Yesterday's oral argument in Walther v. Flis Enterprises, Inc., no. CV-17-240, should provide some comfort to taxpayers concerned about losing their right to litigate disputed tax claims where the tax in question has been paid to the state. At oral argument, counsel for the Arkansas Department of Finance and Administration explained that they had wanted to bring the issue to the court's attention but were not themselves advocating for sovereign immunity. Without DFA advocating for sovereign immunity, the justices seemed reluctant to apply it themselves sua sponte. Of course it remains to be seen how the written opinion comes out, but at least it seemed that the justices did not want to apply sovereign immunity to the case. Most of the argument was spent addressing the substantive tax question about the tax base for sales tax on withdrawals from stock.
DFA's refusal to claim sovereign immunity in oral argument is consistent with indications that the Governor's Office and DFA leadership are taking a policy position against asserting sovereign immunity in tax cases. Assuming that is the case, the main risk would be the Supreme Court raising the issue on its own (which now seems less likely) or a Circuit Court raising sovereign immunity on its own in subsequent litigation. The exact approach of the Arkansas Supreme Court in how it decides Flis Enterprises will be critical in evaluating this risk.