[This transcript was generated automatically from audio using AI and hasn't been reviewed by a person -- it can contain mistakes, including plausible-sounding sentences that were never actually said. Treat it as a starting point, not a verbatim record.]

[0:00] All right. Here you need to do a lot of trouble. We've worked on a part of this kind of debate.
[0:07] It's a poor little son of a court from there to give you 15 shall we hear it?
[0:11] They're going to have a space to say what it's called, and the problem will be, especially for you.
[0:21] Thank you.
[0:24] This time we'll take up oral argument in the case of Tyson Chicken versus Jim Hudson,
[0:46] 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.
[1:10] The court acknowledges the appeal of the attorney.
[1:23] Good morning, Madam Chief Justice, and may it please the court. My name is Michael Thompson.
[1:28] I'm at the law firm of right Lindsay and Jennings LLP.
[1:31] 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.
[1:40] This case, like all tax cases, should be decided based on the plain language of the statutes passed by our Arkansas General Assembly.
[1:48] Now, this case specifically concerns the application of the sale for resale exemption to certain pallets, to Tyson,
[1:57] rents from a company called CHAP, and uses then to ship its meat and other food products to its customers.
[2:07] 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.
[2:25] 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.
[2:39] Arkansas Code annotated 262-103-31-B1, expressly defines sale to include the lease or rental of tangible personal property.
[2:53] 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.
[3:04] 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.
[3:11] And if there were no first sale, we wouldn't have to reach the exemptions, there would simply be no tax owed.
[3:18] And so, we know we have a first sale.
[3:21] The question then becomes, do we have that?
[3:23] Can I ask then what deed does?
[3:26] I'm sorry.
[3:27] Subsection, subsection D, so you're referring to 31A.
[3:32] Yes sir.
[3:33] 31B, but there's also 31D that talks specifically about leasing and rental, tangible personal property.
[3:39] So, how, sort of, we are to have a definition and then have a special operator.
[3:44] Well, I guess you tell me if this is, this is operational.
[3:47] D is definitional.
[3:48] How that works for the rest of the statute of little confusing structure.
[3:52] Yes sir, honor.
[3:53] My view of subsection D is, this is a little bit of a weird place to put subsection D in a definition section.
[4:01] 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.
[4:15] 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.
[4:29] 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.
[4:40] And so, but how does that work?
[4:42] 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.
[4:58] 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.
[5:12] 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.
[5:24] 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.
[5:33] 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.
[5:43] You did so for cement to section, subsection D.
[5:46] 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.
[5:58] 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.
[6:06] 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.
[6:16] And again, the important thing though is that Arkansas statutes expressly make least your rental of tangible personal property a sale.
[6:24] 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.
[6:40] 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.
[7:07] 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.
[7:16] 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.
[7:29] 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.
[7:42] Are there cases involving leases or rentals that were we done that though or has it always been sort of final sales.
[7:49] 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.
[8:02] I've then asked about the interaction and I know there's briefing on this but the interaction between A and B.
[8:12] The way I mean let me throw this out is one possible reading is that.
[8:18] 12 A is fairly broad but 12 B is the weird number statute but 12 B Roman at one.
[8:25] 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.
[8:46] 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.
[9:01] 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.
[9:09] 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.
[9:40] 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.
[9:51] 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.
[10:07] 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.
[10:19] 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.
[10:28] You have to be able to see it as part of the final product.
[10:36] 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.
[10:46] But I mean I guess on a spectrum here between.
[10:48] 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.
[11:05] 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.
[11:13] So whatever definition you want to give a recognizable these pallets are going to be it.
[11:19] 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.
[11:28] 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.
[11:36] 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.
[11:45] 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.
[11:54] But you can sell chicken without a pallet, right?
[11:56] Sure you can.
[11:57] 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.
[12:04] I don't get the pallet I get the chicken.
[12:07] 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.
[12:17] 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.
[12:27] The term lease or rental into this particular provision.
[12:31] If it's an integral part how can it be an integral part if the your consumer the distributor of Costco, SAMs, COVID, etc.
[12:39] Doesn't actually keep that item it goes back to the back to CHIP.
[12:44] Well our argument there is that from Tyson's perspective we shouldn't collapse these into one transaction between CHIP to our customer.
[12:56] 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.
[13:06] 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.
[13:19] 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.
[13:28] Yes your honor we rent the you frame the contract which means you do control the terms for providing the items don't you.
[13:35] 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.
[13:48] 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.
[13:56] 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.
