1 00:00:00,000 --> 00:00:07,000 All right. Here you need to do a lot of trouble. We've worked on a part of this kind of debate. 2 00:00:07,000 --> 00:00:11,000 It's a poor little son of a court from there to give you 15 shall we hear it? 3 00:00:11,000 --> 00:00:21,000 They're going to have a space to say what it's called, and the problem will be, especially for you. 4 00:00:21,000 --> 00:00:24,000 Thank you. 5 00:00:24,000 --> 00:00:46,000 This time we'll take up oral argument in the case of Tyson Chicken versus Jim Hudson, 6 00:00:46,000 --> 00:01:10,000 CB-2516 from Washington County Circuit Court, Cody Keys, and Corey Cox have been appointed to serve as special justices in place of justices Hudson and just as way up. 7 00:01:10,000 --> 00:01:23,000 The court acknowledges the appeal of the attorney. 8 00:01:23,000 --> 00:01:28,000 Good morning, Madam Chief Justice, and may it please the court. My name is Michael Thompson. 9 00:01:28,000 --> 00:01:31,000 I'm at the law firm of right Lindsay and Jennings LLP. 10 00:01:31,000 --> 00:01:39,000 I am here on behalf of the Appellant to my collectively refer to as Tyson, and I will reserve four minutes in my time for a battle. 11 00:01:40,000 --> 00:01:48,000 This case, like all tax cases, should be decided based on the plain language of the statutes passed by our Arkansas General Assembly. 12 00:01:48,000 --> 00:01:57,000 Now, this case specifically concerns the application of the sale for resale exemption to certain pallets, to Tyson, 13 00:01:57,000 --> 00:02:06,000 rents from a company called CHAP, and uses then to ship its meat and other food products to its customers. 14 00:02:07,000 --> 00:02:25,000 Now, the sale for resale exemption, founded Arkansas Code annotated 262-401-12, by its plain language, has just two requirements that there be a sale to the right kind of buyer, of course, and that there be a resale. 15 00:02:25,000 --> 00:02:39,000 Now, in this case, it is beyond dispute that we have a sale, and initial sale in this in the lease of these pallets from CHAP 2000, and we know that, but we have a code that tells us so. 16 00:02:39,000 --> 00:02:53,000 Arkansas Code annotated 262-103-31-B1, expressly defines sale to include the lease or rental of tangible personal property. 17 00:02:53,000 --> 00:03:04,000 And of course, the code, that section also defines sale to include both the transfer of title or the transfer of possession of tangible personal property. 18 00:03:04,000 --> 00:03:11,000 And so, and the other thing we know that can make us clear that this is certainly a first sale, is this is an exemption case. 19 00:03:11,000 --> 00:03:18,000 And if there were no first sale, we wouldn't have to reach the exemptions, there would simply be no tax owed. 20 00:03:18,000 --> 00:03:21,000 And so, we know we have a first sale. 21 00:03:21,000 --> 00:03:23,000 The question then becomes, do we have that? 22 00:03:23,000 --> 00:03:26,000 Can I ask then what deed does? 23 00:03:26,000 --> 00:03:27,000 I'm sorry. 24 00:03:27,000 --> 00:03:32,000 Subsection, subsection D, so you're referring to 31A. 25 00:03:32,000 --> 00:03:33,000 Yes sir. 26 00:03:33,000 --> 00:03:39,000 31B, but there's also 31D that talks specifically about leasing and rental, tangible personal property. 27 00:03:39,000 --> 00:03:44,000 So, how, sort of, we are to have a definition and then have a special operator. 28 00:03:44,000 --> 00:03:47,000 Well, I guess you tell me if this is, this is operational. 29 00:03:47,000 --> 00:03:48,000 D is definitional. 30 00:03:48,000 --> 00:03:52,000 How that works for the rest of the statute of little confusing structure. 31 00:03:52,000 --> 00:03:53,000 Yes sir, honor. 32 00:03:53,000 --> 00:04:00,000 My view of subsection D is, this is a little bit of a weird place to put subsection D in a definition section. 33 00:04:01,000 --> 00:04:15,000 I believe subsection B is definitional and subsection D is then telling us how we specifically calculate the tax when it's a lease or rental of tangible personal property, how we calculate the tax. 34 00:04:15,000 --> 00:04:29,000 But, for this purpose in this case, what matters is that a sale in our statutes, unequivocally unambiguously includes the lease or rental of tangible personal, tangible personal property. 35 00:04:29,000 --> 00:04:40,000 And then we look at the sale for resale exemption and it does not carve out any special provisions for when the initial sale is a lease or rental. 36 00:04:40,000 --> 00:04:42,000 And so, but how does that work? 37 00:04:42,000 --> 00:04:58,000 I mean, if you have D that prescribes specific ways for doing this and says this is what applies in the case of a lease or rental, tangible personal property, why are we jumping over to this to A and B instead of focusing on D, which seems to be more specific. 38 00:04:58,000 --> 00:05:12,000 But because your honor in this being an exemption case by claiming an exemption, we are already essentially conceding that but for the application of the exemption, this is taxable property. 39 00:05:12,000 --> 00:05:24,000 And D addresses how we calculate the tax on leases or rentals and that's just not an issue in this case, we're simply we don't have an issue in this case related to how to calculate the tax. 40 00:05:24,000 --> 00:05:33,000 We were saying we were put in the taxable bucket by this statute and then taken out of the taxable bucket by an exemption in the sale for resale. 41 00:05:33,000 --> 00:05:43,000 So it's just to make sure I understand the fact that an initial matter when you paid taxes, I guess, check collected them when you paid taxes to check, which passed on to the state. 42 00:05:43,000 --> 00:05:46,000 You did so for cement to section, subsection D. 43 00:05:46,000 --> 00:05:58,000 Your honor, I don't have detailed knowledge of how they were calculated but there hasn't been an issue, this is not an audit case where there was an issue as to whether or not we had calculated the taxes that had been remitted correctly. 44 00:05:58,000 --> 00:06:06,000 So then the only issue is whether or not there's an exemption, there's no dispute about you properly remitted or if the exemption doesn't apply, you owe the taxes. 