpretation will be accepted as correct on appeal.
Id.
In 2003 and 2004, Ark. Code Ann. § 26-51-404(b)(24) provided:
(A) Sections 72(a), (b), and (c) of the Internal Revenue Code of 1986, as in
effect on January 1, 2001, relating to the exclusion from gross income of
certain proceeds received under non employment-related life insurance,
endowment, and annuity contracts, is hereby adopted for the purpose of
computing Arkansas income tax liability.
(B) Annuity income received through an employment-related retirement plan
shall not be subject to the provisions of § 26-51-404(b). The income shall
instead be subject to the retirement income provisions of § 26-51-307.
Ark. Code Ann. § 26-51-404(b)(24) (Supp. 2003) (emphasis added).1 Under this provision,
§ 26-51-404(b)(24)(B) expressly directs that § 72 of the Internal Revenue Code does not
apply to annuity income received from an employment-retirement plan; instead, such income
1
During the 2005 legislative session, the General Assembly passed Act 189 of 2005,
which amended Ark. Code Ann. §§ 26-51-307 and 26-51-404. These amended statutes
now provide that § 72 of the Internal Revenue Code applies to annuity income received
from an employment-retirement plan. However, those 2005 amendments are not at issue
in the instant appeal.
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should be taxed in accordance with Ark. Code Ann. § 26-51-307. In contrast, the Emergency
Rule states that annuity income received from an employment-retirement plan should be taxed
in accordance with § 72 of the Internal Revenue Code. In his undisputed facts, Weiss admits
that the Emergency Rule applied to Maples, but Weiss contends that DF&A was allowed to
do so. Weiss’s argument is that § 26-51-404(b) did not expressly prohibit the use of Internal
Revenue Code § 72; rather, that section simply stated that taxpayers must use § 26-51-307.
Weiss asserts that subsection (c) became a nullity after § 26-51-307(c) was declared
unconstitutional in McFadden I, leaving only the remaining part of § 26-51-307 intact. Thus,
Weiss contends that, although § 26-51-307 was still intact, “the statute was not clear on how
to allow cost recovery under employment-related . . . annuity contracts.” Thus, Weiss’s
argument is that, because neither § 26-51-404(b)(24)(B) nor § 26-51-307 after McFadden I
contained express prohibitions against the use of § 72, the Emergency Rule is constitutional.
We must disagree.
The basic rule of statutory construction is to give effect to the intent of the legislature.
Ainsworth v. State, 367 Ark. 353, ___ S.W.3d ___ (2006); Arkansas Dep't of Econ. Dev. v.
William J. Clinton Presidential Found., 364 Ark. 40, ___ S.W.3d ___ (2005). Where the
language of a statute is plain and unambiguous, we determine legislative intent from the
ordinary meaning of the language used. Id. In considering the meaning of a statute, we
construe it just as it reads, giving the words their ordinary and usually accepted meaning in
common language. Id. We construe the statute so that no word is left void, superfluous, or
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insignificant, and we give meaning and effect to every word in the statute, if possible. Id.
However, when a statute is ambiguous, we must interpret it according to the legislative intent,
and our review becomes an examination of the whole act. Id. We reconcile provisions to
make them consistent, harmonious, and sensible in an effort to give effect to every part. Id.
We also look to the legislative history, the language, and the subject matter involved. Id.
Additionally, statutes relating to the same subject are said to be in pari materia and should
be read in a harmonious manner, if possible. Id. Remaining mindful of these tools of statutory
interpretation, we turn to the case at hand.
In McFadden II, we held in relevant part:
In [McFadden] I we held that both Ark. Code Ann. § 26-51-404(b)(24)(B) and
§ 26-51-307 are plain and unambiguous and we gave these statutes their plain
meaning. The express terms of § 26-51-404(b)(24)(A) clearly state that
nonemployment-related retirement plans are covered under IRS Code § 72,
while the express terms of § 26-51-404(b)(24)(B) clearly state that
employment-related retirement plans are subject to § 26-51-307. The retirement
plans at issue are employment-related; therefore, § 26-51-307 governs them.
Subsection (c) of § 26-51-307 was the only subsection of the statute that
addressed recovery of after-tax contributions. With the invalidation of
subsection (c), the DF & A urges that a “void” now exists in the tax code with
regard to after-tax contributions in employment-related retirement plans. The
DF & A argues that the trial court should have applied § 72 to fill that “void”
because, as it states in its argument, “it is logical to assume the General
Assembly would have intended ” for § 72 to be used as a guide.
