A Nice and Illegal Gesture from SOS John Thurston
An Email from Arkansas Secretary of State John Thurston concerning the filing of the annual "Franchise Tax" for businesses. Notice that the second paragraph acknowledges that the due date of the tax is set by law. Then says, "however we thought this would be one way to help companies who may need a little extra time..."
Well, that sounds like a nice gesture, but if the date is set by law, is it a nice gesture that the Secretary is legally allowed to make? I consulted the latest AR Code I could find on the matter and here is what it said...
26-54-107. Computation of tax — Penalty — Relief.
.....(A) If the taxpayer fails to comply with the filing and remittance requirements under § 26-54-105(c) by May 1, the Secretary of State shall assess the corporation a penalty of twenty-five dollars ($25.00) plus interest on the tax and penalty from the date due until paid at the rate of ten percent (10%) per year....
That doesn't sound like the penalties are optional under state law. He has to assess them. However, I thought "maybe he has authority to waive them after he assesses them"? So I kept looking at the code. He does have some power to waive the penalties, but not at will, only under specific narrow conditions. To whit...
So now that this has happened, it may mean that every corporate franchise in the state can hold onto their cash for a couple of more months without penalty (Your individual state income tax however, is still due on time!). On the other hand, state programs and agencies looking for funding probably have an interest in the taxes being received in a timely manner, and the normal amount of penalties for late filings being collected. If we are lucky, none of them will sue over this.
Maybe the Secretary of State is clever enough to realize that he could end-run the state law on this because the confusion he would created with the announcement would itself justify his waiving the penalties. Or maybe, and I think this more probable, he just doesn't have a good understanding of the rule of law and is running his office like its own fiefdom rather than a member of the Executive Branch keeping his oath of office to "faithfully uphold the laws of the state of Arkansas." And because I am a stickler for "Integrity of the Process" as well as oath-keeping, I believe that even if he can get away with it, it is still a terrible way to operate that undermines the rule of law.
It isn't that I disagree with the decision to delay collection of taxes, though it should apply equally to corporations and real people alike, but rather that it is the legislature who should make that decision rather than an Executive Branch officer unilaterally deciding he is going to effectively re-write state law.
(c) The Secretary of State or his or her designee may agree to settle or compromise a dispute concerning interest or penalties associated with corporate franchise taxes if the taxpayer:The only one of those conditions which could even remotely be applied to this situation is (d) (1a). That is, "The taxpayer is reasonably mistaken about the application of this chapter ". They might reasonably be mistaken about it because they were confused by the Secretary of State's own pronouncement on the matter! He didn't have the legal authority to change the due date of the taxes, but because he told people the date was changed the people that he mis-informed should not be held accountable for late payment. They may have based their decision to late-pay on the mistaken assumption that their Secretary of State knew what he was talking about!
(1) Disputes the proposed amount; or
(2) Is insolvent or bankrupt.
(d)
(1) The Secretary of State may waive any accrued interest or assessed penalties imposed on a taxpayer due to a failure to remit corporate franchise taxes under § 26-54-105(c), if:
(A) The taxpayer is reasonably mistaken about the application of this chapter or the computation of the franchise tax to the corporation; or
(B) A taxpayer cannot pay the accrued interest or assessed penalties because of the taxpayer's insolvency or bankruptcy.
(2) The Secretary of State may waive any fees that a taxpayer owes if the taxpayer desires to dissolve the corporation.
So now that this has happened, it may mean that every corporate franchise in the state can hold onto their cash for a couple of more months without penalty (Your individual state income tax however, is still due on time!). On the other hand, state programs and agencies looking for funding probably have an interest in the taxes being received in a timely manner, and the normal amount of penalties for late filings being collected. If we are lucky, none of them will sue over this.
Maybe the Secretary of State is clever enough to realize that he could end-run the state law on this because the confusion he would created with the announcement would itself justify his waiving the penalties. Or maybe, and I think this more probable, he just doesn't have a good understanding of the rule of law and is running his office like its own fiefdom rather than a member of the Executive Branch keeping his oath of office to "faithfully uphold the laws of the state of Arkansas." And because I am a stickler for "Integrity of the Process" as well as oath-keeping, I believe that even if he can get away with it, it is still a terrible way to operate that undermines the rule of law.
It isn't that I disagree with the decision to delay collection of taxes, though it should apply equally to corporations and real people alike, but rather that it is the legislature who should make that decision rather than an Executive Branch officer unilaterally deciding he is going to effectively re-write state law.
posted by Mark Moore (Moderator) at Tuesday, April 14, 2020
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