45 00:06:06,000 --> 00:06:15,000 Yes, your honor, this is a refund case, so again, this didn't come out of an audit, this came out of a request for a refund of taxes that were already paid. 46 00:06:16,000 --> 00:06:24,000 And again, the important thing though is that Arkansas statutes expressly make least your rental of tangible personal property a sale. 47 00:06:24,000 --> 00:06:40,000 And frankly, that's not the ordinary meaning of the term sale, but the legislature has the ability and it has done so in this statute to include things in the term sale that in the ordinary meaning of that word would not be included. 48 00:06:40,000 --> 00:07:06,000 So picking up on that point then the phrase theology sale for resale why am I looking at the word sales or say it's a sales for resale why am I breaking that phrase up why don't I view that almost like a term of art that is sale for sales for resale it's a holistic term rather than breaking it up and plugging in the definition of sale to sale and then the definition of sale for resale why am I breaking it up that way instead of treating it as a term of art. 49 00:07:07,000 --> 00:07:16,000 Because that's the way this court has done it and I mean linguistically they use the word sale twice in that in that phrase they use sale and resale and read just means again. 50 00:07:16,000 --> 00:07:29,000 And that is how this court has examined sale for resale exemption cases is they have essentially looked at both transactions the initial transaction from the taxpayer claiming exemption. 51 00:07:29,000 --> 00:07:42,000 And then the subsequent transaction where that trend that taxpayer resels it and in this case law the resale component has just come down to do we really believe that second transaction was in fact a sale. 52 00:07:42,000 --> 00:07:49,000 Are there cases involving leases or rentals that were we done that though or has it always been sort of final sales. 53 00:07:49,000 --> 00:08:02,000 To my knowledge they have all been final sales but again the statute itself doesn't give us any textual basis to draw some distinction between leases and other sales. 54 00:08:02,000 --> 00:08:12,000 I've then asked about the interaction and I know there's briefing on this but the interaction between A and B. 55 00:08:12,000 --> 00:08:18,000 The way I mean let me throw this out is one possible reading is that. 56 00:08:18,000 --> 00:08:25,000 12 A is fairly broad but 12 B is the weird number statute but 12 B Roman at one. 57 00:08:25,000 --> 00:08:46,000 Says that essentially when goods wears merchandise and properties sold for use in manufacturing so in specific things or for preparing for sale can be classified as having been sold for the purposes of resale dot dot dot only in the event that they become a recognizable integral part of the manufactured printed compounded prepared products. 58 00:08:46,000 --> 00:09:01,000 So tell me if this is wrong if I'm reading that statute you've got a broad statute and 12 A it says all sales for resale and then you've got B that would seem to say if it's one of these things and it's used in this particular way. 59 00:09:01,000 --> 00:09:09,000 It's only a sale for resale to the extent it becomes a recognizable integral part of the manufacturer produced et cetera product is that right around. 60 00:09:09,000 --> 00:09:38,000 I believe that's correct in the Arkansas beverage case they're Pepsi tried to treat subsection B as a separate way to get the sale for resale exemption and this court were buffed that idea and said essentially with these types of goods used for these purposes you have to both meet a and it has to be recognizable and integral to the to the final product. 61 00:09:40,000 --> 00:09:51,000 And ultimately the Arkansas beverage case turned on on the as to the glass bottles turned on the fact that they did not find the subsection A was met. 62 00:09:51,000 --> 00:10:07,000 And then on sort of that definition the word recognized well I couldn't find any cases it really explained what recognized well and that sentence means it seemed like most of the cases focused on the integral part to have a understanding for what recognized well mean what the standard for that is. 63 00:10:07,000 --> 00:10:19,000 So what you're on our presumption is that the legislature uses the plain meaning of the terms unless they do something like what their definition of sale and make it clear that they're not using the ordinary meaning of the term. 64 00:10:19,000 --> 00:10:28,000 So my authority is you look up recognized well in a dictionary and that's what that's what it means that you can see it and look at it and oh I recognize that. 65 00:10:28,000 --> 00:10:36,000 You have to be able to see it as part of the final product. 66 00:10:36,000 --> 00:10:46,000 I don't know how many steps you I mean you know they're recognized well parts inside of a car inside of a car that you'd have to lift the hood up and I don't know that that would defeat the that you have to lift the hood would have to. 67 00:10:46,000 --> 00:10:48,000 But I mean I guess on a spectrum here between. 68 00:10:48,000 --> 00:11:05,000 I'll give you just a hypothetical example you know plastic I would say a biplastic pellets that are melted down to manufacture widgets the final product my final widgets go plastic does that need this definition doesn't. 69 00:11:05,000 --> 00:11:13,000 You're on I haven't really considered your hypothetical and here's why these pallets are blue and made of wood they set at the bottom of the pallet load. 70 00:11:13,000 --> 00:11:19,000 So whatever definition you want to give a recognizable these pallets are going to be it. 71 00:11:19,000 --> 00:11:28,000 I don't know that there is a definition we can come up with that would exclude something that is blue and painted wood and is right there at the bottom. 72 00:11:28,000 --> 00:11:36,000 So the definition then is anything that I can see and then the quiet so that's why you focused on the integral part whether or not it's a part of the product. 73 00:11:36,000 --> 00:11:45,000 Yes your honor and again they've just used the term there's not a definition of it provided the statute I assume they're using the plain meaning of the term and intended that. 74 00:11:45,000 --> 00:11:54,000 And the integral is my understanding just simply means essential to completeness and argument on that is you can't sell a pallet load to chicken without a pallet. 75 00:11:54,000 --> 00:11:56,000 But you can sell chicken without a pallet, right? 76 00:11:56,000 --> 00:11:57,000 Sure you can. 77 00:11:57,000 --> 00:12:04,000 In fact the consumer doesn't receive the pallet the consumer of the ultimate and product if I see one of these at Costco when I go and buy a chicken. 