Opinion ID: 1676688
Heading Depth: 1
Heading Rank: 6

Heading: Voluntary Payment of Taxes

Text: For their final point on appeal, Appellants argue that the trial court erred in finding that taxes were not refundable unless paid under protest. First, Appellants contend that any taxes paid after this action was filed were paid involuntarily. This action was filed in 1997, thus, they argue that because the taxes paid in 1997 would have been for the tax year 1996, any taxes from that point on would certainly be involuntary. This court recently reaffirmed the rule that taxes paid voluntarily are not recoverable. Hoyle, 334 Ark. 529, 975 S.W.2d 843. However, this court went on to hold in Hoyle that taxes paid after the filing of a complaint are deemed to be taxes paid under protest and, thus, not voluntary. Appellees concede that the trial court erred with respect to this point, but argue that because the taxes levied for 1996 were not illegal, any issue of voluntary payment is rendered moot. They base this argument on the trial court's erroneous determination that section 26-26-306 exempted the 1996 tax payments from the rollback provision of Amendment 59. Thus, Appellees' argument on this point fails. Appellants next argue that the trial court erred in finding that Appellants were not entitled to a refund of any taxes unless they were paid under protest. They contend that the common law should govern because there is no statute that requires payment under protest in the present situation. While it is true that there is no applicable statutory requirement for payment under protest, this court has held that it always follows the common-law rule prohibiting the recovery of voluntarily paid taxes. City of Little Rock v. Cash, 277 Ark. 494, 644 S.W.2d 229 (1982), cert. denied, 462 U.S. 1111, 103 S.Ct. 2464, 77 L.Ed.2d 1341 (1983). This court in Cash also held that this common-law rule applied to illegal exactions. Likewise, in Mertz v. Pappas, 320 Ark. 368, 896 S.W.2d 593 (1995), this court held that taxes voluntarily paid prior to the time when a suit was filed were not recoverable. In Mertz , this court set out the underlying principle behind its rule: When taxes are paid to a government they are deposited into that government's general revenues and ordinarily are spent within that tax year. However, when the government is put on notice that it may be required to refund those taxes, it can make the appropriate allowances for a possible refund. See Hercules, Inc. 319 Ark. at 707, 894 S.W.2d at 578. If we were to allow refunds for taxes voluntarily paid in previous years, it would jeopardize current and future governmental operations because current and future funds might be necessary for the refund. Id. at 370, 896 S.W.2d at 594. Appellants argue that voluntary is not used in its ordinary sense, but instead requires the existence of certain facts. Those facts include: (1) whether the payment was made with full knowledge of the facts; and (2) whether there was coercion involved. Appellants essentially argue that because a taxpayer must pay taxes or face the possibility of losing his property, coercion is a factor in this case. Appellees respond that this argument is without merit, even if it is determined that the taxes are illegal, and cites to cases holding coercion must amount to a situation where the taxpayer has no other relief available to him. See Chapman & Dewey Land Co. v. Board of Directors of St. Francis Levee Dist., 172 Ark. 414, 288 S.W. 910 (1926). 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. In Chapman, 172 Ark. 414, 288 S.W. 910, this court held that coercion that renders a payment of taxes involuntary must consist of some actual or threatened exercise of power possessed by the party exacting or receiving payment over the person or property, from which the latter has no reasonable means of immediate relief, except by making payment. Appellants contend that the statutory scheme governing the nonpayment of property taxes satisfies the requirement of coercion. They point to Ark.Code Ann. § 26-34-101 (Repl. 1997) to support their argument. This section provides in relevant part: (a) Taxes assessed upon real and personal property shall bind them and be entitled to preference over all judgments, executions, encumbrances, or liens whensoever created. (b) All taxes assessed shall be a lien upon and bind the property assessed from the first Monday of January of the year in which the assessment shall be made and shall continue until the taxes, with any penalty which may accrue thereon, shall be paid. Appellants further argue that the procedure for handling property not redeemed through payment of delinquent taxes provides additional support that their taxes were not paid voluntarily. See Ark.Code Ann. § 26-37-101 (Repl.1997). Appellants also point out that their pleadings contain statements that any taxes paid were not paid with full knowledge of the facts that rendered the demand illegal. They contend that there was no information available prior to the filing of the lawsuit that would have alerted the taxpayer that the assessment was illegal. They argue that the issue of whether there was full knowledge is a fact in dispute. We agree. Clearly, there are genuine issues of material fact surrounding the payment of taxes resulting from the 1990-95 reappraisal. These issues are whether the tax payments were made as a result of coercion and whether the payments were made with full knowledge of the