Opinion No. ( 1992 )

The Honorable John W. Parkerson State Representative 520 Ouachita Avenue Hot Springs, AR 71901

Dear Representative Parkerson:

This is in response to your request for an opinion regarding the payment of personal property taxes on consignment inventory. You state that a constituent owns a resale and consignment shop for women's clothing and accessories. She takes clothing and accessories for a period of ninety days and at the end of the ninety-day period the owner has the option of picking up the merchandise or allowing the shop to donate the items to Goodwill. If the goods are sold during the ninety-day period, the owner is paid forty percent of the selling price and the shop receives sixty percent. The merchandise is not insured. The owner has the option to pick up the merchandise at any time during the ninety-day period.

Your question is whether the consignment inventory is subject to personal property taxes.

It is my opinion that, assuming the merchandise is not consigned to the shop owner from any place outside of Arkansas, it is not subject to personal property taxes, that is, the shop owner is not required to pay personal property taxes on such merchandise. Your question requires consideration of A.C.A. § 26-26-1203 (Repl. 1992), which states in relevant part under subsection (a) that:

[a]ny person owning or having in his possession or under his control, within this state, with authority to sell it, any personal property purchased with a view to its being sold at a profit, or which has been consigned to him from any place out of this state, to be sold within this state, shall be held to be a merchant for the purpose of this valuation.

Subsection (b) states that such property shall be listed for taxation.

The Arkansas appellate courts apparently have not had occasion to construe this provision. There are no reported decisions addressing this confusing language. The first part of subsection (a) would appear to encompass consignment inventory, but for the requirement that the property be "purchased with a view to its being sold at a profit." It is unclear to whom this phrase ("purchased with a view to its being sold at a profit") applies. In any event, however, resolution of your question may turn on the second part of subsection (a) which addresses, specifically, consignment merchandise. It may be concluded from this language that consignment inventory is to be taxed if it is consigned to the merchant from out-of-state. Assuming, therefore, that the goods are not consigned from any place outside of Arkansas, it is my opinion that the property is not subject to taxation.¹

It should be noted that this conclusion is reflected in the assessment manual, The Assessment of Personal Property inArkansas, which is codified and published by the Assessment Coordination Division of the Arkansas Public Service Commission. The manual states at page 22 that:

Inventory assessable to merchants include goods owned outright, floor planned goods, and consignments, if the consignor is located outside Arkansas. The only inventory items likely to be in the possession of a merchant but not assessable to him would be goods consigned from within the state, in which situation the goods would be assessable to the consignor at the merchant's location. A merchant holding consigned goods should report them to the assessor, together with complete information regarding the content and value of the consigned goods, the identity and location of the consignor, and any other information required by the assessor.

The foregoing opinion, which I hereby approve, was prepared by Deputy Attorney General Elisabeth A. Walker.

Sincerely,

WINSTON BRYANT Attorney General

WB:cyh

¹ Any question concerning the enforceability of this provision as to out-of-state property involves a separate question, and as such is not decided herein. A cursory review indicates, however, that it is probably constitutionally suspect.