78 00:12:04,000 --> 00:12:07,000 I don't get the pallet I get the chicken. 79 00:12:07,000 --> 00:12:17,000 The consumer is not our customer your honor art we sell to retailers and we sell we sell and deliver these these chicken products to them on on the pallet load that's why we have the pallets. 80 00:12:17,000 --> 00:12:27,000 But the retailer receives the pallet but it temporary I guess for lack of a better way to put it temporarily receives the pallet which I think gets to some tension here between. 81 00:12:27,000 --> 00:12:31,000 The term lease or rental into this particular provision. 82 00:12:31,000 --> 00:12:39,000 If it's an integral part how can it be an integral part if the your consumer the distributor of Costco, SAMs, COVID, etc. 83 00:12:39,000 --> 00:12:44,000 Doesn't actually keep that item it goes back to the back to CHIP. 84 00:12:44,000 --> 00:12:56,000 Well our argument there is that from Tyson's perspective we shouldn't collapse these into one transaction between CHIP to our customer. 85 00:12:56,000 --> 00:13:06,000 Because it is there's two transactions and here in a sale for resell exemption is the sale and a resell and from our perspective from Tyson's perspective those pallets are never coming back to Tyson. 86 00:13:06,000 --> 00:13:19,000 And Tyson doesn't exercise any control over those pallets once they go to the customer and Tyson ensures that economically we don't have to care what our customer does with the pallets from Tyson's perspective. 87 00:13:19,000 --> 00:13:28,000 You're the are you aren't you the party that actually rent them isn't the contract for renting the CHIP pallets a Tyson's contract not a distributor or Costco SAMs closed. 88 00:13:28,000 --> 00:13:35,000 Yes your honor we rent the you frame the contract which means you do control the terms for providing the items don't you. 89 00:13:35,000 --> 00:13:48,000 And what I'm telling you is that we don't exercise Tyson Tyson's a big company they certainly could exercise whatever control they wanted to they do not exercise any control that on the pallets after they transfer them to their client. 90 00:13:48,000 --> 00:13:56,000 Their clients can do whatever they want with them from Tyson's perspective and it won't reach any contract with Tyson for their customers to do anything they want. 91 00:13:56,000 --> 00:14:05,000 But as a matter of contract law if CHIP simply didn't provide the pallets to Tyson's I said you would do something about that right so you do exercise some degree of control under contract. 92 00:14:05,000 --> 00:14:07,000 I'm not sure I follow your question. 93 00:14:07,000 --> 00:14:20,000 You're saying you exercise no control but you do exercise control in the sense that you executed to contract and CHIP supplies those pallets to Tyson like that's a degree of control if Tyson air if CHIP didn't supply the pallets. 94 00:14:20,000 --> 00:14:23,000 You'd be able to enforce your contract rights right. 95 00:14:23,000 --> 00:14:31,000 Yes and the first transaction the which is statutory a sale from CHIP to Tyson there's a contract between CHIP and Tyson. 96 00:14:31,000 --> 00:14:40,000 So you you also I think focusing the brief a lot on cost and the cost being passed on to the distributor. 97 00:14:41,000 --> 00:14:43,000 Why does that matter? 98 00:14:43,000 --> 00:14:46,000 I recognize the case is sort of hint at that but what does that actually matter? 99 00:14:46,000 --> 00:14:50,000 I mean my sense of business is that costs are always passed on in some sense or another. 100 00:14:50,000 --> 00:14:57,000 If I go to a restaurant the cost of inflamed the staff the cost of the water to wash the dishes it's always part of the calculation. 101 00:14:57,000 --> 00:14:59,000 So why should that matter? 102 00:14:59,000 --> 00:15:00,000 What you're saying? 103 00:15:00,000 --> 00:15:19,000 To be frank, from the plain language of the statute, I'm not sure that it should. A sale is simply the transfer of possession for valuable consideration. But this court has focused on the amount of consideration before it was willing to find a legitimate bonafide sale, where it has refused to find a resale of the product. 104 00:15:19,000 --> 00:15:28,000 Instead of a purchase price charge to the second customer, it was a refundable deposit that was below the cost of the item. 105 00:15:28,000 --> 00:15:43,000 And this court has refused to convert a refundable deposit into a purchase price when it was below the cost. And as refused to say, yeah, there's a sale there. 106 00:15:43,000 --> 00:15:53,000 But I focused on we passed on the cost because the case all told me to. But as long as we got some valuable consideration return, I think that would have. 107 00:15:53,000 --> 00:16:10,000 I thought, but didn't those earlier cases, I think, you've quite never wrong because I may be, those earlier cases are prior to the statute, including specific provision that would have included leases, rental agreements, etc. So what the court was confronting there was a situation that wouldn't have been covered by what's in the statute now. 108 00:16:10,000 --> 00:16:12,000 Am I running out that? 109 00:16:12,000 --> 00:16:18,000 You're on our, I don't have a detailed knowledge of the legislative history of the definition of sale and the tax and statute. 110 00:16:18,000 --> 00:16:24,000 I could certainly submit a supplemental brief on that, but I don't have detailed knowledge of that fact. 111 00:16:24,000 --> 00:16:32,000 Mr. Thompson, are you relying on the mountain valley case where the bottles were given to the consumer and they were taxed? 112 00:16:32,000 --> 00:16:36,000 Yeah, initially, but the consumer, you're lying on that case in support of your argument, right? 113 00:16:36,000 --> 00:16:45,000 That is certainly a case we rely on in support of our argument. It, to me, defeats the idea, the state has made a big deal out of return ability. 114 00:16:45,000 --> 00:16:50,000 In the mountain valley, they were able to keep the bottles correct, so the consumer essentially owned the bottles. 115 00:16:50,000 --> 00:17:02,000 The mountain valley made itself economically indifferent to what its customers did with the bottles, just as Tyson has made itself economically indifferent to what its customers do with these powers. 116 00:17:02,000 --> 00:17:08,000 How's that accurate though, because if the mountain valley, if you return the bottle, you've got a discount on your next purchase? 