Michael W. Gates and Susan J. Gates v. Jim Hudson, Secretary, Department of Finance and Administration of the State of Arkansas

2025 Ark. 48, 711 S.W.3d 142
CourtSupreme Court of Arkansas
DecidedApril 24, 2025
StatusPublished
Cited by2 cases

This text of 2025 Ark. 48 (Michael W. Gates and Susan J. Gates v. Jim Hudson, Secretary, Department of Finance and Administration of the State of Arkansas) is published on Counsel Stack Legal Research, covering Supreme Court of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Michael W. Gates and Susan J. Gates v. Jim Hudson, Secretary, Department of Finance and Administration of the State of Arkansas, 2025 Ark. 48, 711 S.W.3d 142 (Ark. 2025).

Opinion

Cite as 2025 Ark. 48 SUPREME COURT OF ARKANSAS No. CV-24-558

Opinion Delivered: April 24, 2025 MICHAEL W. GATES AND SUSAN J. GATES APPEAL FROM THE GARLAND APPELLANTS COUNTY CIRCUIT COURT [NO. 26CV-21-100] V. HONORABLE GARY M. ARNOLD, JUDGE JIM HUDSON, SECRETARY, AFFIRMED. DEPARTMENT OF FINANCE AND ADMINISTRATION OF THE STATE OF ARKANSAS APPELLEE

NICHOLAS J. BRONNI, Associate Justice

This case is about what Michael and Susan Gates owe in taxes. It started with the

Gateses’ failure to file individual or corporate tax returns between 2012 and 2017. Mr.

Gates eventually pled no contest to one count of failing to file or pay taxes, and he was

ordered to file tax returns for 2015, 2016, and 2017. The Department of Finance and

Administration (DFA) audited those returns and concluded that the Gateses had not properly

calculated their tax liability for all three years.

The Gateses disputed that determination and submitted additional documentation

concerning certain business expenses. DFA then reversed some of its deduction

disallowances, adjusted its calculations, and determined the Gateses owed a different amount.

The Gateses disputed that number too, and this lawsuit followed. Following discovery, the

circuit court held that DFA was entitled to summary judgment on the Gateses’ claim that DFA had improperly calculated their tax liability. This court reversed and remanded,

agreeing with the Gateses that DFA had failed to explain its math and thus had not carried

its prima facie burden of demonstrating the couple’s tax liability.

On remand, DFA introduced evidence detailing its disallowance decisions and

calculations. It moved for summary judgment again, and the circuit court granted that

motion based on this new evidence and the Gateses’ failure to meaningfully respond to that

evidence. We affirm.

Background

In August 2019, the Gateses filed their 2015, 2016, and 2017 tax returns, and

pursuant to an order in Mr. Gates’s criminal case, DFA audited those returns. As part of

that audit, DFA made two key adjustments to the Gateses’ net taxable income: (1) it added

additional 1099 income that it said the couple had not included on their returns; and (2) it

disallowed several deductions claimed by the couple’s S-corporation, Stonebridge

Collection, Inc. Those adjustments increased the Gateses’ tax liability. In response, the

Gateses requested the schedules supporting DFA’s adjustments. They then submitted both

documentation and a spreadsheet disputing many of the disallowances. DFA thereafter

reduced—but did not eliminate—its adjustments to the Gateses’ net tax liability.

Following the initial audit, DFA sent the Gateses several communications about their

tax liability. DFA intended those communications to clarify the situation, but as Gates I

explained, they had the opposite effect. Two sets of communications are relevant here.

First, after the Gateses submitted their documentation disputing the initial audit filings, on

August 13, 2020, DFA sent the Gateses three “Summary of Findings” documents. Each

2 summary covered a single year and detailed the Gateses’ adjusted taxable income and

corresponding tax liability. Second, just over a week later, on August 24, 2020, DFA sent

the Gateses three Amended and Corrected Notices of Final Assessment. Those notices

calculated what the Gateses owed for each year—combining the liability the Gateses had

reported on their original tax returns and DFA’s final adjustments as reflected in the August

13 summaries. Some back-and-forth followed, but as we noted in Gates I, communication

between DFA and the Gateses largely broke down.

Thereafter, on February 2, 2021, the Gateses filed this lawsuit under the Taxpayer

Procedure Act, arguing that DFA miscalculated their tax liability for 2015, 2016, and 2017.

Following discovery, DFA moved for summary judgment, which the circuit court granted.

The Gateses appealed.

On appeal, in Gates I, we concluded that DFA had failed to carry its prima facie burden

of establishing the Gateses’ tax liability and that, as a result, summary judgment was not

appropriate. Particularly relevant here, we explained that DFA had failed to show its math

or establish how it calculated the Gateses’ tax liability. Far from it, we noted that DFA had

not “show[n] which 1099 income it included or which business deductions it excluded”

from its calculations. Gates v. Walther, 2023 Ark. 74, at 5, 665 S.W.3d 217, 220. Without

that information, DFA could not establish the couple’s tax liability. Id.

On remand, DFA moved for summary judgment a second time. This time, DFA

supported its motion with an affidavit from Melissa Guin, DFA’s lead auditor. Her affidavit

detailed DFA’s income calculations and attached more than 50 exhibits documenting the

1099 income DFA included and the deductions it disallowed. DFA also attached the notices

3 the Gateses challenged—instead of DFA’s earlier, superseded notices. The Gateses

responded by arguing that DFA had failed to carry its prima facie burden, and they filed

thousands of pages of documents that they claimed supported that argument. Those

documents included the spreadsheet that the Gateses had sent in response to DFA’s initial

disallowance decisions, Stonebridge’s bank statements, receipts, and Stonebridge’s profit and

loss statements. Yet they did not explain how those documents undermined DFA’s

determinations or calculations.

Recognizing that, at the summary judgment hearing, the circuit court repeatedly

asked the Gateses to explain which calculations and disallowances they disputed and why.

The Gateses declined to do so. Instead, they simply insisted that their documents somehow

refuted DFA’s disallowances and argued that 1099s are not prima facie evidence of taxable

income.

The circuit court struck the Gateses’ exhibits on evidentiary grounds. But it

concluded that even if it considered those exhibits, DFA would still be entitled to summary

judgment because DFA had carried its prima facie burden of establishing the Gateses’ taxable

income and liability and the Gateses had failed to dispute any specific disallowance or

calculation.

The Gateses timely appeal.

Discussion

The Gateses seek reversal of the circuit court’s order granting DFA’s motion for

summary judgment. Summary judgment is appropriate “only when it is clear that there are

no genuine issues of material fact to be litigated[] and the party is entitled to judgment as a

4 matter of law.” Scamardo v. Sparks Reg’l Med. Ctr., 375 Ark. 300, 305, 289 S.W.3d 903,

906 (2008). We review circuit court orders granting summary judgment de novo, viewing

the evidence in the light “most favorabl[e]” to the Gateses. Jackson v. City of Blytheville Civ.

Serv. Comm’n, 345 Ark. 56, 60, 43 S.W.3d 748, 751 (2001).1

1 An aside about the standard of review. This court has long reviewed summary judgement orders “de novo.” That is, we have not given lower court decisions on summary judgment any deference. The concurrence does not dispute that. Yet it treats the phrase de novo review like the name Voldemort, urging us not to say it. It is not clear why.

To be sure, on summary judgment, we view the evidence in the light most favorable to the non-moving party.

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2025 Ark. 48, 711 S.W.3d 142, Counsel Stack Legal Research, https://law.counselstack.com/opinion/michael-w-gates-and-susan-j-gates-v-jim-hudson-secretary-department-of-ark-2025.