There is such a thing as a free lunch in Arkansas, but thanks to a recent court ruling you still have to pay taxes on it. That ruling could also have led to an enormous expansion of state power.
Flis Enterprises owns 16 Burger King franchises in central Arkansas. It gives its managers one free meal per shift. The state Department of Finance and Administration said that Flis had to pay taxes on the retail value of those hamburgers and fries, while Flis maintained it should pay only on the wholesale price of the ingredients that go into the meal. Given the number of meals doled out over the years, the dispute involved tens of thousands of dollars.
None of this would have mattered much to anyone not directly involved, except for one thing: It comes on the heels of another ruling from the state supreme court, which held that the Arkansas Constitution grants the state sovereign immunity from lawsuits. Put simply, that means state agencies can’t be sued by private individuals and companies seeking to dispute a regulation, ruling or tax.
Gov. Asa Hutchinson has instructed his agencies not to invoke sovereign immunity. As a matter of policy, he wants citizens who are upset about a decision to have access to the courts for redress. “I’ve asked my agencies not to assert sovereign immunity without the approval of the governor’s office,” Hutchinson told an Arkansas radio station. “That way, we can control it and make sure that citizens have access to the courts whenever it’s appropriate.”
The Supreme Court signaled it would use the Burger King case to determine whether sovereign immunity is optional. If the court had ruled that sovereign immunity was simply a given, rather than being something state agencies can invoke, that would have created a prohibition on any lawsuits against the state. Last month, however, the court punted. Since the parties to the case hadn’t raised the issue themselves, the majority ruled, it wasn’t an appropriate time to address the larger immunity issue. The state won the case -- Flis will pay a higher tax on free meals -- but not on the grounds of sovereign immunity.
Courts in other states with sovereign immunity clauses in their constitutions, such as Alabama and West Virginia, have carved out exceptions. The Arkansas rulings don’t do that. They’re similar to a recent decision by the state Supreme Court in Georgia that disallows private lawsuits against the state. “Now, if local governments or the state take action, there’s no way to stop them,” says state Rep. Wendell Willard.
This may seem like a technical legal question, but you can imagine the potential for abuse if state agencies are able to take any action they like, without the possibility for citizens to appeal. A fast food outlet’s tax bill could shoot up, or a parent adopting a child through a public agency could be totally misled about her behavior or background. There’d be no penalty for the state and little hope of overturning a blatantly bad policy. “We’ve had some issues come up even with examining a zoning decision,” Willard says. “When people start seeing that, there’s going to be a revolution on our hands.”