117 00:17:08,000 --> 00:17:13,000 You've got a credit equal to the bottle fee that you paid for that towards the next purchase. 118 00:17:13,000 --> 00:17:18,000 So if you pay it, if you were first time customer, you paid for five bottles from mountain valley. 119 00:17:18,000 --> 00:17:22,000 The next time you came, if you returned four of those, you would get a credit worth four bottles. 120 00:17:22,000 --> 00:17:28,000 The bottles weren't taxed at the initial sale when mountain valley mountain valley obtained the bottles, correct? 121 00:17:28,000 --> 00:17:30,000 That was what this court held. 122 00:17:30,000 --> 00:17:44,000 But again, though, in that case, different here, because here you're a customer, they don't own the pallets, so they don't take ownership whereas in mountain valley, they actually took ownership of those bottles that consumer. 123 00:17:44,000 --> 00:17:47,000 My time is expired, but if I may answer. 124 00:17:48,000 --> 00:17:56,000 Again, in the definition of a sale, which renders for a sale and resale, it can be a transfer of ownership or possession. 125 00:17:56,000 --> 00:17:59,000 And we certainly transfer possession of these pallets. 126 00:17:59,000 --> 00:18:04,000 Can I ask one thing before you sit down? You said you have no interest in what happens to the pallets after they're delivered. 127 00:18:04,000 --> 00:18:07,000 What happens if a pallet is destroyed? 128 00:18:07,000 --> 00:18:09,000 By your distributor. 129 00:18:09,000 --> 00:18:15,000 Let's say it, you know, it accidentally chunk in the garbage. Who's on the hook for paying the fee associated with replacing the pallet? 130 00:18:15,000 --> 00:18:19,000 Initially, Tyson is, and then we pass it on to our customers. 131 00:18:19,000 --> 00:18:21,000 Thank you. 132 00:18:33,000 --> 00:18:36,000 Good morning, Justice. 133 00:18:36,000 --> 00:18:42,000 My name is Keith Winder, and I have the honor to be here today representing the Arkansas Department of Finance and Administration. 134 00:18:42,000 --> 00:18:44,000 The appellant today is- 135 00:18:44,000 --> 00:18:45,000 The appellant today is- 136 00:18:45,000 --> 00:18:49,000 The appellant today is to start with to get that microphone and try to kind of speak up for me. 137 00:18:49,000 --> 00:18:51,000 Yes, ma'am. I apologize. 138 00:18:51,000 --> 00:18:52,000 Thank you. 139 00:18:52,000 --> 00:19:00,000 I'll start over. My name is Keith Winder, and I have the honor to be here today representing the Arkansas Department of Finance and Administration. 140 00:19:00,000 --> 00:19:03,000 The appellant today is Tyson. 141 00:19:03,000 --> 00:19:07,000 The self-described world leader in protein. 142 00:19:07,000 --> 00:19:15,000 Tyson certainly sells a lot of protein, but shipping pallets are not protein and they're not sold by Tyson. 143 00:19:15,000 --> 00:19:17,000 That's the question here today. 144 00:19:17,000 --> 00:19:23,000 Can Tyson purchase Chep's shipping pallets exempt as a sale for resale? 145 00:19:23,000 --> 00:19:28,000 The answer to that question is no, and I'm going to cover a couple of reasons why here today. 146 00:19:29,000 --> 00:19:35,000 Initially, I'd like to note, it's Tyson's burden to prove that these pallets are exempt. 147 00:19:35,000 --> 00:19:42,000 It's undisputed that Tyson's rental of the pallets is taxable in less than exemption applies. 148 00:19:42,000 --> 00:19:49,000 And Tyson claims that purchases these pallets exempt as a sale for resale. 149 00:19:49,000 --> 00:19:55,000 The department doesn't dispute the initial rental qualifies as a sale. 150 00:19:55,000 --> 00:19:59,000 Instead, the dispute here is whether a resale is occurring. 151 00:19:59,000 --> 00:20:08,000 As Tyson's burden to prove that, that exemption we know from this court's case law and from statute is to be narrowly construed in limitation of that exemption. 152 00:20:08,000 --> 00:20:18,000 And the exemption exists as a matter of legislative race that is as far as the statute provides and no further. 153 00:20:18,000 --> 00:20:24,000 If the court would like to follow along, I'm going to discuss briefly a graphic that appears on page 1. 154 00:20:24,000 --> 00:20:27,000 59 of the pleading record. 155 00:20:27,000 --> 00:20:29,000 This is a graphic produced by CHEP. 156 00:20:29,000 --> 00:20:39,000 If you treat the graphic like a clock, I'm going to start about 10 or 11 o'clock, where it says CHEP is used high quality pallets to its manufacturers. 157 00:20:39,000 --> 00:20:46,000 CHEP, Tyson and Tyson's customers are engaged in what they call a circular pooling model. 158 00:20:46,000 --> 00:20:51,000 As part of that model, CHEP delivers pallets to Tyson. 159 00:20:51,000 --> 00:20:55,000 Tyson then loads its products onto these pallets. 160 00:20:55,000 --> 00:21:00,000 And then sends the pallets along with its product to its customers. 161 00:21:00,000 --> 00:21:07,000 Once the customers, the retailers, distributors, whoever receive the pallet with the product, 162 00:21:07,000 --> 00:21:15,000 the product that you or I are used to purchasing at the grocery store is separated from that pallet and eventually goes on for retail sale. 163 00:21:15,000 --> 00:21:18,000 But one of two things will happen with the pallet. 164 00:21:18,000 --> 00:21:26,000 The pallet is either returned directly to CHEP through a contract between CHEP and Tyson's customers. 165 00:21:26,000 --> 00:21:37,000 Or Tyson's customer will ship the pallet to a regional recycler and CHEP will retrieve that pallet from the regional recycler. 166 00:21:37,000 --> 00:21:44,000 But in either scenario, the pallets are returned to CHEP. 167 00:21:44,000 --> 00:21:46,000 Once CHEP has it, it will do an inspection. 168 00:21:46,000 --> 00:21:48,000 Make any necessary repairs. 169 00:21:48,000 --> 00:21:51,000 And then the pallets reenter the circular pooling model. 170 00:21:51,000 --> 00:21:55,000 They are shipped back out to manufacturers, just like Tyson. 171 00:21:55,000 --> 00:22:01,000 Tyson and CHEP have made this circular pooling model their business model. 172 00:22:01,000 --> 00:22:07,000 And I'm sure it benefits both of them, but that business decision has tax consequences. 173 00:22:07,000 --> 00:22:13,000 Are there agreements between CHEP and the distributors or whoever the customer is? 174 00:22:13,000 --> 00:22:14,000 Yes, you're on it. 175 00:22:14,000 --> 00:22:17,000 There is information in the record that those contracts exist. 