[14:05] I'm not sure I follow your question.
[14:07] 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.
[14:20] You'd be able to enforce your contract rights right.
[14:23] Yes and the first transaction the which is statutory a sale from CHIP to Tyson there's a contract between CHIP and Tyson.
[14:31] So you you also I think focusing the brief a lot on cost and the cost being passed on to the distributor.
[14:41] Why does that matter?
[14:43] I recognize the case is sort of hint at that but what does that actually matter?
[14:46] I mean my sense of business is that costs are always passed on in some sense or another.
[14:50] 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.
[14:57] So why should that matter?
[14:59] What you're saying?
[15:00] 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.
[15:19] Instead of a purchase price charge to the second customer, it was a refundable deposit that was below the cost of the item.
[15:28] 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.
[15:43] 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.
[15:53] 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.
[16:10] Am I running out that?
[16:12] 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.
[16:18] I could certainly submit a supplemental brief on that, but I don't have detailed knowledge of that fact.
[16:24] Mr. Thompson, are you relying on the mountain valley case where the bottles were given to the consumer and they were taxed?
[16:32] Yeah, initially, but the consumer, you're lying on that case in support of your argument, right?
[16:36] 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.
[16:45] In the mountain valley, they were able to keep the bottles correct, so the consumer essentially owned the bottles.
[16:50] 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.
[17:02] How's that accurate though, because if the mountain valley, if you return the bottle, you've got a discount on your next purchase?
[17:08] You've got a credit equal to the bottle fee that you paid for that towards the next purchase.
[17:13] So if you pay it, if you were first time customer, you paid for five bottles from mountain valley.
[17:18] The next time you came, if you returned four of those, you would get a credit worth four bottles.
[17:22] The bottles weren't taxed at the initial sale when mountain valley mountain valley obtained the bottles, correct?
[17:28] That was what this court held.
[17:30] 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.
[17:44] My time is expired, but if I may answer.
[17:48] Again, in the definition of a sale, which renders for a sale and resale, it can be a transfer of ownership or possession.
[17:56] And we certainly transfer possession of these pallets.
[17:59] 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.
[18:04] What happens if a pallet is destroyed?
[18:07] By your distributor.
[18:09] 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?
[18:15] Initially, Tyson is, and then we pass it on to our customers.
[18:19] Thank you.
[18:33] Good morning, Justice.
[18:36] My name is Keith Winder, and I have the honor to be here today representing the Arkansas Department of Finance and Administration.
[18:42] The appellant today is-
[18:44] The appellant today is-
[18:45] The appellant today is to start with to get that microphone and try to kind of speak up for me.
[18:49] Yes, ma'am. I apologize.
[18:51] Thank you.
[18:52] 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.
[19:00] The appellant today is Tyson.
[19:03] The self-described world leader in protein.
[19:07] Tyson certainly sells a lot of protein, but shipping pallets are not protein and they're not sold by Tyson.
[19:15] That's the question here today.
[19:17] Can Tyson purchase Chep's shipping pallets exempt as a sale for resale?
[19:23] The answer to that question is no, and I'm going to cover a couple of reasons why here today.
[19:29] Initially, I'd like to note, it's Tyson's burden to prove that these pallets are exempt.
[19:35] It's undisputed that Tyson's rental of the pallets is taxable in less than exemption applies.
[19:42] And Tyson claims that purchases these pallets exempt as a sale for resale.
[19:49] The department doesn't dispute the initial rental qualifies as a sale.
[19:55] Instead, the dispute here is whether a resale is occurring.
[19:59] 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.
[20:08] And the exemption exists as a matter of legislative race that is as far as the statute provides and no further.
[20:18] If the court would like to follow along, I'm going to discuss briefly a graphic that appears on page 1.
[20:24] 59 of the pleading record.
[20:27] This is a graphic produced by CHEP.
[20:29] 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.
[20:39] CHEP, Tyson and Tyson's customers are engaged in what they call a circular pooling model.
[20:46] As part of that model, CHEP delivers pallets to Tyson.
[20:51] Tyson then loads its products onto these pallets.
[20:55] And then sends the pallets along with its product to its customers.
[21:00] Once the customers, the retailers, distributors, whoever receive the pallet with the product,
[21:07] 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.
[21:15] But one of two things will happen with the pallet.
[21:18] The pallet is either returned directly to CHEP through a contract between CHEP and Tyson's customers.
[21:26] Or Tyson's customer will ship the pallet to a regional recycler and CHEP will retrieve that pallet from the regional recycler.
