The Arkansas Supreme Court on Thursday rejected a sales-tax refund claim filed by three subsidiaries of Tyson Foods, Inc., ruling that rented wooden pallets used to ship poultry products do not qualify for a tax exemption because they do not become part of the food itself.
The decision, authored by Associate Justice Nicholas J. Bronni, resolves a legal dispute between Tyson Chicken, Inc., Tyson Mexican Original, Inc., and Tyson Poultry, Inc. against Jim Hudson, the Secretary of the Arkansas Department of Finance and Administration (DFA).
The legal battle centered on whether Tyson’s rental of reusable wooden shipping pallets from Commonwealth Handling Equipment Pool (CHEP) should be exempt from the state’s 3% sales tax under the “sales for resale” exemption. Tyson argued that because it uses the pallets to deliver its products to distributors, wholesalers, and retailers, the pallets represent an integral component of the final packaged product.
However, the state supreme court affirmed a Washington County Circuit Court summary judgment in favor of the DFA, concluding that the pallets are a delivery mechanism rather than a component of the meat.
“The issue is, what is chicken?” Bronni wrote in the court’s opinion, invoking a famous 60-year-old legal question posed by federal judge Henry J. Friendly. “Sixty years after Judge Henry J. Friendly famously asked that question, we face the same query—albeit with a tax-law twist.”
The court analyzed Arkansas tax statutes, specifically Ark. Code Ann. § 26-52-401(12)(B), which mandates that for a manufacturing or processing item to qualify for a resale tax exemption, it must “become a recognizable integral part” of the final product.
Tyson sought refunds for two distinct periods: from March 1, 2015, through December 31, 2017, and from October 31, 2020, through October 31, 2021. CHEP, which retains ownership of the pallets throughout the supply chain and repairs them after they are returned by distributors, had assigned its refund rights directly to Tyson.
The court rejected Tyson’s argument that it sells “pallets of chicken” rather than just the meat itself. The justices drew distinctions from prior Arkansas case law, noting that while paper cups for fountain drinks and glass bottles are considered tax-exempt because beverages cannot be sold without them, transport materials like wooden boxes, packaging materials, and grocery bags do not qualify.
“Ultimately, in reviewing that decision, we must decide what Tyson sells. In other words, is chicken just chicken (as the circuit court concluded)? Or is it chicken on a pallet (as Tyson argues)?” Bronni wrote. “We conclude chicken is just chicken—not chicken plus a pallet.”
The court noted that unlike the ultimate consumer who purchases food, no consumer buys a wooden pallet as part of their grocery transaction.
“Tyson sells chicken and other foods. It does not sell wooden pallets, no matter how it chooses to deliver its products,” the opinion concluded. “So to answer Judge Friendly’s famous question, in this case, the chicken is chicken—not chicken and pallets.”
Special Justices Cody Kees and Cory Cox joined Bronni in the opinion. Justice Womack concurred without a written opinion, while Justices Hudson and Webb did not participate in the decision. Tyson was represented by the law firm Wright, Lindsey & Jennings LLP, while the DFA was represented by Taylor Duvall-Vaughan and Keith Linder of the Office of Revenue Legal Counsel.
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