It is somewhat rare for the Louisiana Supreme Court to entertain three tax cases in one year. It is even rarer for the Court to hear three state and local tax cases in back-to-back sessions. However, that is exactly what the Court will be doing!
On January 25th and 26th, the Court will hear oral arguments in three Louisiana sales/use tax cases, the outcomes of which will seem to have major ramifications for various taxpayers operating in the State.
The cases scheduled for oral argument are:
- Nelson Industrial Steam Co. v. Bridges, No. 2015-C-1439 – Oral Argument on Monday, January 25, 2016 (2:00 PM Session)
- Coastal Drilling Company, LLC v. Dufrene, No. 2015-C-1793 – Oral Argument on Tuesday, January 26, 2016 (9:30 AM Session)
- Yesterdays of Lake Charles, Inc. v. Calcasieu Parish Sales and Use Tax Department, No. 2015-C-1676 – Oral Argument on Tuesday, January 26, 2016 (2:00 PM Session)
Nelson Industrial Steam:
In Nelson Industrial Steam, the taxpayer Nelson Industrial Steam Company (“NISCO”) is appealing a decision in three consolidated cases from the Court of Appeal, Third Circuit, which held that sand and limestone purchased by NISCO were not “exempt” from state and local sales/use taxes under the further processing exclusion in La. R.S. 47:301(10)(c)(i)(aa). NISCO manufactures steam and electricity, and in that process NISCO requires the use of limestone and also produces a co-product, ash. NISCO is arguing its sand and limestone were materials used in further processing of the ash co-product, and therefore the purchase of sand and limestone are excluded from sales/use taxes. The Louisiana Department of Revenue and the Calcasieu Parish local collector, on the other hand, are arguing that ash is an accidental by-product and that no manufacturer would produce ash as a stand-alone product. The Court of Appeal found that the exclusion did not apply because the sand and limestone were not purchased for further processing into an end-product, but were instead simply part of an incidental saleable by-product. The appellate court dissent, however, heavily criticized the majority’s analysis, noting in part that there is no “primary product” test in the further processing exclusion statute, and thus the distinction between a “co-product” and “by-product” is improper.
The Court of Appeal opinion in Nelson Industrial Steam can be found here.
The taxpayer is now asking the Louisiana Supreme Court to address whether the further processing exclusion applies to its purchases of sand and limestone, which were processed into the ash co-product.
Jones Walker filed an amicus curiae brief with the Louisiana Supreme Court in this case on behalf of the Louisiana Pulp and Paper Foundation and the Council on State Taxation (COST). Additionally, Jones Walker Partner Jay Adams will participate in oral argument before the Court on behalf of amici curiae.
In Coastal Drilling, the taxpayer is appealing a decision of the Court of Appeal, First Circuit, which held that the exemption in La. R.S. 47:305.1(A) for purchases of component parts of certain vessels does not apply to vessel “reconstructions.” After being badly damaged by fire, the taxpayer company’s vessel/rig was restored to operating condition as part of a substantial vessel reconstruction. The taxpayer did not pay local sales/use taxes on the parts, materials, equipment and machinery purchased in connection with the reconstruction work performed, relying on the exemption statute and the corresponding regulation in Louisiana Administrative Code (“LAC”) 61:I.4403 applying the exemption to both constructions and “reconstructions.” The Court of Appeal disagreed, opining that the statutory exemption only applies to component parts purchased during “original constructions,” and does not apply to vessel reconstructions. As part of its decision, the Court of Appeal also struck down the portion of the regulation applying the exemption to “reconstructions” because, according to the Court of Appeal, the regulation exceeded the scope of the exemption’s statutory language.
The Court of Appeal opinion in Coastal Drilling can be found here.
The taxpayer is now asking the Louisiana Supreme Court to address whether the regulation properly interprets the statutory exemption to apply to vessel reconstructions. Further, the taxpayer is requesting that any ultimate ruling interpreting the statutory exemption differently than the regulation should be applied prospectively only (and not retroactively).
Jones Walker filed an amicus curiae brief with the Louisiana Supreme Court in this case on behalf of the Louisiana Association of Waterway Operators and Shipyards (LAWS).
In Yesterdays, the local sales/use tax collector for Calcasieu Parish is appealing a decision of the Court of Appeal, Third Circuit, which found an assessment by the collector to be an improper “arbitrary assessment” where the collector estimated the amount of sales/use taxes due after the taxpayers failed to provide a certain type of record demanded by the collector (specifically cash register records known as “Z-tapes”). Under La. R.S. 47:337.29, a taxpayer is required to keep “suitable records,” “other books of accounts” and “other information as may be required by the collector” for an audit. The collector asserted that deposit slips and bank statements were not “suitable records” for its audit, and that the taxpayers were required to keep Z-tapes for the audit. However, the Collector never promulgated any rule, published any guidance, or provided any other information on what the collector deemed acceptable as “suitable records” for an audit of local sales/use taxes. Without any such rule or guidance, the Court of Appeal found the taxpayers’ deposit slips and bank statements alone were suitable without any corresponding Z-tapes.
The Court of Appeal opinion in Yesterdays can be found here.
The local collector is now asking the Louisiana Supreme Court to clarify the type of records that constitute “suitable records” taxpayers must maintain under La. R.S. 47:337.29.
The Jones Walker SALT Team will be in attendance during each of these oral arguments, and we will be sure to provide updates following the discussions that ensue. We will also be sure to provide updates as the ultimate decisions from the Louisiana Supreme Court in these cases are handed down.