United States

Arkansas: Dog Days for Arkansas Dog Breeder

Nov 13, 2017
From KPMG TaxWatch

Loading the player...

A recent Administrative Decision from the Arkansas Department of Finance & Administration’s Office of Hearings and Appeals illustrates the importance of asking the right questions when requesting a ruling and ensuring that a previously-issued ruling is still binding. The taxpayer, a dog breeder, was contacted by the Department over a decade ago after the state sales and use tax was expanded to include pet grooming and kennel services. The Department had written to the taxpayer to inform her of the law change and to make her aware that she may need to register with the Department to collect and remit sales tax. The taxpayer responded that she was a dog breeder, did not perform grooming services, and only kept puppies that she bred until they were sold (i.e., she was not performing a kennel service). After requesting to be removed from the list of businesses required to collect and remit Arkansas sales tax, the taxpayer requested an opinion that she was exempt from such duties. The Department issued an opinion explaining that the taxpayer would not be required to collect and remit sales tax on her services because the new sales tax law addressing pet grooming and kennel services did not apply to her. The opinion further acknowledged that “kennel services” do not include breeding services. The taxpayer had never collected tax on the sale of dogs that she bred. In an audit conducted for periods from November 2011 – April 2016, she was assessed tax for failing to collect sales and use tax on sales of tangible personal property—the puppies. The taxpayer argued that she relied on the Department’s opinion and therefore the assessment should be abated.

The ALJ ruled that the taxpayer failed to present sufficient evidence to establish an estoppel defense. Noting that it was “extremely unfortunate” that the taxpayer’s opinion request did not pose a question regarding the taxability of sales of puppies, the Department's response was not an affirmative misrepresentation regarding the taxation of sales of puppies. Furthermore, the Taxpayer was precluded from proving the requisite detrimental reliance as a matter of law because a regulation specifically stated that legal opinions may not be relied upon if more than three-years old. The Department's response to the taxpayer's opinion request had been issued more than three years prior to the audit assessment.  Please stay tuned to TWIST for more tax life lessons!


For more information about TWIST or to view archived episodes, please visit our TWIST homepage.

 Subscribe to TWIST via iTunes, or  Subscribe via RSS.

To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.


The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.