176 00:22:17,000 --> 00:22:21,000 The details of those contracts are just, they're not part of the record. 177 00:22:21,000 --> 00:22:25,000 So you don't know whether there's a payment from a distributor, well, maybe you do know. 178 00:22:25,000 --> 00:22:29,000 Is there a payment from the distributor to CHEP as part of those agreements? 179 00:22:29,000 --> 00:22:30,000 No, you're on it. 180 00:22:30,000 --> 00:22:36,000 I have no knowledge of that and it's not in the record either way. 181 00:22:36,000 --> 00:22:40,000 As further evidence, the Tyson does not sell these pallets. 182 00:22:40,000 --> 00:22:47,000 Tyson was unable to produce any contracts, leasing or selling these pallets to its customers. 183 00:22:47,000 --> 00:22:53,000 But that stands in stark contrast with the contract between Tyson and CHEP. 184 00:22:53,000 --> 00:22:57,000 Where CHEP maintained substantial control over these pallets. 185 00:22:57,000 --> 00:23:01,000 Tyson wasn't permitted to alter the color of the pallets. 186 00:23:01,000 --> 00:23:04,000 As the posing council said there, they're bright blue. 187 00:23:04,000 --> 00:23:07,000 That's so it easily signifies CHEP's continued ownership. 188 00:23:08,000 --> 00:23:11,000 They're also marked with CHEP's name. 189 00:23:11,000 --> 00:23:22,000 Tyson was required to provide a daily log of pallets received, pallets sent out, who they were sent to. 190 00:23:22,000 --> 00:23:26,000 And CHEP reserved the right to reject those transfers. 191 00:23:26,000 --> 00:23:30,000 But if they were stamped Tyson's, what if there's a temporary mark on them that also says, 192 00:23:30,000 --> 00:23:31,000 I mean, I know it's not this case. 193 00:23:31,000 --> 00:23:33,000 I'm trying to figure out the next one too. 194 00:23:33,000 --> 00:23:35,000 What if there's stamped Tyson's? Does that make a difference? 195 00:23:35,000 --> 00:23:39,000 Yes, I do not think that would make a difference in this case where we have the other facts. 196 00:23:39,000 --> 00:23:41,000 Just indicate a resale is not occurring. 197 00:23:41,000 --> 00:23:46,000 I mentioned that because in the past, this court has mentioned that products were stamped with 198 00:23:46,000 --> 00:23:49,000 an ownership label from. 199 00:23:49,000 --> 00:23:54,000 But weren't those cases as sort of iconic items like Pepsi bottles, coke bottles? 200 00:23:54,000 --> 00:23:56,000 I mean, these are a little different. 201 00:23:56,000 --> 00:23:58,000 Yes, your honor. 202 00:23:58,000 --> 00:24:02,000 Can I get you to walk me through this actually rather than the facts, the statute here 203 00:24:02,000 --> 00:24:06,000 to make sure I understand what the DFNA is reading of the statute is. 204 00:24:06,000 --> 00:24:14,000 So you're not disputing Tyson's assertion that you take 12A and you plug in the definitions from 31A. 205 00:24:14,000 --> 00:24:20,000 Even though the term here sales for resale seems like a phrase rather than a simple term, 206 00:24:20,000 --> 00:24:22,000 where you just plug things in. 207 00:24:22,000 --> 00:24:28,000 But you're not disputing their characterization that you take the definition of terms and you just plug them in. 208 00:24:28,000 --> 00:24:31,000 I think there is some dispute there. 209 00:24:31,000 --> 00:24:36,000 So the word sale as defined is part of the tax levy. 210 00:24:36,000 --> 00:24:38,000 It's necessarily broad. 211 00:24:38,000 --> 00:24:42,000 It has to capture everything that's going to be taxed under the gross receipts tax. 212 00:24:42,000 --> 00:24:49,000 What you're dealing with in sale for resale is an exemption, which is to be narrowly construed. 213 00:24:49,000 --> 00:24:57,000 I think the department's position is that for something to qualify as a resale, it would have to be a sale. 214 00:24:57,000 --> 00:25:04,000 But just because something is a sale does not mean that it would be a resale for purposes of the exemption. 215 00:25:04,000 --> 00:25:13,000 And I think this court's case law has done a good job of appropriately narrowing the definition of sale in the past. 216 00:25:13,000 --> 00:25:15,000 To say it takes more than just a turn. 217 00:25:15,000 --> 00:25:16,000 I'm sorry. 218 00:25:16,000 --> 00:25:19,000 And I won't hold you this in a future case. 219 00:25:19,000 --> 00:25:33,000 But could you help just give me by way of example of a method that Tyson could model this to make it work qualify for the exemption? 220 00:25:33,000 --> 00:25:39,000 A purchase of an outright purchase to an outright sale to its customer of the pallet. 221 00:25:39,000 --> 00:25:43,000 So Tyson purchased and passed along the full cost. 222 00:25:43,000 --> 00:25:51,000 The Mountain Valley spring cases is a good example there where Mountain Valley had the glass jugs, the half gallon, the five gallon jugs. 223 00:25:51,000 --> 00:25:58,000 And they actually had a contract for sale with their customers and they outright sold those bottles to their customers. 224 00:25:58,000 --> 00:26:00,000 And of course they could get credit later if they returned them. 225 00:26:00,000 --> 00:26:08,000 So would it be a disclosure sort of we're charging you this much for the chicken and the pallets. 226 00:26:08,000 --> 00:26:12,000 Or we're charging this much for the chicken and this much for the pallets. 227 00:26:12,000 --> 00:26:18,000 It's identifying that is sort of the critical component. 228 00:26:18,000 --> 00:26:26,000 I don't know that that would be that that would determine the outcome of the case, but I think based on this court's case law. 229 00:26:26,000 --> 00:26:33,000 The weather, the item being transferred increases the value of the product is something this court has looked at. 230 00:26:33,000 --> 00:26:35,000 That information might be relevant. 231 00:26:35,000 --> 00:26:38,000 But that is not what is in the record in this case. 232 00:26:38,000 --> 00:26:48,000 Instead we just have two sentences from an affidavit that say something along the lines of Tyson passes along all of its costs to its customers and Tyson passes along. 233 00:26:48,000 --> 00:26:51,000 It's rental fees to its customers. 234 00:26:51,000 --> 00:26:54,000 But that's not what this court's case law has looked at in the past. 235 00:26:54,000 --> 00:26:56,000 It has looked at an actual increase in value. 236 00:26:56,000 --> 00:27:02,000 It talks about treating cost as part of cost a good sold rather than overhead. 