[21:37] But in either scenario, the pallets are returned to CHEP.
[21:44] Once CHEP has it, it will do an inspection.
[21:46] Make any necessary repairs.
[21:48] And then the pallets reenter the circular pooling model.
[21:51] They are shipped back out to manufacturers, just like Tyson.
[21:55] Tyson and CHEP have made this circular pooling model their business model.
[22:01] And I'm sure it benefits both of them, but that business decision has tax consequences.
[22:07] Are there agreements between CHEP and the distributors or whoever the customer is?
[22:13] Yes, you're on it.
[22:14] There is information in the record that those contracts exist.
[22:17] The details of those contracts are just, they're not part of the record.
[22:21] So you don't know whether there's a payment from a distributor, well, maybe you do know.
[22:25] Is there a payment from the distributor to CHEP as part of those agreements?
[22:29] No, you're on it.
[22:30] I have no knowledge of that and it's not in the record either way.
[22:36] As further evidence, the Tyson does not sell these pallets.
[22:40] Tyson was unable to produce any contracts, leasing or selling these pallets to its customers.
[22:47] But that stands in stark contrast with the contract between Tyson and CHEP.
[22:53] Where CHEP maintained substantial control over these pallets.
[22:57] Tyson wasn't permitted to alter the color of the pallets.
[23:01] As the posing council said there, they're bright blue.
[23:04] That's so it easily signifies CHEP's continued ownership.
[23:08] They're also marked with CHEP's name.
[23:11] Tyson was required to provide a daily log of pallets received, pallets sent out, who they were sent to.
[23:22] And CHEP reserved the right to reject those transfers.
[23:26] But if they were stamped Tyson's, what if there's a temporary mark on them that also says,
[23:30] I mean, I know it's not this case.
[23:31] I'm trying to figure out the next one too.
[23:33] What if there's stamped Tyson's? Does that make a difference?
[23:35] Yes, I do not think that would make a difference in this case where we have the other facts.
[23:39] Just indicate a resale is not occurring.
[23:41] I mentioned that because in the past, this court has mentioned that products were stamped with
[23:46] an ownership label from.
[23:49] But weren't those cases as sort of iconic items like Pepsi bottles, coke bottles?
[23:54] I mean, these are a little different.
[23:56] Yes, your honor.
[23:58] Can I get you to walk me through this actually rather than the facts, the statute here
[24:02] to make sure I understand what the DFNA is reading of the statute is.
[24:06] So you're not disputing Tyson's assertion that you take 12A and you plug in the definitions from 31A.
[24:14] Even though the term here sales for resale seems like a phrase rather than a simple term,
[24:20] where you just plug things in.
[24:22] But you're not disputing their characterization that you take the definition of terms and you just plug them in.
[24:28] I think there is some dispute there.
[24:31] So the word sale as defined is part of the tax levy.
[24:36] It's necessarily broad.
[24:38] It has to capture everything that's going to be taxed under the gross receipts tax.
[24:42] What you're dealing with in sale for resale is an exemption, which is to be narrowly construed.
[24:49] I think the department's position is that for something to qualify as a resale, it would have to be a sale.
[24:57] But just because something is a sale does not mean that it would be a resale for purposes of the exemption.
[25:04] And I think this court's case law has done a good job of appropriately narrowing the definition of sale in the past.
[25:13] To say it takes more than just a turn.
[25:15] I'm sorry.
[25:16] And I won't hold you this in a future case.
[25:19] 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?
[25:33] A purchase of an outright purchase to an outright sale to its customer of the pallet.
[25:39] So Tyson purchased and passed along the full cost.
[25:43] The Mountain Valley spring cases is a good example there where Mountain Valley had the glass jugs, the half gallon, the five gallon jugs.
[25:51] And they actually had a contract for sale with their customers and they outright sold those bottles to their customers.
[25:58] And of course they could get credit later if they returned them.
[26:00] So would it be a disclosure sort of we're charging you this much for the chicken and the pallets.
[26:08] Or we're charging this much for the chicken and this much for the pallets.
[26:12] It's identifying that is sort of the critical component.
[26:18] 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.
[26:26] The weather, the item being transferred increases the value of the product is something this court has looked at.
[26:33] That information might be relevant.
[26:35] But that is not what is in the record in this case.
[26:38] 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.
[26:48] It's rental fees to its customers.
[26:51] But that's not what this court's case law has looked at in the past.
[26:54] It has looked at an actual increase in value.