There is nothing in § 26-51-307 to indicate that the General Assembly intended
that § 72 be applied to recovery of after-tax contributions in employmentrelated retirement plans. We will not read into a statute a provision not put
there by the General Assembly. Neeve v. City of Caddo Valley, 351 Ark. 235,
91 S.W.3d 71 (2002); State v. Goss, 344 Ark. 523, 42 S.W.3d 440 (2001). We
thus hold that the trial court did not err in refusing to apply 26 U.S.C. § 72 to
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employment-related retirement plans.
Weiss v. McFadden, 356 Ark. at 132, 148 S.W.3d at 254 (emphasis added). In this case,
when read in its entirety, § 26-51-404(b)(24) indicates that § 72 is not appropriate for use
under subsection (b)(24)(B). Under these provisions, the General Assembly could not have
been more clear that, at that time, § 72 should not apply to annuity income relating to
employment-related retirement plans. While § 72 applied to the proceeds received under nonemployment-related annuity contracts, see § 26-51-404(b)(24)(A), the General Assembly had
something else in mind with respect to annuity income relating to employment-related
retirement plans; that is, that it wanted another provision of our statute to apply instead of §
72. See § 26-51-404(b)(24)(B). As we noted above in McFadden I and McFadden II, § 2651-404(b)(24)(B) is plain and unambiguous. Moreover, as quoted above, McFadden II
clearly held that there is nothing to indicate that the General Assembly intended that § 72 be
applied to recovery of after-tax contributions in employment-related retirement plans, and we
refused to read into the statute a provision not put there by the General Assembly. McFadden
II , supra.2
Likewise, here, regardless of the status of § 26-51-307 after McFadden I, the General
Assembly made it clear that § 72 of the Internal Revenue Code should not apply to annuity
income received from employment-related retirement plans. The circuit court correctly
2
Weiss argues that our language from McFadden II on § 72's interaction with § 26-51-307
and § 26-51-404(b)(24) does not apply here because that conclusion in McFadden II only
applied to tax years 1999-2002. However, that argument is without merit because the
relevant parts of these statutes were not amended until 2005.
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determined that the Emergency Rule was in conflict with § 26-51-404(b)(24)(B).3
For his final point on appeal, Weiss argues that the circuit court erred in finding that
the Emergency Rule violates the separation-of-powers doctrine and is therefore
unconstitutional. Recently, in Department of Human Services v. Howard, 367 Ark. 55, ___
S.W.3d ___ (2006), we explained that our government is composed of three separate
independent branches: legislative, executive and judicial. Each branch has certain specified
powers delegated to it. Id. The legislative branch of the State government has the power and
responsibility to proclaim the law through statutory enactments. Id. The judicial branch has
the power and responsibility to interpret the legislative enactments. Id. The executive branch
has the power and responsibility to enforce the laws as enacted and interpreted by the other
two branches. Id. The “Separation-of-Powers Doctrine” is a basic principle upon which our
government is founded, and should not be violated or abridged. Id.
Arkansas Code Annotated § 19-1-208 provides:
The director of the Department of Finance and Administration is vested with
the authority to make such reasonable rules and regulations, not inconsistent
with the law, as shall be necessary or desirable for the orderly discharge of the
duties vested in the Department of Finance and Administration.
Id. (emphasis added). Thus, any rule or regulation adopted by the director of the DF&A must
be consistent with the law. See id. Stated simply, if a rule or regulation is inconsistent with
the law, the director acted beyond his or her statutory authority. Id.
3
Despite Weiss’s argument to the contrary, our decision in McFadden III did not approve
the use of § 72; rather, we affirmed the equitable remedy fashioned by the circuit court in
its application of the voluntary-payment rule for tax years prior to 1999.
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As stated in the above section, in 2003 and 2004, § 26-51-404(b)(24)(B) plainly
indicated that § 72 of the Internal Revenue Code does not apply to annuity income received
from employment-related retirement plans. In contrast, the Emergency Rule provided that §
72 of the Internal Revenue Code would apply to annuity income received from employmentrelated retirement plans.
Because an inconsistency existed, the Emergency Rule is
“inconsistent with the law,” and “infringe[s] a legislative function.” Accordingly, the
Emergency Rule is outside the scope of Weiss’s rule-making authority as set forth in § 19-1208. See also State v. Burnett, 200 Ark. 655, 140 S.W.2d 673 (1940)(holding that the
Commissioner of Revenues had no right to promulgate a rule contrary to statute).
Consequently, we also affirm the circuit court’s holding that the Emergency Rule violated that
separation-of-powers doctrine and is, thus, unconstitutional.
Affirmed.
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