Case Title: Little Rock Cleaning Sys., Inc. v. Weiss

Citation: 

Docket Number: 

State: arkansas

Court: Arkansas Supreme Court

Date: 1996-12-23T00:00:00Z

Document:
LITTLE ROCK CLEANING SYSTEMS, INC., d/b/a
Rainbow Sales & Service v. Richard WEISS,
Director, Arkansas Department of Finance and
Administration

96-463                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered December 23, 1996


1.   Motions -- motion to dismiss -- trial court's considerations.
     -- Rule 12(b)(6) of the Arkansas Rules of Civil Procedure
     provides that a motion to dismiss a complaint may be made for
     the complaint's failure to state facts upon which relief can
     be granted; when considering a Rule 12(b)(6) motion to
     dismiss, the trial court treats the facts alleged in the
     complaint as true and views them in the light most favorable
     to the party who filed the complaint; in deciding such
     motions, the trial court must look only to the allegations
     contained in the complaint; however, Rule 12(b) provides that
     it is improper for the trial court to look beyond the
     complaint to decide a Rule 12(b)(6) motion unless it treats
     the motion as one for summary judgment. 

2.   Motions -- motion to dismiss not treated as one for summary
     judgment -- chancellor did not look beyond complaint. -- The
     chancellor did not treat the motion as one for summary
     judgment because the express terms of the chancellor's order
     clearly stated that she considered only the motion for
     dismissal and brief in support; in addition, the record on
     appeal contained only the complaint, the motion to dismiss
     based on Rule 12(b)(6), and an answer.

3.   Civil procedure -- motion to dismiss -- must be read in
     conjunction with Ark. R. Civ. P. 8. --  Ark. R. Civ. P.
     12(b)(6) must be read in conjunction with Rule 8, which sets
     out the requirements for a complaint; a complaint that merely
     alleges conclusions without alleging facts does not state
     facts upon which relief can be granted and may therefore be
     subject to a Rule 12(b)(6) dismissal; in testing the
     sufficiency of the complaint on a motion to dismiss, the
     complaint is to be liberally construed as provided in ARCP
     Rule 8(f).

4.   Civil procedure -- complaint stated allegations and supported
     those allegations with facts -- chancellor erred in dismissing
     complaint. -- The facts presented were sufficient to survive
     a motion to dismiss for failure to state facts upon which
     relief can be granted where the complaint did more than state
     mere allegations; it supported those allegations with facts;
     the chancellor therefore erred in dismissing the complaint
     pursuant to appellee's Rule 12(b)(6) motion because, by
     alleging that the discount was not based on the value of the
     vacuum cleaners received by appellant, appellant was receiving
     value from its customers that was less than that assessed by
     appellee; facts alleging a claim for relief had been pleaded;
     the matter was reversed and remanded. 

     Appeal from Pulaski Chancery Court, First Division; Alice
Gray, Chancellor; reversed and remanded.
     Jack, Lyon & Jones, P.A., by:  Eugene G. Sayre, for appellant.
     Nina Orsini, for appellee.

