In a 4-3 decision, the Arkansas Supreme Court affirmed a trial court’s ruling that US Beef earned nonbusiness income from the complete liquidation of its franchise operations. US Beef owned and operated Arby’s and Taco Bueno franchises across nine states, including Arkansas. In 2017, US Beef sold substantially all of its Arkansas real estate and restaurant operations, ending its business. On its Arkansas corporate income tax return, US Beef treated the resulting gains as nonbusiness income, allocating the intangible gain to Oklahoma (its commercial domicile), and seeking a refund of previously paid Arkansas tax. The Arkansas Department of Finance and Administration denied the refund, asserting the gain was apportionable business income. The circuit court granted summary judgment to US Beef, holding the gain was nonbusiness income under the statute.
Applying the pre-2026 version of UDITPA, the Arkansas Supreme Court reiterated that income qualifies as “business income” if it satisfies either the transactional or functional test. The parties agreed the transactional test was not met because the complete liquidation was a nonrecurring, business-ending event. The dispute therefore turned on the functional test, which asks whether the acquisition, management, and disposition of the property were integral parts of the taxpayer’s regular trade or business. The Court held the test was not satisfied; although US Beef regularly acquired and managed its franchise assets, it did not regularly dispose of them as part of its business of operating restaurant franchises. Therefore, the gain was nonbusiness income allocable to Oklahoma.
Hudson v. U.S. Beef Corp., No. CV-25-395 (Akr. April 16, 2026).