In a 4-3 decision today, the Arkansas Supreme Court upheld a lower court ruling that proppants, or a sand used to aid the fracking process in gas well drilling, were “equipment” and exempt from the sales tax.

The decision pitted Justices Courtney Goodson, Karen Baker, Jo Hart and Rhonda Wood against Chief Justice Jim Hannah and Justices Paul Danielson and Robin Wynne.


The state Department of Finance and Administration contended the sand is not equipment and tried to collect $1.3 million in sales taxes on purchases of the material by Weatherford Artificial Lift Systems. Circuit Judge Tim Fox sided with the company and the state appealed, even though the legislature made an effort in 2014 to legalize an exemption for the substance. That vote, including an override of Gov. Mike Beebe’s veto, was under challenge in another lawsuit the law was passed in a fiscal session limited to budget matters. The legislature in 2015 passed another law to clarify its intent to exempt the material from the sale tax. Today’s decision clears up all past efforts to collect the money.

The court has defined equipment as “implements, tools or devices of some degree of complexity
and continuing utility.” But the majority of the court in this case, in an opinion written by Hart, said that definition — in a case in which the court said gravel used in road building couldn’t be considered equipment — didn’t specify the degree of complexity. And since then the court has found, among others, a chemical used in manufacturing airplane parts was equipment. The majority said, based on expert testimony about how the sand works in the process, that it couldn’t say Fox had erred in holding the material was equipment.


The dissenting opinion, written by Wynne, said the majority failed to consider the clear precedent on the taxing power of the state. The statute on tax exemption lists things that are exempt and then gives the Finance and Administration  Department the power to promulgate regulations. The opinion said the DFA rule that prevented an exemption for the proppant was reasonable. It  noted a court precedent that said there “is a presumption in favor of the taxing power of the state, and all tax-exemption provisions must be strictly construed against the exemption.”

This is not going to be a court, I’d guess, where the majority is likely to render many opinions that run contrary to votes of the legislature in successive years.


Does that thinking hold any meaning relative to the long-pending case on same-sex marriage? I’d say yes. The conventional legal wisdom these days is that — notwithstanding the Arkansas Constitution’s declaration of rights section and its use in upending other laws discriminating against gay people — this Supreme Court will uphold the state’s same-sex marriage ban unless the U.S. Supreme Court rules against them in other states. And nobody expects a ruling from the Arkansas Supreme Court until the U.S. Supreme Court rules. I’d like to see that proved wrong on both counts, but ….. 

UPDATE:  AP quotes a state official as saying the ruling will mean refunds of $24.5 million to four companies that had paid sales taxes on the sand.