facts. Accordingly, these issues require further development at the trial-court level in order to determine whether the taxes were paid voluntarily. In sum, because there are genuine issues of material fact surrounding the nature and scope of the Benton County reappraisals, the calculation of the rollback resulting from the 1996-97 reappraisal, as well as the voluntariness of taxes paid, we reverse the trial court's grant of summary judgment and remand this matter for proceedings consistent with this opinion. Reversed and remanded. G. WILLIAM LAVENDER, Spl. J., joins in this opinion. ARNOLD, C.J., and THORNTON, J., dissent. SMITH, J., not participating. W.H. DUB ARNOLD, Chief Judge, dissenting. I disagree with the majority as to the payment of taxes for the years 1990-95. The trial judge ruled that the appellants were not entitled to a refund of these taxes as they were not paid under protest. This court has consistently followed the common-law rule that prohibits the recovery of voluntarily paid taxes unless paid under protest. The facts present in this case are similar to the facts in Mertz v. Pappas, 320 Ark. 368, 896 S.W.2d 593 (1995). The appellants in the instant case did not plead, nor did they prove that there were any uncollected delinquent taxes as a result of the taxes levied for the years 1990 through 1995. In Mertz , this court held: 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, e.g., 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 576 (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. The reasoning underlying our cases is sound. When taxes are paid to a government they are deposited into that government's general revenues and ordinarily are spent within that tax year. However, when the government is put on notice that it may be required to refund those taxes, it can make the appropriate allowance for a possible refund. See Hercules, Inc., 319 Ark. at 707, 894 S.W.2d at 578. If we were to allow refunds for taxes voluntarily paid in previous years, it would jeopardize current and future governmental operations because current and future funds might be necessary for the refund. 320 Ark. at 370, 896 S.W.2d at 594. As recently as March of this year, this court handed down two decisions that reaffirmed the common-law rule that prohibits the recovery of voluntarily paid taxes. See Oxford v. Perry, 340 Ark. 577, 13 S.W.3d 567 (2000); Elzea v. Perry, 340 Ark. 588, 12 S.W.3d 213 (2000). We are bound to follow prior case law under the doctrine of stare decisis, and that policy is designed to lend predictability, as well as stability, to the law. Liberty Mutual Insurance Co. v. Thomas, 333 Ark. 655, 971 S.W.2d 244 (1998). In Parish v. Pitts, 244 Ark. 1239, 429 S.W.2d 45 (1968), this court held that precedent governs until it gives a result so patently wrong, so manifestly unjust, that a break becomes unavoidable. There is no reason to depart from established precedent in the instant case. In Lord v. Mazzanti, 339 Ark. 25, 2 S.W.3d 76 (1999), this court concluded that there was no reason for the court to reverse its interpretation of its own rules and throw precedent to the four winds; unfortunately, I believe that is exactly what the majority is doing in this case. The majority acknowledges our holding in Mertz v. Pappas, supra , as well as other similar cases, yet hinges its reversal on the supposition that there are issues present of whether the tax payments were made as a result of coercion and whether the payments were made with full knowledge of the facts. In so doing, the majority accepts the argument of the appellants that since the tax is a lien on real property, any payment would be considered under coercion. This argument is absurd. If this were true, all tax payments would be paid under coercion, which logically is not the case. Although voluntary payments existed in, Mertz , Oxford , and Elzea , this court held that in each case voluntary payments could not be recovered. If the majority is correct, then we were wrong in each of the prior cases. A taxpayer has the right to question an illegal tax but not years later, after voluntary payment. If a taxpayer wants to question real property taxes, he or she may do so in one of two wayseither the taxes must literally be paid under protest, or a suit must be filed before payment. It is neither fair nor right for a person to pay real property taxes while silently objecting to the payment, and then expect a refund years after the tax has been paid. This court held in Mertz that if we were to allow refunds for taxes voluntarily paid in previous years, it would jeopardize current and future governmental operations because current and future funds might be necessary for the refund. That is exactly the situation present in the instant case. We know that school districts and governmental units customarily spend all of their money designated for a particular year. If these school districts have to repay tax money for the years of 1990 through 1995, how will they do this? Current funds, as well as future funds, will undoubtedly have to be used; this means the children will suffer. The districts will have to evaluate what will be taken away first: athletics, school activities, or personnel. All of this could be avoided by simply following the common-law rule that there will be no recovery for taxes voluntarily paid without protest. I would follow the wisdom of the trial judge and affirm. For these reason, I respectfully dissent. THORNTON, J., joins.