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RTX & State Settle Dispute Over Taxes on Missile Sales

5 min read

The world’s largest aerospace and defense conglomerate, RTX Corp., reaffirmed its warm alliance with Arkansas in October when it unveiled plans to produce R2S missiles at a facility near East Camden.

“You all treat us like family,” said Jeff Shockey, senior vice president of global government relations at RTX.

But even family members don’t always see eye to eye.

Consider a long-running corporate tax dispute between RTX and the state Department of Finance & Administration.

After six years of legal wrangling and a failed attempt at court-ordered mediation, the parties quietly settled the matter last year.

The settlement means the state will continue to treat companies’ sales to the federal government as if they were in-state sales for tax purposes, avoiding a possible precedent that could have cost Arkansas millions annually.

The resolution came less than five months ahead of the R2S announcement on Oct. 26.

The rocket-making plant was first described as a $33 million facility to create up to 30 jobs. But expanded plans, announced at a Feb. 21 groundbreaking, call for up to 60 new jobs in a $63 million plant.

The new facility will produce the Tamir missile for the Israel’s Iron Dome Weapon System, along with a variant, the SkyHunter missile, for use by the U.S. Marine Corps and other U.S. allies. R2S is a joint venture between RTX’s Raytheon division and Israel’s Rafael Advanced Defense System Ltd.

“This is a project that we have been working with their team on for the past few years, off and on,” Clint O’Neal, executive director of the Arkansas Economic Development Commission, said in October.

Raytheon’s Arkansas workforce has swung wildly between hundreds to dozens of employees over the years. The fluctuation is linked largely to the ebb and flow of missile production contracts.

In 2006, Raytheon reported 645 Arkansas employees in military defense work. In 2021, the company’s payroll in the state was estimated   at between 50 and 99, according to the Arkansas Economic Development Commission.

A more current number was unavailable from the AEDC or RTX.

The company expects missile production to begin in 2025 with an estimated annual output of 325 SkyHunters and 1,000 to 2,000 Timars.

Reaching an Accord

Raytheon launched its litigation six years ago seeking to recover more than $3.6 million in state taxes for 2008-11, 2014 and 2016, levies on missile sales tied to its south Arkansas operations.

Along with the parent company (renamed RTX last summer), the aggrieved parties included seven Raytheon subsidiaries and other unnamed subsidiaries included in the company’s consolidated Arkansas tax returns.

The court battle between Raytheon and the state of Arkansas dates back to May 30, 2018. In addition to filing a lawsuit in Ouachita County Circuit Court, Raytheon also filed a complaint in federal court in case the state presented a sovereign immunity defense.

But that didn’t happen.

Raytheon was seeking class-action certification regarding its illegal-exaction claim. If approved, that could have brought other businesses into play as potential plaintiffs.

In February 2019, a bench trial scheduled for Aug. 5 in El Dorado’s U.S. District Court was put on hold as the action shifted to state court in Camden.

Both Raytheon lawsuits contested a state administrative law judge’s ruling against the company in December 2017. That decision affirmed that the defense contractor 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.”

Raytheon proposed a settlement on Feb. 25, 2023, a few days after filing its fourth amended complaint.

That agreement resulted in the company agreeing to pay the entire tax due ($3,181,209.53) and withdraw its refund claims ($3,663,242 plus interest) in exchange for the Department of Finance & Administration’s waiver of all penalties and interest (about $3,631,302.24).

The math of the dispute was based on a statement of account dated Jan. 6, 2023.

Raytheon owed $8,554,432 in taxes, $1,652,533.01 in penalties and $1,978,769.17 in interest for the tax years 2011 through the first quarter of 2020. The company was given credit for payments of $5,373,222.47.

Ross Kearney, corporate vice president of tax at Raytheon, signed the settlement on behalf of the company. Kearney couldn’t be reached for comment.

Larry Walther, now state treasurer, signed the agreement as secretary of DF&A. He referred questions about the settlement to Paul Gehring, assistant revenue commissioner.

“We don’t comment on litigation, even litigation that has gone through legislative approval,” Gehring said.

Gehring said that no-comment stance extends even to broader tax issues that might be associated with litigation that has gone through legislative approval.

As part of the settlement, neither side had to back down from its differing contentions in the matter, and Raytheon’s legal actions were dismissed with prejudice.

RTX History in Arkansas

The missile-making heritage of RTX Corp. dates back to 1948, but the company didn’t start assembling military rockets in Arkansas until 50 years later through acquisition.

Known as Raytheon Corp. at the time, the company purchased the aerospace and defense business of Hughes Electronics Corp. from General Motors for $9.5 billion in January 1998.

Among the acquired assets were the Hughes operations in Calhoun County’s 18,780-acre Highland Industrial Park with more than 5.4 million SF of industrial and warehouse space.

That acquisition put the Raytheon name on the roster of defense contractors leasing space and doing business at the state’s largest industrial park, about 6 miles northeast of Camden. The Hughes purchase, combined with its own significant defense-related production, boosted Raytheon to rank No. 3 among the nation’s largest military contractors 26 years ago.

The April 2020 merger of Raytheon and United Technologies Corp. produced Raytheon Technologies and further increased the company’s stake in military sales. Renamed RTX in July 2023, the multinational corporation is billed as the world’s largest aerospace and defense conglomerate.

Backed by a worldwide workforce of more than 180,000, RTX generated revenue of $68.9 billion and a profit of $3.2 billion during 2023.

The company’s Raytheon business segment accounted for more than $26.3 billion in sales last year. Domestic business produced the lion’s share at $20.2 billion. Outside of the United States, Raytheon sales in 2023 were divided geographically among Asia/Pacific, nearly $2.2 billion; Middle East/North Africa, more than $2 billion; Europe, more than $1.6 billion; and other, $181 million.

In years gone by, Raytheon subsidiaries operated Arkansas facilities with product lines devoted to civilian markets. Those included a Speed Queen appliance plant that made dryers in Searcy. The plant employed 390 when it was sold in 1998 as part of a $750 million transaction with Goodman Holding Co. of Houston.

Raytheon Aircraft Co. employed 645 finishing out and installing custom interiors and avionic equipment at its Little Rock facility when it was sold in 2007. That $3.3 billion deal created Hawker Beechcraft Corp.

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