Texarkana Says Own Sales Tax Fails Constitutional Test

Texarkana Says Own Sales Tax Fails Constitutional Test
The police headquarters building in Texarkana, Arkansas. (Anita Peek)

Texarkana, Arkansas, is in an awkward position: arguing that its own tax is unconstitutional.

Voters on the Arkansas side of the state line-straddling city approved the tax in the mid-1990s to ensure its police officers were paid the same as their Texas brethren across town, but officers say the tax proceeds are not going toward that purpose.

The police officers have taken their grievance to Miller County Circuit Court and want Judge Kirk Johnson to rule that the sales tax proceeds should be set aside for periodic salary increases for officers. Their lawsuit asks the circuit court to oversee collection of the tax and its payments.

The city “never kept the funds separate for the purpose of parity pay,” the officers’ attorney, Brent Langdon of Texarkana, Texas, told Arkansas Business last week. The city “used the funds as they wanted.”

The city, in response to the officers’ complaint, now wants to do away with the 0.25% sales tax, holding that it’s unconstitutional for an Arkansas city to, in essence, allow its pay scale to be set by out-of-state neighbors.

The city, in its court filings, said that the tax hasn’t generated enough revenue in recent years to maintain parity for police officers. “In fact, it has reached the point that it is impossible for the City of Texarkana, Arkansas, to continue to take approximately $1 million a year from the general fund just to provide salary parity for the police department,” the city’s filing said.

In 2017, the annual cost of parity for the city’s police officers was $2 million while the city collected $1.1 million from the tax, leaving a deficit of about $920,000, according to the city’s filings.

“Normally, you would not see a city advocate the position that could ultimately cost them tax revenue dollars,” said attorney Ralph Ohm of Hot Springs, who is representing the city. “But … the requirements associated with the tax revenue — the burden is almost too great to bear.”

Ohm also said city lawmakers are responsible for setting the number of employees and the salary for the police department.

“When you tie your hands and make them comply with other departments and other agencies’ base salaries, then you actually have violated the [Arkansas] Constitution,” Ohm said. “What you have here is Texarkana, Texas’, board of directors setting salary for Texarkana, Arkansas’, police officers.”

If the tax is ruled unconstitutional, layoffs are expected, Ohm said. But he wasn’t sure how many officers on the force of about 85 would lose their jobs.

The city’s general fund revenue is about $19 million.

“It will financially be a significant hit if that sales tax is declared to be unconstitutional,” Ohm said. “However, it does then free up money to be used more equitably among other departments.”

He also said that voters might approve of a tax for officers that wouldn’t have the parity restrictions in it.

But Langdon, the attorney for the police officers, takes issue with the city’s numbers. In court filings, he said the city generated $2.26 million from the special sales and use taxes in 2017, and the amount in salary increases required to maintain parity totaled only $650,000, leaving about $1.61 million in surplus for future increases. (The police and fire departments each have 0.25% sales taxes that generate a total of about $2.25 million annually. The fire department isn’t a plaintiff in the lawsuit.)

“The City’s position appears to shift the payroll related expenses associated with the police department and ignores the City’s portion of the responsibility of maintaining a police department,” he said in the filing.

Langdon said the tax money should have been kept in a separate fund and the surpluses saved.

“Instead, that money was used in the general fund to do whatever it is that the city wanted to do with it,” Langdon said.

Officers were supposed to receive a 4% increase in pay for parity starting in January 2017, but they haven’t received it, according to the officers’ filing.

The officers filed their court case in December 2017, and the case is pending before Judge Johnson.