237 00:27:02,000 --> 00:27:07,000 It's not a short way of saying like I think some of the federal cases say we look at the economic realities of the transaction. 238 00:27:07,000 --> 00:27:08,000 Yes, your honor. 239 00:27:08,000 --> 00:27:14,000 And there has been at least two cases, Arkansas beverage and southern wooden box where this court has used that language. 240 00:27:14,000 --> 00:27:20,000 I ask the same questions basically that I ask Tyson's D. 241 00:27:20,000 --> 00:27:23,000 103 in the definition section D. 242 00:27:23,000 --> 00:27:31,000 You have a very specific provision that deals with leases and rentals and you have this exemption. 243 00:27:31,000 --> 00:27:38,000 I would have thought that when you're dealing with leases and rentals, we just focus on that provision in 103D. 244 00:27:38,000 --> 00:27:40,000 We're not necessarily plugging anything into 12A. 245 00:27:40,000 --> 00:27:45,000 Explain to me why the department apparently thinks that's wrong. 246 00:27:45,000 --> 00:27:51,000 Candidly your honor that is not something that the parties have briefed. 247 00:27:51,000 --> 00:27:54,000 So I'm not completely prepared to give you a third answer. 248 00:27:54,000 --> 00:28:00,000 I will say I don't think I dispute what opposing council said that D and what deals more with the determination of what the taxes do. 249 00:28:00,000 --> 00:28:08,000 Rather than imposing maybe a different tax on the rentals of less than 30 years. 250 00:28:08,000 --> 00:28:15,000 Normally when we have a highly specific provision and then a general provision don't we defer to the specific provision? 251 00:28:15,000 --> 00:28:17,000 Yes, your honor. 252 00:28:17,000 --> 00:28:22,000 And then with respect to 12, again, same question I ask Tyson's. 253 00:28:22,000 --> 00:28:25,000 In 12 the relationship between 12A and 12B. 254 00:28:25,000 --> 00:28:29,000 Again, this is not an ideal way to write a statute. 255 00:28:29,000 --> 00:28:36,000 To have a general statute and then have a subsection being a Romanat that then to me appears to like carve things out. 256 00:28:36,000 --> 00:28:42,000 Do you read it that way as you know 12A would suggest this broad or at least possible broad reading. 257 00:28:42,000 --> 00:28:45,000 And then 12B says if it's one of these things. 258 00:28:45,000 --> 00:28:54,000 If it's a good where merchandise sold for using these the following things, including preparation for sale, which I think is what Tyson is focusing on. 259 00:28:54,000 --> 00:29:01,000 It's only considered a sale for resale if it's a recognized what integral part of the manufactured produce product. 260 00:29:01,000 --> 00:29:02,000 Is that the way you read that? 261 00:29:02,000 --> 00:29:03,000 Yes, sure. 262 00:29:03,000 --> 00:29:09,000 I think what you just described is the best reading of the plain language of that statute, which is that B. 263 00:29:09,000 --> 00:29:13,000 Carves out separate treatment for materials that fall into that category. 264 00:29:13,000 --> 00:29:16,000 And again, same questions. 265 00:29:16,000 --> 00:29:21,000 What does recognize the meaning of this context? 266 00:29:21,000 --> 00:29:25,000 If I had to put a definition on, I would say able to be recognized. 267 00:29:25,000 --> 00:29:37,000 But I think the most important factor for this case rather than recognizable or integral is what follows that it has to become a part of the product Tyson is selling. 268 00:29:37,000 --> 00:29:45,000 And here I know Tyson characterizes it as that they are selling a pallet of chicken, but that really is an issue of framing. 269 00:29:45,000 --> 00:29:47,000 You could be as broad or as narrow. 270 00:29:47,000 --> 00:29:49,000 Where is that part of it coming from? 271 00:29:49,000 --> 00:29:52,000 Is that something you're adding? 272 00:29:52,000 --> 00:29:56,000 I know you have regulations to say that, but we're in the statutory text. 273 00:29:56,000 --> 00:30:00,000 I mean, I would have thought that's just an argument that it has to be integral. 274 00:30:00,000 --> 00:30:19,900 You're not wrong about that? I'm flipping to your honor. So it is the second half of 12b Roman numeral 275 00:30:19,900 --> 00:30:32,900 I, where it says becomes a recognizable integral part of the manufactured printed compounded process assembled or prepared products. 276 00:30:32,900 --> 00:30:39,900 That is what it must be recognizable or integral in is the finished or prepared product. 277 00:30:39,900 --> 00:30:47,900 But you're driving that from the phrase or parts of the phrase recognizable integral part, right? 278 00:30:47,900 --> 00:30:57,900 Yes, Ron. And then if you continue on in the sentence, the final two words of the sentence there are prepared products. 279 00:30:57,900 --> 00:31:09,900 So then my example of the plastic pellet I buy in order to build widgets, their plastic widgets. Does that meet that exemption or not? 280 00:31:09,900 --> 00:31:16,900 Certainly, that's not the issue that we have here today. 281 00:31:16,900 --> 00:31:24,900 And I think the good thing about this court case laws that it is an individualized analysis on these things, where it's really highly fact specific. 282 00:31:24,900 --> 00:31:28,900 That doesn't make it difficult to answer a hypothetical. 283 00:31:28,900 --> 00:31:34,900 If I was standing here today and had to give you an answer yes or no, I would say that it qualifies. 284 00:31:34,900 --> 00:31:45,900 But as Justice Wood said she wouldn't hold me to it in the later case, I would certainly want to have discovery and a full set of facts before I made that type of determination. 285 00:31:45,900 --> 00:31:50,900 Can I start talking about recognisable an integral part. 286 00:31:50,900 --> 00:31:56,900 But for the palate, how does the chicken get delivered? Is it an important part? 287 00:31:56,900 --> 00:32:00,900 I'm sorry, I didn't hear the last part. But for the palate, how does the chicken get delivered? 288 00:32:00,900 --> 00:32:10,900 When we talk about recognisable an integral part of the thing, how does the palate not a part of the delivery of the product? 289 00:32:10,900 --> 00:32:18,900 But I believe that I'll go back to what I'd start to say earlier, which I think it's an issue of framing. What is Tyson's product? 290 00:32:18,900 --> 00:32:22,900 And you can be as broad or as narrow as you would like to be. 291 00:32:22,900 --> 00:32:27,900 So the department could take an unreasonable position and say, well, their product is the individual chicken nugget that you take home. 292 00:32:27,900 --> 00:32:35,900 Or Tyson could be more unreasonable and they could say, well, it's a truckload of chicken or it's a train car chicken. 