Raytheon Sues Arkansas for $3.2M Refund in Income Taxes

A Tactical "Tomahawk" Block IV cruise missile, conducts a controlled flight test over the Naval Air Systems Command (NAVAIR) western test range complex in southern California.

This week’s look at the Camden-area defense industry (see In the Rockets’ Red Glare, Camden Workers Stand Out) turned up a pair of lawsuits accusing the state of Arkansas of improperly charging missile maker Raytheon Co. more than $3 million in income taxes.

The suits, in U.S. District Court in El Dorado and in Ouachita County Circuit Court, contest a state administrative law judge’s ruling against Raytheon in December. That decision affirmed that Raytheon, the Massachusetts defense contractor that ranks 119th in the Fortune 500, must treat all sales to the federal government from its Calhoun County factory as in-state sales for tax purposes.

Raytheon had sought to use an alternative apportionment method to calculate its state taxes, balking at a state rule that “treats every sale [to the federal government] as though it occurred within the Arkansas market.”

Some 97 percent of Raytheon’s sales from Arkansas are to U.S. defense agencies or foreign militaries, and the tax burden “is not fairly apportioned among the states in which Raytheon conducts business,” the filing says. Treating sales to the federal government differently than other sales “is discriminatory toward interstate commerce” and unconstitutional, it argues.

Raytheon wants a $3.2 million tax refund for the 2008-11 and 2014 tax years, and abatement of taxes and penalties for the 2012-15 tax years, as well as attorneys’ fees and costs. The May 30 complaint was filed by John R. Tisdale, Rodney P. Moore and Michael A. Thompson of Wright Lindsey & Jennings LLP of Little Rock.

In response, Director Larry Walther of the Arkansas Department of Finance & Administration moved on June 20 for the federal case to be tossed as the state case proceeds. Raytheon, in its complaint, had explained that it was pursuing federal litigation because the state court is likely to dismiss its case on grounds of sovereign immunity, the tenet that the state cannot be sued in state court.

Walther’s motion, filed by the state Office of Revenue Legal Counsel, holds that state courts have jurisdiction and the federal complaint should be dismissed. Raytheon raised the U.S. case “solely on speculation that its state court action will be dismissed,” Walther’s filing says; instead, it declares the state will not be raising sovereign immunity as a defense. “Federal jurisdiction cannot be established on speculation,” Walther’s filing says.

Neither the state nor the company would comment further on the case.

Raytheon assembles, packages and ships five separate missile types from East Camden, including Tomahawk cruise missiles, and its complaint notes that none of its products is made for use in landlocked Arkansas. “All are for use in naval warfare,” it notes.