     Donald L. Corbin, Justice.
     Appellant, Little Rock Cleaning Systems, Inc., d/b/a/ Rainbow
Sales & Service, appeals the order of the Pulaski County Chancery
Court dismissing with prejudice its complaint for a refund of
gross-receipts taxes it paid under protest.  Upon the motion of
Appellee, Richard Weiss, Director of the Arkansas Department of
Finance and Administration, the chancellor dismissed the complaint
pursuant to the provisions of ARCP Rule 12(b)(6).  This appeal
presents a question that requires interpretation of our statutes on
gross-receipts tax; jurisdiction is in this court pursuant to Ark.
Sup. Ct. R. 1-2(a)(3).  Appellant makes three arguments for
reversal.  We find merit to the first argument and therefore
reverse the order and remand for further proceedings.  Accordingly,
we need not address Appellant's other two arguments.
     Appellant is an authorized distributor and wholesaler of
Rainbow vacuum cleaners, which Appellant alleges have a unique
water filtration system that is superior to a regular vacuum
cleaner and bag.  Appellant sells Rainbow vacuum cleaners through
outside sales personnel who demonstrate the vacuums in customers'
homes.  During the audit period at issue in this case, the retail
list price of the Rainbow vacuum cleaner ranged from $1,031.00 to
$1,191.00.  If the customer paid cash, he received a $50.00 cash
discount.  Usually, however, customers purchased under an
installment sales contract.  If these customers allowed the
salesperson to dispose of their old vacuum cleaners, Appellant
offered them a "special discount," which ranged from $100.00 to
$150.00 over the audit period.  It is this special discount that is
at issue in this appeal.
     According to Appellant's complaint, the special discount was
offered as a marketing strategy that was designed to achieve three
objectives from the unavailability of the old vacuum:  (1) to
prevent repossession of a Rainbow vacuum cleaner sold on an
installment basis; (2) to put the customer in the position of using
the Rainbow vacuum cleaner to its full potential; and (3) to ensure
the customer's achievement of Appellant's claims of the Rainbow
vacuum cleaner's performance.   Appellant offered the same special
discount regardless of whether the customer's vacuum was new, old,
or even a nonelectric sweeper.  Appellant disposed of the used
vacuums by selling them in lots on an "as is" basis to the highest
bid from various used vacuum cleaner shops.  Generally, appellant
received an approximate average of $10.00 for each vacuum it sold
to the used vacuum cleaner shops.
     Appellant's salespeople computed and collected the gross-
receipts tax on each sale of a Rainbow vacuum cleaner.  They
calculated the tax based on the retail list price less any cash
discount or special discount taken by the customer.  Appellant's
monthly gross-receipts tax reports reflected this calculation of
the tax.
     Appellee's office audited Appellant's reports for the period
of July 1, 1988, through May 31, 1991, and assessed additional
taxes and interest of $10,279.12 against Appellant on the basis
that Appellant failed to charge and collect tax on the amount shown
on its invoices as a special discount that was deducted from the
retail list price.  The audit did not result in an additional
assessment of tax against the $50.00 cash discount.
     Appellant protested the additional assessment following the
audit, and the administrative law judge upheld the assessment.  The
commissioner of revenues refused Appellant's request pursuant to
Ark. Code Ann.  26-18-405 (Supp. 1995) to revise the
administrative law judge's decision.  Appellant therefore paid
under protest the additional assessment of $10,279.12 and filed
this suit for refund in chancery court pursuant to Ark. Code Ann.
 26-18-406 (Repl. 1992).  Appellant took a voluntary non-suit and
then refiled the suit for refund.
     In Appellee's Rule 12(b)(6) motion, he contended that gross
receipts includes the value of any property taken in lieu of or in
addition to money as consideration for a sale.  Appellee also
contended that Appellant purported to reduce the retail price of
its vacuums by the agreed value of the trade-in vacuums, which is
the amount of the special discount.  Appellee then argued that
Appellant's reduction of its profit margin did not change the tax
consequences of the transaction.  Appellee argued further that
Appellant's complaint was devoid of any authority requiring
Appellee to look beyond Appellant's invoices to determine the
actual value of trade-in merchandise rather than accepting
Appellant's determination of that value as stated in the invoices. 
The chancellor considered Appellee's motion and brief in support
and granted the dismissal with prejudice pursuant to the provisions
of ARCP Rule 12(b)(6).  This appeal followed.
     Appellant's first argument for reversal is that the trial
court erred in granting the Rule 12(b)(6) dismissal because the
complaint does indeed state facts upon which relief can be granted. 
We agree that the complaint states facts sufficient to survive a
Rule 12(b)(6) motion and reverse and remand for further
proceedings.
     In support of the additional assessment, Appellee relies on
the definition of "gross proceeds" or "gross receipts" in Ark. Code
Ann.  26-52-103(a)(4) (Supp. 1995), which includes the total
amount of consideration for the sale of tangible personal property,
"whether the consideration is in money or otherwise" and the
Arkansas Department of Finance and Administration's Gross Receipts
Tax Regulation GR-3.C.(3), which provides that gross receipts or
gross proceeds "includes the value of any property taken in lieu of
or in addition to money as consideration for a sale."  In defense
of this appeal, Appellee argues that the chancellor properly
determined that Appellee was correct in its interpretations of
Section 26-52-103(a)(4) and the corresponding regulations and was
therefore correct in granting the dismissal as a matter of law. 
Appellee's argument completely overlooks the fact that this was a
dismissal under Rule 12(b)(6) and not a judgment on the pleadings
or summary judgment.  Appellee, after all, is the one who moved for
the dismissal based on Rule 12(b)(6).
     Rule 12(b)(6) provides that a motion to dismiss a complaint
may be made for the complaint's "failure to state facts upon which
relief can be granted[.]"  When considering a Rule 12(b)(6) motion
to dismiss, the trial court treats the facts alleged in the
complaint as true and views them in the light most favorable to the
party who filed the complaint.  Neal v. Wilson, 316 Ark. 588,