293 00:32:35,900 --> 00:32:40,900 Instead, I think this court should look at it as reasonably as possible. 294 00:32:40,900 --> 00:32:45,900 Look at what is the final taxable product that the end consumer is taking home. 295 00:32:45,900 --> 00:32:50,900 And here is the package of chicken. It is not the palate of chicken. 296 00:32:50,900 --> 00:32:56,900 And I do think what the end taxable consumer takes home is relevant because this court's case law, 297 00:32:56,900 --> 00:33:09,900 especially in the Maccarol case pointed out that those paper boxes were actually taken home in unchanged form typically by whoever was purchasing them. 298 00:33:10,900 --> 00:33:15,900 Distinguished the palate from, say, the cardboard box that the chicken is packed in. 299 00:33:15,900 --> 00:33:24,900 Is it because the palate belongs to somebody else that has the ability to recover that and the cardboard boxes is disposable or recyclable? 300 00:33:24,900 --> 00:33:33,900 How do the two different cost of goods sold mechanisms here for the cost of the palate versus the cost of the box differ? 301 00:33:33,900 --> 00:33:39,900 I think that the issue is there. The distinction is, one is becoming a part of the product. 302 00:33:39,900 --> 00:33:48,900 I don't think there's any dispute that the bag holds the chicken or the little styrofoam trace that's in would become part of the end product that's being taken home here. 303 00:33:48,900 --> 00:34:01,900 But if I go to the store and buy a bag of Tyson chicken, it came in the door on the palate and then moved from the palate and a cardboard box out to the shell for the cooler. 304 00:34:01,900 --> 00:34:04,900 Or the freezer, whatever it is. 305 00:34:04,900 --> 00:34:16,900 That cardboard box seems to me as a similar necessity as the palate is to hold transport and get the chicken to its final destination. 306 00:34:16,900 --> 00:34:21,900 Well, certainly here the refund request only touched on the palate. 307 00:34:21,900 --> 00:34:28,900 So I understand, I'm assessing you to give me how would you tax the cardboard box in that situation? Would that qualify for an exemption? 308 00:34:28,900 --> 00:34:33,900 Is it an integral part for the purpose of the statute? 309 00:34:33,900 --> 00:34:41,900 I would say that the distinction there would be that these pallets we know are separated. 310 00:34:41,900 --> 00:34:46,900 They are returned back to chip. That's the way this whole process is designed. 311 00:34:46,900 --> 00:34:52,900 It's because of that closed loop system where they have a right to recover that distinguishes this. 312 00:34:52,900 --> 00:34:56,900 I think that's extremely relevant when you're trying to determine under 12 B.I. 313 00:34:56,900 --> 00:35:06,900 If it becomes a recognizable integral part of the finished product that if something is removed and then returned to somebody else and is separated from the product, 314 00:35:06,900 --> 00:35:11,900 I think it's hard to argue that that becomes a recognizable integral part of something. 315 00:35:11,900 --> 00:35:20,900 So similar to another question that was asked, if I don't know what Tyson sells the palate is chicken for, but let's just say they sell it for $1,000. 316 00:35:20,900 --> 00:35:40,900 If they tacked on a $20 fee for the palate that maybe later they would give a credit if it got turned back in and they didn't have to pay whatever their cost was to chip with that make a difference because now they're selling at least the right to use the palate during this time. 317 00:35:40,900 --> 00:35:45,900 For the purpose of taking possession of the chicken on delivery. 318 00:35:45,900 --> 00:35:50,900 That's again highly, highly factually specific. 319 00:35:50,900 --> 00:35:53,900 I feel like I'm treading into binding the department on future issues. 320 00:35:53,900 --> 00:36:05,900 We've just not had to discover on what I can't tell you is that specifically in this case, Tyson didn't put on any information about how it allegedly passed on these costs. 321 00:36:05,900 --> 00:36:09,900 We just have the two statements in the afternoon, which they say are unrebutted. 322 00:36:09,900 --> 00:36:16,900 They are correct. That is unrebutted. Every business passes along every cost that it has. 323 00:36:16,900 --> 00:36:26,900 What we do know Tyson's theory of the case though, because during the summary judgment hearing the judge asked the question, 324 00:36:26,900 --> 00:36:36,900 he said, if they had to pay $300,000 that year to chip, they're going to divide that out on the whole pricing so that the customer pays whatever that fee was that they paid for the loss pallets, 325 00:36:36,900 --> 00:36:52,900 opposing counsel answered. Yes, so that's the theory of the case, but that is much more similar to a recovery of cost as overhead as opposed to a specific charge to their customer for the transfer of possession of that specific palate that's holding this chicken. 326 00:36:52,900 --> 00:36:56,900 We're asked to review two years at issue in this case. 327 00:36:56,900 --> 00:37:08,900 The periods at issue in this case are March of 2015 through December of 2017 and October 2020 through October of 2021. 328 00:37:08,900 --> 00:37:15,900 Is that because that was the only thing that was ripe when this record was formed or has something changed? Does it record indicate that? 329 00:37:15,900 --> 00:37:26,900 There's nothing in the record that would indicate that there has been a change. These are the refund requests that were submitted by Tyson and have made their way up through the administrative and judicial process to hear. 330 00:37:26,900 --> 00:37:36,900 There's some evidence that the pallets at their lost Tyson has to pay $18 to $24. 331 00:37:36,900 --> 00:37:41,900 That would be taxed on that part. 332 00:37:41,900 --> 00:37:49,900 I don't believe that there's anything in the record about whether Tyson would be taxed on paying that fee. 333 00:37:49,900 --> 00:37:55,900 Is that matter that if the pallets continue to stay in circulation? 334 00:37:55,900 --> 00:38:01,900 No fee goes back to Tyson, but if they're lost so presumably they become Tyson at that point. 335 00:38:01,900 --> 00:38:02,900 There is a fee. 336 00:38:03,900 --> 00:38:10,900 I think the fee matters just to the extent that Tyson is arguing that it's indifferent to what happens to these pallets after their other hands. 