Arkansas Supreme Court Says That Erroneous Assessment Property Tax Appeal Can Proceed

The Arkansas Supreme Court recently issued a pro-taxpayer decision recognizing an erroneous assessment property tax refund claim as a distinct action from a valuation dispute. DeSoto Gathering Company, LLC v. Hill ("DeSoto II"), 2018 Ark. 103 (Mar. 29, 2018). While not an earth-shaking decision, it is heartening to see the Arkansas Supreme Court recognize that an erroneous assessment claim is a viable independent action.

Arkansas offers two distinct paths for redress of property tax disputes:

  • Disputes over valuation of property must first go to the county equalization board and then may be appealed to county court. See Ark. Code Ann. §§ 26-27-317, 26-27-318. This is part of the annual property tax assessment cycle.
  • A refund claim for taxes erroneously assessed and paid, on the other hand, proceeds directly to county court and must be made within three years of when the tax was paid. See Ark. Code Ann. § 26-35-901. This is a procedure that is specifically not for valuation disputes.

The taxpayer DeSoto sought both remedies: It proceeded in a valuation dispute, which subsequently was dismissed for lack of jurisdiction because the original appeal to county court was not signed by an attorney. DeSoto Gathering Company, LLC v. Hill ("DeSoto I"), 217 Ark. 324 (Nov. 30, 2017). In the course of those proceedings, the taxpayer discovered that some of the property reported to Faulkner County actually had been in a different county, and so it filed a section 26-35-901 erroneous assessment refund claim.

Faulkner County sought to block the erroneous assessment claim based on Rule 12(b)(8) of the Arkansas Rules of Civil Procedure, under which the pendency of another action arising out of the same transaction or occurrence can be a defense to a complaint. Faulkner County said that the taxpayer should have brought up the erroneous assessment claim in the valuation proceedings. That argument was the basis for dismissal of the taxpayer's claim in county and circuit courts.

The Arkansas Supreme Court reversed, finding that the erroneous assessment claim was distinct from the valuation dispute. In addition, the Arkansas Supreme Court found that res judicata from DeSotodid not bar the erroneous assessment claim because there had been no jurisdiction.

DeSoto II demonstrates recognition by the Arkansas Supreme Court that an erroneous assessment claim is a unique proceeding that is distinct from county board of equalization valuation appeals. It should help ensure that counties seriously consider taxpayers' erroneous assessment claims.

(As an aside, given the holding of DeSoto I that corporate taxpayers must be represented by attorneys in a valuation appeal from a board of equalization to county court, a business taxpayer considering an erroneous assessment claim in county court under section 26-35-901 should strongly consider using legal counsel in order to avoid a potential unauthorized practice of law jurisdictional defect for the claim.)

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