“This appeal arises from a dispute of ad valorem taxes.”
Thus begins the Arkansas Supreme Court decision in Outdoor Cap Co v Benton County.
Outdoor Cap Co (Outdoor Cap) makes – as you can guess – caps and other headwear. They are located in Bentonville, where Walmart is headquartered.
Ad valorem taxes are paid on the value of real or personal property. An example is property taxes assessed on business equipment; another example would be the annual property taxes a Kentucky resident pays on his/her car
Outdoor Cap has been paying property taxes since 1976. In 2011 it filed for a refund of its 2008 and 2009 taxes. It wanted a refund of over $247,000.
The reason for the refund? They made a mistake. They paid taxes on their inventory and (some of) that inventory was entitled to a “freeport” exemption.
This is a term we have not discussed before. The easiest way to understand the freeport is to think of port cities. Products arrive on very large ships, are unloaded, catalogued, organized and prepared for continued transit. It would be bad practice to levy customs and duties simply because the products arrived at that particular port. It would make more sense to allow the products to pass through without assessment, to instead be taxed at their ultimate destination.
Substitute property taxes for customs and duties and you have the “freeport” exemption.
So Outdoor Cap made a mistake when it filed its personal property taxes and now wants some of its money back.
Benton County said “no.”
Outdoor Cap kept pursuing this until it wound up in the Arkansas Supreme Court.
The first thing that occurred to me is that perhaps Outdoor Cap was outside the refund period – you know: the “statute of limitations.” You have to get a refund claim in within a certain period of time, because to keep the claim period open indefinitely would impair the administration of the tax system
I was wrong. This was not about the statute of limitations. This was about whether Outdoor Cap paid something that the state was required to repay.
Outdoor Cap made three arguments:
(1) The property was exempt from taxation.
Outdoor Cap of course argued that the property was erroneously assessed.
“The principle is an ancient one in the common law, and is of general application. Every man is supposed to know the law, and if he voluntarily makes a payment which the law would not compel him to make, he cannot afterwards assign his ignorance of the law as a reason why the State should furnish him with legal remedies to recover it back.”