337 00:38:10,900 --> 00:38:17,900 I think that's contradicted by the fact that it not only does it owe this fee if they're lost, but also there are occasionally audits. 338 00:38:17,900 --> 00:38:25,900 If pallets are determined to be missing as a certain number that actually increases or decreases the amount they're initially paying for these pallets. 339 00:38:25,900 --> 00:38:30,900 So the return of the pallets is very financially relevant to Tyson according to these contracts. 340 00:38:32,900 --> 00:38:42,900 I'll try to close here in the last 20 seconds. 341 00:38:42,900 --> 00:38:49,900 The question to be answered here today again is can Tyson purchase chips shipping pallets exempt as a sale for resale. 342 00:38:49,900 --> 00:38:55,900 The answer to that question is no, Tyson sells chicken, Tyson does not sell pallets. 343 00:38:55,900 --> 00:38:59,900 Ockham's razor is the principle that the simplest answer is often the correct answer. 344 00:38:59,900 --> 00:39:04,900 The department is arguing here today that the simplest answer is the correct answer. 345 00:39:04,900 --> 00:39:06,900 Tyson sells chicken. 346 00:39:06,900 --> 00:39:23,900 And here I give it a bottle. 347 00:39:23,900 --> 00:39:28,900 Thank you, sir. 348 00:39:28,900 --> 00:39:32,900 Okay. 349 00:39:32,900 --> 00:39:42,900 Just as Ronnie first let me address your argument that this is a term of sale for resale rather than three individual terms sale for resale. 350 00:39:42,900 --> 00:39:49,900 What I would tell you to that is one, it is a perfectly comprehensible phrase, this three individual words. 351 00:39:49,900 --> 00:39:54,900 You've got to have a sale for which the statute tells us how to define four. 352 00:39:54,900 --> 00:40:04,900 That means it's got to be for that purpose and resale is just sale again and so it is perfectly comprehensible as three individual terms, not a term of art. 353 00:40:04,900 --> 00:40:15,900 And that's the way your discourse case law has treated it because we have looked at two separate transactions and made sure that both qualified as a sale under the statute. 354 00:40:15,900 --> 00:40:29,900 There was the question about to bring it the question about does it matter how this is sold to the consumers I would point this court to the Arkansas beverage case and the cardboard boxes that issue there. 355 00:40:29,900 --> 00:40:40,900 The testimony in that case was that those cardboard boxes sometimes the Pepsi bottles were sold to the consumers in those cardboard boxes sometimes they were sold in individual units. 356 00:40:40,900 --> 00:40:46,900 It didn't matter to that case and it shouldn't matter here just as well. 357 00:40:46,900 --> 00:41:00,900 You had it exactly right or just as how I'm sorry I don't remember it was asked in question you had it exactly right that these are essential to get our products from point A ties into our customers and they're they're not distinguishable from. 358 00:41:00,900 --> 00:41:05,900 What's the limiting principle of that I mean if I rent if instead of a pallet it's a truck. 359 00:41:05,900 --> 00:41:19,900 It's a stamp chip I use it to deliver the chicken is that subject to this exemption so the circuit will do that decision and we'd rest this in our in our briefing actually the truck you don't typically rent. 360 00:41:19,900 --> 00:41:22,900 You typically take my hypothetical where you did okay. 361 00:41:22,900 --> 00:41:28,900 It's it's the exact same system you have here instead of the pallets it's the truck that drives it to Sam's club. 362 00:41:28,900 --> 00:41:36,900 I mean I would think that under your argument that would be subject to the same exemption and it's not this court's job to protect the. 363 00:41:36,900 --> 00:41:38,900 States coffers. 364 00:41:38,900 --> 00:41:39,900 Yes. 365 00:41:39,900 --> 00:41:52,900 Yes your honor and if the legislature doesn't like if someone actually makes that argument and brings that claim and this court says way we're bound by what you all put down in the statute and the legislature doesn't like it. 366 00:41:52,900 --> 00:41:58,900 We have a very functional legislature they pass a lot of laws every single time they're in session they can fix it. 367 00:41:58,900 --> 00:42:02,900 So we get my answer to that would be yes. 368 00:42:02,900 --> 00:42:08,900 The last one I'd like to make the remaining time I have is there has been some argument well two points really. 369 00:42:08,900 --> 00:42:19,900 The argument that ties and sells chicken let's talk about where they closed ties and sells chickens not pallets well Pepsi doesn't sell glass bottles mountain valley doesn't sell glass bottles. 370 00:42:19,900 --> 00:42:26,900 Pepsi doesn't sell Pepsi doesn't sell cardboard boxes Pepsi sells soda. 371 00:42:26,900 --> 00:42:30,900 The statute doesn't say what do you primarily sell. 372 00:42:30,900 --> 00:42:39,900 It's a difference there that Pepsi can't sell its products without something to put it in and maybe you're right about the bags that chicken comes in. 373 00:42:39,900 --> 00:42:45,900 It does seem one step further removed to say we're not talking about the bags or the bottles the actual product is delivered in. 374 00:42:45,900 --> 00:42:52,900 But instead are talking about the things that it gets stacked on that then fall off. Why is that distinction not relevant? 375 00:42:52,900 --> 00:42:58,900 I don't see a distinction but to me the best example is the cardboard boxes in Arkansas beverage. 376 00:42:58,900 --> 00:43:03,900 You've got the thing the thing Pepsi primarily sells that's the soda. 377 00:43:03,900 --> 00:43:11,900 It's inside a glass bottle that last bottle was put in a cardboard box that cardboard box was then delivered to Pepsi's customers and Pepsi's customers. 378 00:43:11,900 --> 00:43:14,900 Sometimes they sold the whole thing sometimes they broke it up. 379 00:43:14,900 --> 00:43:24,900 And those cardboard boxes were accepted as exempt because they were an essential part of how Pepsi delivered its products to its customers. 380 00:43:24,900 --> 00:43:27,900 My time is inspiring so let's refer their questions. 381 00:43:27,900 --> 00:43:29,900 I'll thank you all for your time. 382 00:43:29,900 --> 00:43:34,900 Thank you for your hard giving. 383 00:43:34,900 --> 00:43:38,900 It just concludes oral argument. 384 00:43:59,900 --> 00:44:06,900 This concludes today's oral argument.