[26:56] It talks about treating cost as part of cost a good sold rather than overhead.
[27:02] 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.
[27:07] Yes, your honor.
[27:08] And there has been at least two cases, Arkansas beverage and southern wooden box where this court has used that language.
[27:14] I ask the same questions basically that I ask Tyson's D.
[27:20] 103 in the definition section D.
[27:23] You have a very specific provision that deals with leases and rentals and you have this exemption.
[27:31] I would have thought that when you're dealing with leases and rentals, we just focus on that provision in 103D.
[27:38] We're not necessarily plugging anything into 12A.
[27:40] Explain to me why the department apparently thinks that's wrong.
[27:45] Candidly your honor that is not something that the parties have briefed.
[27:51] So I'm not completely prepared to give you a third answer.
[27:54] 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.
[28:00] Rather than imposing maybe a different tax on the rentals of less than 30 years.
[28:08] Normally when we have a highly specific provision and then a general provision don't we defer to the specific provision?
[28:15] Yes, your honor.
[28:17] And then with respect to 12, again, same question I ask Tyson's.
[28:22] In 12 the relationship between 12A and 12B.
[28:25] Again, this is not an ideal way to write a statute.
[28:29] To have a general statute and then have a subsection being a Romanat that then to me appears to like carve things out.
[28:36] Do you read it that way as you know 12A would suggest this broad or at least possible broad reading.
[28:42] And then 12B says if it's one of these things.
[28:45] 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.
[28:54] It's only considered a sale for resale if it's a recognized what integral part of the manufactured produce product.
[29:01] Is that the way you read that?
[29:02] Yes, sure.
[29:03] I think what you just described is the best reading of the plain language of that statute, which is that B.
[29:09] Carves out separate treatment for materials that fall into that category.
[29:13] And again, same questions.
[29:16] What does recognize the meaning of this context?
[29:21] If I had to put a definition on, I would say able to be recognized.
[29:25] 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.
[29:37] And here I know Tyson characterizes it as that they are selling a pallet of chicken, but that really is an issue of framing.
[29:45] You could be as broad or as narrow.
[29:47] Where is that part of it coming from?
[29:49] Is that something you're adding?
[29:52] I know you have regulations to say that, but we're in the statutory text.
[29:56] I mean, I would have thought that's just an argument that it has to be integral.
[30:00] You're not wrong about that? I'm flipping to your honor. So it is the second half of 12b Roman numeral
[30:19] I, where it says becomes a recognizable integral part of the manufactured printed compounded process assembled or prepared products.
[30:32] That is what it must be recognizable or integral in is the finished or prepared product.
[30:39] But you're driving that from the phrase or parts of the phrase recognizable integral part, right?
[30:47] Yes, Ron. And then if you continue on in the sentence, the final two words of the sentence there are prepared products.
[30:57] 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?
[31:09] Certainly, that's not the issue that we have here today.
[31:16] 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.
[31:24] That doesn't make it difficult to answer a hypothetical.
[31:28] If I was standing here today and had to give you an answer yes or no, I would say that it qualifies.
[31:34] 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.
[31:45] Can I start talking about recognisable an integral part.
[31:50] But for the palate, how does the chicken get delivered? Is it an important part?
[31:56] I'm sorry, I didn't hear the last part. But for the palate, how does the chicken get delivered?
[32:00] When we talk about recognisable an integral part of the thing, how does the palate not a part of the delivery of the product?
[32:10] 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?
[32:18] And you can be as broad or as narrow as you would like to be.
[32:22] So the department could take an unreasonable position and say, well, their product is the individual chicken nugget that you take home.
[32:27] Or Tyson could be more unreasonable and they could say, well, it's a truckload of chicken or it's a train car chicken.
[32:35] Instead, I think this court should look at it as reasonably as possible.
[32:40] Look at what is the final taxable product that the end consumer is taking home.
[32:45] And here is the package of chicken. It is not the palate of chicken.
[32:50] And I do think what the end taxable consumer takes home is relevant because this court's case law,
[32:56] especially in the Maccarol case pointed out that those paper boxes were actually taken home in unchanged form typically by whoever was purchasing them.
[33:10] Distinguished the palate from, say, the cardboard box that the chicken is packed in.
[33:15] Is it because the palate belongs to somebody else that has the ability to recover that and the cardboard boxes is disposable or recyclable?
[33:24] How do the two different cost of goods sold mechanisms here for the cost of the palate versus the cost of the box differ?
