Summary
In Hasha, for example, we held that a one percent sales tax approved by the voters of Fayetteville was an illegal exaction because the purpose of the approved tax was inextricably linked to the issue of school district bonds, and the tax could not be used to finance the bonds.
Summary of this case from Oldner v. VillinesOpinion
Appeal from Chancery Court; Jim Hannah, Chancellor.
PETITION FOR REHEARING
[311 Ark. 476A] DUDLEY, Justice.
On petition for rehearing, the City of Fayetteville and Arvest Trust Company, N.A., contend in separate petitions that the majority opinion 311 Ark. 460, 845 S.W.2d 500, contains both factual and legal errors. The facts stated in the majority opinion are correct, and we need not discuss the facts.
The petitions also allege that the majority opinion contains a legal error because it misapplies the case of Hartwick v. Thorne, 300 Ark. 502, 780 S.W.2d 531 (1989). The facts in Hartwick were that, in 1975, the citizens of North Little Rock approved an ad valorem tax sufficient to pay the principal and interest on $2,605,000 in bonds issued for the construction of public improvements. The election was called, and the bonds were issued pursuant to Amendment 13 to the Constitution of Arkansas, which has now been repealed by Amendment 62. The city ordinance calling for the election and the ballot title both [311 Ark. 476B] specifically proposed the construction of a drainage canal as a part of the public improvements.
The City commenced construction of all the improvements except the canal, which was to be constructed with the assistance of the federal government. At that time, 1976, the City placed $700,000 of the bond proceeds in a special account for the City's share of the cost of the canal. The interest earned was to remain in the account.
The other improvements were completed, but several years later, the United States Army Corps of Engineers determined that the canal was not feasible and the United States would not share in the cost of construction. In 1987, twelve years after the collection of the tax had commenced, the City sought to use the $700,000 principal, plus the $1,100,000 in accrued interest, for the construction of curbs and gutters and published an ordinance to that effect. Some taxpayers filed suit that same year, 1987, and sought a refund of the $1,800,000 in principal and interest.
The taxpayers did not seek to stop the collection of the tax for perhaps either of two reasons. First, after so many years, the bond issue may have been paid in full and the tax collections may have ceased. The opinion does not expressly state that such was the case, but the opinion clearly implies that it was the case because it provides: "The Bell opinion was almost directly on point with respect to the present case when it stated: '[W]e have held that the taxpayers, in instances of bond surpluses accumulating as a result of the retirement of the original bond issue, are entitled to a refund.' " Id. at 509, 780 S.W.2d at 534 (emphasis supplied). Second, even if the bond issue had not been paid in full at the time the taxpayers filed the suit for the refund, they may well have determined that they would be estopped from contesting the tax after so many years. See Lawrence County v. Townsend, 202 Ark. 887, 154 S.W.2d 4 (1941). After a trial on the merits, the chancellor ruled that an illegal exaction had occurred and ordered a refund. We affirmed and held that an illegal exaction occurs when the purpose of a tax cannot be accomplished and the government retains the tax funds. In the case at bar, we correctly cited Hartwick for the proposition that an illegal exaction occurs when a primary purpose of a tax cannot be accomplished.
In this case, the City of Fayetteville inextricably linked the vote on the tax with the bonds to be issued to finance buildings for the local school district. The school district bonds were a primary purpose of the tax. The City decided not to issue bonds to construct or finance buildings for the local school district. The taxpayers filed this suit to enjoin the future collection of the tax within the same year that the City made it known that it would not issue bonds to construct or finance buildings for the local school district. The taxpayers filed this suit to enjoin the future collection of the tax. We held the injunction should issue.
The petitioners for rehearing contend the holding is inconsistent with Hartwick v. Thorne because, they contend, under that case we should have only enjoined the collection of that portion of the sales tax which would have been required to pay the estimated debt service on the bonds to have financed the school buildings. The argument is without merit for a number of reasons, but the primary one is that Hartwick v. Thorne simply does not contain a holding about when an injunction against a tax should or should not issue. The taxpayers in Hartwick v. Thorne did not ask for an injunction against further collection of the tax, the trial court did not rule on such an issue, and we made no holding on such an issue. The opinion in that case discussed a remedy in light of a "surplus accumulating as a result of the retirement of the original bond issue."
In the case at bar, the vote for or against the tax was inextricably linked to the bonds to finance buildings for the local school district. Those who voted in favor of the tax solely or primarily in order to finance or construct buildings for the local school district were misled. Soon after they discovered that they had been misled, they filed this suit to enjoin further collection of the tax. They are entitled to such relief. See Arkansas-Missouri Power Co. v. City of Rector, 214 Ark. 649, 217 S.W.2d 335 (1949). This is not a case involving a surplus accumulating as a result of the original bond issue.
Petition for rehearing denied.
HAYS and GLAZE, JJ., dissent.
GLAZE, Justice, dissenting to Court's Denial of Petition for rehearing.
The majority tries to distinguish Hartwick by surmising that the bond issue there may have been paid in full and the tax collections may have ceased by the time the taxpayers brought suit to obtain a refund for the one purpose, a drainage canal, which had not been constructed because it became infeasible. Even if the majority court's guesswork in reading this assumption into the Hartwick opinion were true, it fails to answer the issue here. Nor is an answer to the issue here found in the majority's recital that Hartwick stands for the proposition that an illegal exaction occurs when a primary purpose of a tax cannot be accomplished. Here, the trial court made no finding that Fayetteville voters were misled and to the contrary, it spelled out in its order that the ballot contained twenty-two separate issues and the voters voted separately on each one. Yet, the majority in this appeal makes the finding of fact that the Fayetteville voters were misled. The court mentions no evidence to support its finding because there is no such evidence. Again, I suggest the Fayetteville voters read and understood the ballots which separately reflected each construction project issue and the exact amount each project would cost. If any project failed--as was the situation in Hartwick--the taxpayers would be effectually refunded that amount. If the monies were already collected, the funds would be remitted. If such funds had not yet been collected, then the court would enjoin collection of that portion of the sales tax required to pay the debt service on the failed project. In any event, like in Hartwick, this court's decision finding the $10 million construction of education facilities illegal should not impair the other improvement projects, especially where, as here, the voters separately voted and approved each issue. The court should limit its holding to enjoining the collection of that portion of taxes required to pay the debt service on the $10 million improvement project for the school district.
Although Justices Hays and Newbern took a more expansive view than did the majority in Hartwick, I think the concerns they expressed in their dissent are worth repeating here. Therein, they expressed their beliefs that North Little Rock should still be allowed to use the funds that the voters approved for the canal project for the other purposes stated in the ballot title. My colleagues Hays and Newbern wisely expressed their fear that the Hartwick decision might be misapplied in the future. They stated the following:
[W]e find nothing at all wrong with using the $700,000 plus the accumulated interest for street improvements in the Rose City area which would presumably have benefitted from the canal. Such a holding would not mean that a city government could hoodwink voters by intentionally promising that which it had no intention of delivering. Again, that is not an issue in this case, and [we] fear the precedent we will set by returning the bond money to the taxpayers instead of allowing it to be used for a purpose stated in the ballot title will haunt us. While the disappointment of those who hoped for the construction of the canal is understandable, [we] conclude that the city's proposed use of the bond money for one of the purposes stated in the ballot title does not constitute an illegal exaction.
This court has in the present case misapplied the Hartwick holding in a manner I find worse than Justices Hays and Newbern predicted. We should correct our error now, not later, by granting the appellees' petitions for rehearing.
HAYS, J., joins this opinion.