Topeka The state's highest court has been asked to settle a long-running tax dispute that could cost the nation's largest grocery retailer millions of dollars.
The Kansas Supreme Court heard arguments from attorneys Monday in the dispute, between The Kroger Co. and the state Department of Revenue. Kroger operates 69 Dillon's grocery stores, as well as Kwik Shops, in Kansas.
A key legal question is whether fending off a hostile takeover attempt is part of a company's normal business. The dispute between Kroger and the department is over how expenses associated with preventing a takeover are handled under tax law.
The justices reviewed a case involving the company's Kansas income tax statements for five years, starting with 1989. The amount in dispute is more than $10.5 million.
The company contends that the department overstepped its legal authority in levying its income tax assessment. Its attorney, John H. Wachter, of Topeka, said the agency is essentially expanding the income tax law on its own.
"To uphold this assessment would allow the department to create a tax law," he said.
The department's attorney, James Bartle, said the agency acted within the law and court decisions, including a 1994 ruling from the Supreme Court.
He also noted that Kroger would pay no income taxes for the five years if the court sides with the company.
"The average guy out on the street making $25,000 is going to pay more in taxes than did Kroger," he said.
Justice Tyler Lockett responded, "Is that a moral question? Or should we stick to the legal question?"
The tax case was the first scheduled for argument during the court's 2000-01 term. The justices could issue a ruling in late October.
Kroger operates more than 2,200 grocery stores and almost 800 convenience stores nationwide.