[33:33] I think that the issue is there. The distinction is, one is becoming a part of the product.
[33:39] 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.
[33:48] 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.
[34:01] Or the freezer, whatever it is.
[34:04] 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.
[34:16] Well, certainly here the refund request only touched on the palate.
[34:21] 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?
[34:28] Is it an integral part for the purpose of the statute?
[34:33] I would say that the distinction there would be that these pallets we know are separated.
[34:41] They are returned back to chip. That's the way this whole process is designed.
[34:46] It's because of that closed loop system where they have a right to recover that distinguishes this.
[34:52] I think that's extremely relevant when you're trying to determine under 12 B.I.
[34:56] 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,
[35:06] I think it's hard to argue that that becomes a recognizable integral part of something.
[35:11] 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.
[35:20] 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.
[35:40] For the purpose of taking possession of the chicken on delivery.
[35:45] That's again highly, highly factually specific.
[35:50] I feel like I'm treading into binding the department on future issues.
[35:53] 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.
[36:05] We just have the two statements in the afternoon, which they say are unrebutted.
[36:09] They are correct. That is unrebutted. Every business passes along every cost that it has.
[36:16] What we do know Tyson's theory of the case though, because during the summary judgment hearing the judge asked the question,
[36:26] 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,
[36:36] 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.
[36:52] We're asked to review two years at issue in this case.
[36:56] The periods at issue in this case are March of 2015 through December of 2017 and October 2020 through October of 2021.
[37:08] 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?
[37:15] 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.
[37:26] There's some evidence that the pallets at their lost Tyson has to pay $18 to $24.
[37:36] That would be taxed on that part.
[37:41] I don't believe that there's anything in the record about whether Tyson would be taxed on paying that fee.
[37:49] Is that matter that if the pallets continue to stay in circulation?
[37:55] No fee goes back to Tyson, but if they're lost so presumably they become Tyson at that point.
[38:01] There is a fee.
[38:03] 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.
[38:10] 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.
[38:17] 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.
[38:25] So the return of the pallets is very financially relevant to Tyson according to these contracts.
[38:32] I'll try to close here in the last 20 seconds.
[38:42] The question to be answered here today again is can Tyson purchase chips shipping pallets exempt as a sale for resale.
[38:49] The answer to that question is no, Tyson sells chicken, Tyson does not sell pallets.
[38:55] Ockham's razor is the principle that the simplest answer is often the correct answer.
[38:59] The department is arguing here today that the simplest answer is the correct answer.
[39:04] Tyson sells chicken.
[39:06] And here I give it a bottle.
[39:23] Thank you, sir.
[39:28] Okay.
[39:32] 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.
[39:42] What I would tell you to that is one, it is a perfectly comprehensible phrase, this three individual words.
[39:49] You've got to have a sale for which the statute tells us how to define four.
[39:54] 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.
[40:04] 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.
[40:15] 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.
[40:29] 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.
[40:40] It didn't matter to that case and it shouldn't matter here just as well.
[40:46] 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.
[41:00] What's the limiting principle of that I mean if I rent if instead of a pallet it's a truck.
[41:05] 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.
[41:19] You typically take my hypothetical where you did okay.
[41:22] 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.
[41:28] 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.
[41:36] States coffers.
[41:38] Yes.
[41:39] 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.
[41:52] We have a very functional legislature they pass a lot of laws every single time they're in session they can fix it.
[41:58] So we get my answer to that would be yes.
[42:02] The last one I'd like to make the remaining time I have is there has been some argument well two points really.
[42:08] 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.
[42:19] Pepsi doesn't sell Pepsi doesn't sell cardboard boxes Pepsi sells soda.
[42:26] The statute doesn't say what do you primarily sell.
[42:30] 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.
[42:39] 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.
[42:45] But instead are talking about the things that it gets stacked on that then fall off. Why is that distinction not relevant?
[42:52] I don't see a distinction but to me the best example is the cardboard boxes in Arkansas beverage.
[42:58] You've got the thing the thing Pepsi primarily sells that's the soda.
[43:03] 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.
[43:11] Sometimes they sold the whole thing sometimes they broke it up.
[43:14] And those cardboard boxes were accepted as exempt because they were an essential part of how Pepsi delivered its products to its customers.
[43:24] My time is inspiring so let's refer their questions.
[43:27] I'll thank you all for your time.
[43:29] Thank you for your hard giving.
[43:34] It just concludes oral argument.
[43:59] This concludes today's oral argument.