By Ray King
The Arkansas Supreme Court on Thursday ruled that leases of property by Rent-A-Center’s in the state are short-term leases and subject to the short-term rental tax when the term of payment is weekly or semi-monthly.
The court denied Rent-A-Center’s claim that their rentals are not short-term but rather long-term based on information that showed customers almost always renew their leases beyond the initial term of the rental agreement.
Rent-A-Center operates stores in much of Arkansas, including a store located in the Jefferson Square Shopping Center and rents property such as electronics and furniture on a rent-to-own basis. Customers decide on a monthly, semi-monthly or weekly payment plan and there is no obligation beyond the initial rental term. If the customer decides they want to keep the merchandise, they must continue to rent the property on the same monthly, semi-monthly or weekly basis.
The agreement customers sign designates the transaction as a rental and Rent-A-Center maintains the title to the property until the customer makes the final payment called for in the agreement.
The Arkansas Department of Finance and Administration, after a review of the company from 2012 to 2014 notified Rent-A-Center they owed $615,261-70 of short-term rental tax, and in 2018, DFA notified Rent-A-Center they owed $894,956.86 in taxes and penalties. Rent-A-Center paid that and filed suit in Pulaski County Circuit Court.
Ina addition to other taxes, state law provides that a tax of one percent be Imposed on gross receipts from short-term rental of tangible real property with short-term being defined as less than 30 days.
The company contended that the typical time period for all rental transactions before ownership of the property being rented is owned by the customer is between seven and 30 months and in the 24 months that were reviewed by the state, only four percent of customers returned the items they had rented in 30 days or less.
At a hearing in 2019, the circuit court ruled against Rent-A-Center and the company appealed to the Supreme Court.
Writing for the Court, Associate Justice Robin Wynne said the only issue is whether the rental transactions were short-term, as the state contended, or long-term, as Rent-A-Center contended.
Wynne wrote that looking at the language of the company’s rental agreement and the definition of short-term rental in state law, the court concluded that the company is subject to the short-term rental tax when the term is weekly or semi-monthly and upheld the position of the Department of Finance and Administration.
