The Arkansas Supreme Court upheld sovereign immunity dismissal of claims against the Assessment Coordination Division (ACD) about its mineral interest assessment guidelines in Chaney v. Union Producing, LLC, 2020 Ark. 388 (Dec. 3, 2020). The court's reasoning emphasizes the limited nature of ACD guidance authority over county assessors. The decision also highlights the potential impact of sovereign immunity on the right to bring tax-related claims to court.
This case was an interlocutory appeal from a dispute between taxpayers and the Ouachita County Assessor over mineral interest valuations in 2016-2018. The assessor’s position appears to have been based on ACD guidelines and calculations that used a three-year rolling average of oil prices. The taxpayers believe that the fair market value was lower, presumably in large part due to the collapse in oil prices.
The taxpayers pursued their remedies through the county board of equalization, the county court, and on to circuit court. At the circuit court, the taxpayers added claims for injunctive relief against the ACD based on alleged flaws in its mineral interest valuation guidelines. The ACD moved for summary judgment under a sovereign immunity defense. The circuit court declined based on questions of whether the ACD guidelines were mandatory or discretionary, and former ACD Executive Director Chaney appealed.
The Arkansas Supreme Court reversed the circuit court and ordered that summary judgment be entered in Chaney’s favor. The opinion’s reasoning is that the sovereign immunity exception for illegal, unconstitutional, or ultra vires conduct did not apply because the ACD position was only discretionary, nonbinding guidance. The ultimate authority for arriving at the proper valuation and assessment of the mineral interests sat with the county assessor. Accordingly, the ACD guidance could not be illegal or unconstitutional.
This opinion in Union Producing thus emphasizes county assessor authority to make valuation determinations and seems to minimize the authority afforded the ACD guidance. In the ongoing contest between statewide consistency and local control and autonomy, the opinion points toward local control and autonomy. Query how Arkansas will handle upcoming rounds of ACD guidance on exemptions and on inventory valuation that are expected to have more binding effect because of potential withholding of funds to assessors who do not follow them. See Ark. Code Ann. § 26-26-1125 (eff. May 1, 2021).
Union Producing also highlights the need for a constitutional amendment to restore the legislature’s ability to provide taxpayers with access to the courts. Thus far the revival of the sovereign immunity doctrine by the Arkansas Supreme Court has not significantly affected taxpayers: Sovereign immunity has been determined to be an affirmative defense that does not have to be raised, and Governor Hutchinson and the Department of Finance and Administration have made it a policy to not raise the defense in ordinary judicial appeals of tax assessment or refund claim disputes. This Chaney decision appears to be the first case in which a taxpayer’s redress has been limited by sovereign immunity. We may see an exception to sovereign immunity as one of the legislatively referred constitutional amendments in the coming legislative session.