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Keywords

statuteburden of proof

appealappellantappellee

Related Cases

Arkansas Beverage Co. v. Heath, 257 Ark. 991, 521 S.W.2d 835

Facts

Arkansas Beverage Company, engaged in producing and distributing Pepsi Cola, contested a use tax assessment on returnable bottles, cardboard cartons, and machinery. The company argued that the bottles and cartons were integral to the finished product and thus exempt from use tax. The Chancery Court ruled that the bottles were for the company's use and subject to tax, while the machinery was not directly used in manufacturing. The company maintained that its operations qualified as manufacturing under the relevant statutes.

Arkansas Beverage Company brings this appeal from an adverse decree in its suit against appellee to recover a use tax deficiency assessment paid by it under protest. Appellant is engaged in the business of producing, selling and distributing bottled soft drinks called Pepsi Cola.

Issue

Whether the returnable bottles and cardboard cartons purchased by Arkansas Beverage Company were exempt from use tax as purchases for resale, and whether the machinery used in the production process was subject to use tax.

Let it be remembered that taxation is the rule and exemption the exception, so the heavy burden of clearly establishing the claimed exemptions beyond reasonable doubt rested upon appellant.

Rule

Tax exemption provisions must be strictly construed against exemption, and the burden of proof lies with the party claiming the exemption. The court must determine if the items in question are integral to the manufacturing process and if the company qualifies as a manufacturer under the Use Tax Act.

Tax exemption provisions must be strictly construed against exemption and to doubt is to deny the exemption.

Analysis

The court analyzed the nature of the transactions involving the bottles and cartons, concluding that the bottles were not purchased for resale but for use, as the company expected to reclaim them through a deposit system. In contrast, the cardboard cartons were found to be integral to the product and thus exempt. The court also determined that the machinery was directly involved in the manufacturing process, qualifying for exemption from use tax.

We regard substance to be more important than form in determining the nature of the transaction.

Conclusion

The court affirmed the lower court's ruling regarding the returnable bottles but reversed the decision concerning the cardboard cartons and machinery, holding that they were exempt from use tax.

The decree is affirmed insofar as it affects the bottles, but reversed as to the cardboard cartons, the case conveyor, the bottle conveyor and the electronic bottle inspector.

Who won?

Arkansas Beverage Company prevailed in part, as the court recognized the cardboard cartons and certain machinery as exempt from use tax, while it did not prevail regarding the returnable bottles.

We should say at the outset that as to the bottles, we consider the case of Hervey v. Southern Wooden Box, Inc., 253 Ark. 290, 486 S.W.2d 65 to be controlling in spite of the fact that there had been an administrative determination that the bottles were exempt.

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