Weiss v. Chavers ( 2004 )

Jim Hannah, Justice,

dissenting. I respectfully dissent. I have two concerns. My first concern is the statement in the majority opinion that “taxes paid before the filing of an illegal-exaction complaint are considered to have been voluntarily paid.” No authority is cited, and I believe that this statement is overbroad. The majority also states that “[t]he general rule is that taxes paid before litigation commences are voluntary, while payments made after litigation has commenced are involuntary.” This statement is also overbroad.

In Weiss v. McFadden, 356 Ark. 123, 148 S.W.3d 248 (2004), this court also stated that “[i]t is well-settled that taxes paid prior to the filing of an illegal-exaction suit are deemed voluntarily paid.” McFadden, 356 Ark. at 129. For this proposition, this court in McFadden cited to Worth v. City of Rogers, 341 Ark. 12, 14 S.W.3d 471 (2000), and Mertz v. Pappas, 320 Ark. 368, 896 S.W.2d 593 (1995). The confusion appears to arise from the following language in Mertz:

Appellants do not have a claim because the taxes were voluntarily paid before suit was filed. We have consistently followed the common law rule that prohibits the recovery of voluntarily paid taxes, except where a recovery is authorized by a statute without regard to whether the payment is voluntary or compulsory. See, eg., City of Little Rock v. Cash, 277 Ark. 494, 644 S.W.2d 229 (1982); Searcy County v. Stephenson, 244 Ark. 54, 424 S.W.2d 369 (1968); Thompson v. Continental Southern Lines, Inc., 222 Ark. 108, 257 S.W.2d 375 (1953). We follow this rule even when an illegal exaction claim is based on constitutional grounds. Cash, 277 Ark. at 504-05, 644 S.W.2d at 233. When recovery is authorized by statute upon payment “under protest,” we literally require a payment “under protest.” Hercules, Inc. v. Pledger, 319 Ark. 702, 894 S.W.2d 526 (1995). There is an exception for payment under coercion, see Cash, 277 Ark. at 505, 644 S.W.2d at 233; Chapman & Dewey Land Co. v. Board of Directors, 172 Ark. 414, 288 S.W. 910 (1926), but that exception is not applicable to the case at bar.

Mertz, 320 Ark. at 370. This same language was cited by the dissent in Worth, supra.

While it is true that voluntary payment of taxes before the filing of the complaint extinguishes a claim of illegal exaction, the mere fact that the taxes were paid before the complaint was filed does not extinguish an illegal exaction claim. To extinguish a claim for illegal exaction, the taxes must be voluntarily paid. Worth, supra. The reason that voluntarily paid taxes are non-recoverable is that without a protest or notice of a dispute by a taxpayer, the taxing authority has no knowledge that there is a dispute and may disburse the taxes for payment of some governmental purpose before becoming aware of the dispute. Worth, supra. This could jeopardize current and future governmental operations because current and future funds might be necessary for the refund. Worth, supra; Mertz, supra. Language from Worth, supra, is helpful in understanding this issue:

In Brunson v. Board of Directors of Crawford County Levee Dist., 107 Ark. 24, 27, 153 S.W. 828, 829 (1913), this court held that:

Where a party pays an illegal demand, with full knowledge of all the facts which render such demand illegal, without an immediate and urgent necessity therefor, or unless to release (not to avoid) his person or property from detention, or to prevent an immediate seizure of his person or property, such payment must be deemed voluntary, and cannot be recovered back.

The court went on to hold in Brunson that the payments were voluntary because there was no immediate danger that the appellant would lose his property or suffer irreparable harm for failing to pay his taxes. Conversely, in Paschal v. Munsey, 168 Ark. 58, 268 S.W. 849 (1925), this court held that taxes were not paid voluntarily where the tax collector had the authority to take and sell the appellants’ land for failing to pay their taxes.

Worth, 341 Ark. at 28. The mere fact alone that the taxes were paid before filing of the suit does not mean that they were voluntarily paid and that recovery is prohibited.

I also disagree with the majority’s opinion regarding coercion. The majority states:

We have previously noted that Ms. Chavers paid her taxes without protest from 1991 until 1994. See Carson, supra. We conclude that there is no evidence to establish that DF&A exercised or threatened to exercise power over appellee or any other taxpayer in an attempt to exact payment of the allegedly illegal taxes. . . Moreover, there is no citation to evidence in the record to suggest that DF&A issued or threatened to issue certificates of indebtedness or Hens upon property of any of the taxpayers in an attempt to secure the payment of their taxes.

I do not believe that the DF&A needed to go so far as to threaten to issue a certificate of indebtedness. A certificate of indebtedness would only be issued after the taxes were overdue. The taxes were paid under the threat of the type of power the DF&A enjoys. Brunson v. Board of Directors of Crawford County Levee District, 107 Ark. 24, 153 S.W. 828 (1913), provides:

The facts alleged in the complaint in the instant case, however, do not in law constitute duress or compulsion. Appellant was in no immediate danger of being disturbed in the possession of his property, and he would not have jeopardized it by not paying his taxes at the time he did pay them. No irreparable injury could have resulted from his not paying them at the time. If he had refused payment to the collector, the latter had no authority to levy upon and seize his land to enforce payment. The statute requires suit to be brought by the board of directors of the leveee district to collect the taxes. In the event of such suit the plaintiff would have his day in court, and the opportunity to plead and to offer proof in support of his claim that the taxes were illegal.

Brunson, 107 Ark. at 27-8. In the present case, DF&A may issue a certificate of indebtedness. Chavers’s property would be subject to levy. The taxes were paid under compulsion and should be returned. • Therefore, I dissent.

We are losing sight of the reason for the voluntary payment rule. This court in Town of Magnolia v. Sharman, 46 Ark. 358 (1885), cited the following language from Erskine v. Van Arsdale, 82 U.S. 75 (1872):

Taxes illegally assessed and paid may always be recovered back, if the collector understands from the payer that the taxes are regarded as illegal and that suit will be instituted to compel the refunding of them.

Sharman, 46 Ark. at 363 (citing Erskine, 82 U.S. at 77). If the taxes were paid under compulsion, they are recoverable. Helena v. Dwyer, 65 Ark. 155 (1898). The idea is simple. Where the taxing authority has notice that payment of the tax is disputed, the taxing authority can set aside funds or do whatever is necessary to protect itself against possible loss of the funds. An exception to notice is where the taxing authority may collect without resort to the courts as in the present case. The rule is fair. This case should be affirmed.