Administrative Decision Reminds Taxpayers that You Can Call and Talk to DFA, but Don’t Rely on Oral Advice

By T.J. Lawhon

In a case before the Arkansas Department of Finance and Administration (“DFA”) Office of Hearings and Appeals, DFA issued an Administrative Decision in Docket No. 18-211 (Mar. 12, 2018) regarding a matter of reliance upon DFA’s communication with a taxpayer. The taxpayer protested an assessment of sales tax regarding the taxability of its business transactions. The taxpayer is a retail repair and installation business, including inspection and monitoring services. DFA contented that some of the taxpayer’s transactions were taxable, but many were exempt. Specifically, DFA determined that the taxpayer had failed to collect sales tax on the cleaning/calibration and labor performed on certain personal property. The record reflects that:

In its protest, Taxpayer claimed to have received advice on the taxability of its services from the Department and claims to have relied on those statements. However, there is neither written evidence of any improper actions or statements nor a compelling reason for the Department to be estopped from enforcing the tax law.

The taxpayer’s president admitted that it was his responsibility to know the law but the sales tax rules were difficult to determine how to correctly collect sales tax so he relied on multiple communications with DFA. DFA admits that the taxpayer may have been given some bad information by DFA’s Sales and Use Tax Section, but the taxpayer did not obtain a written legal opinion from DFA.

It is clear that Arkansas Gross Receipts Tax Rule GR-9 provides that the services of “alteration, addition, cleaning, refurbishing, replacement and repair” of electrical devise and machinery of all kinds are subject to sales tax, the taxpayer sought guidance by calling DFA staff for clarification. Based on such guidance, the taxpayer sought mercy from DFA. However, DFA has no power to grant equitable relief.

While the taxpayer was doing what it thought best to seek help from DFA regarding taxability of its sales, it failed to obtain a binding written letter opinion regarding the taxability of its services under Arkansas law. Legal opinions issued by DFA are governed by Arkansas Gross Receipts Tax Rule GR-75, which provides that taxation or exemption of a sale may be substantiated by having a legal opinion rendered by DFA and may be relied upon for up to three (3) years, barring some substantive change in legislation, court decisions or DFA rule changes.

Here, DFA was quick to point out that “lack of actual or constructive knowledge of a tax levy is inadequate to avoid imposition of the tax. Every person is presumed to know the law and lack of knowledge is not an excuse for failure to comply with the mandates of the law. Absent a binding Letter Opinion issued pursuant to Arkansas Gross Receipts Tax Rule GR-75, informational assistance provided by an employee of the Department does not relieve a Taxpayer of this presumption or the requirement of compliance.”

This case illustrates the necessity of obtaining a written letter opinion from DFA when a taxpayer is unclear or uncertain about the taxability of certain business transactions.

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