STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT
07-0501
FIRESTONE POLYMERS
VERSUS
CALCASIEU PARISH SCHOOL SYSTEM, ET AL.
************
APPEAL FROM THE FOURTEENTH JUDICIAL DISTRICT COURT, PARISH OF CALCASIEU, NO. 2002-600 HONORABLE RICK BRYANT, DISTRICT JUDGE
JIMMIE C. PETERS JUDGE
Court composed of John D. Saunders, Jimmie C. Peters, and Glenn B. Gremillion, Judges.
AFFIRMED.
Andre B. Burvant Oreck, Crighton, Adams & Chase 1100 Poydras Street, Suite 1480 New Orleans, LA 70163 (504) 525-8001 ATTORNEYS FOR PLAINTIFF/APPELLANT: Firestone Polymers, L.L.C.
Russell J. Stutes Joel M. Lutz Stutes, Fonetnot, Lavergne & Lutz P.O. Drawer 1644 Lake Charles, LA 70601 (337) 433-0022 ATTORNEY FOR DEFENDANTS/APPELLEES: Calcasieu Parish School System Rufus R. Fruge, Jr. PETERS, J.
The issue presented in this appeal is whether Firestone Polymers, L.C.C.
(hereinafter “Firestone”), which operates a synthetic rubber plant in Calcasieu Parish,
Louisiana, may recover a lease tax paid under protest to the Calcasieu Parish School
System (hereinafter “School Board”) on shipping containers leased out-of-state,
delivered to its plant in Calcasieu Parish, and stored and maintained there while
periodically used in interstate commerce. Firestone appeals from the trial court’s
order granting summary judgment in favor of the School Board, ruling that the lease
tax was owed. We affirm.
DISCUSSION OF THE RECORD
The facts giving rise to this litigation are not in dispute. For many years
Firestone has operated a synthetic rubber plant in Calcasieu Parish, Louisiana, and
the synthetic rubber produced at the plant has been shipped outside the state to
numerous tire manufacturers. For shipment the rubber is packed into aluminum
containers measuring approximately three feet by four feet in length and width and
approximately four feet in depth. Firestone utilizes some 38,000 containers for this
transportation.
Firestone leases these containers from various lessors outside Louisiana, and
each lease designates Calcasieu Parish as the location of the containers. At the
beginning of each lease term, the containers are delivered directly to Firestone at its
plant in Calcasieu Parish, where they are imbedded with the Firestone logo, then
placed in a storage area there. When needed for shipment the containers are cleaned,
loaded with rubber, and transported by rail or truck to their destinations outside
Louisiana. After being unloaded at their destinations, the collapsible containers are
returned to the Calcasieu plant site where they are cleaned, repaired if necessary, and put back into the storage area for subsequent use when needed for further interstate
shipments.
The Calcasieu Parish School Board, by virtue of its Master Sales and Use Tax
Ordinance, assesses a tax on the “lease or rental within the Parish of each item of
tangible personal property.” Calcasieu Parish Sch. Bd. Tax Ordinance § 2.01I-(B).
This ordinance defines “lease or rental” as “the leasing or renting of tangible personal
property and the possession or use thereof by the lessee or renter, for a consideration,
without transfer of the title of such property.” Calcasieu Parish Sch. Bd. Tax
Ordinance § 1.10(A).1
In 2002, Firestone filed a pleading in the district court of Calcasieu Parish
seeking a refund of the taxes paid to the School Board on the shipping container
leases pursuant to the ordinance from July 1998 through December 2000.2 The basis
for Firestone’s dispute of the lease tax on the shipping containers was that they were
used exclusively in interstate commerce and, therefore, not taxable by the School
Board.
Because the lease taxes paid by Firestone for the disputed period were not paid
under protest, the initial claim for a refund was dismissed in June 2002 on an
exception of no right of action. Beginning in April 2002, Firestone began paying the
lease taxes under protest, and it supplemented and amended its petition in January
2003, renewing its claim for refunds only with respect to payments beginning in April
2002. The basis for its renewed claim was again that the containers were used
1 This language tracks La.R.S. 47:301(7)(a). The School Board’s authority to levy a sales tax upon the sale at retail, the use, the lease or rental, the consumption, and storage for use or consumption of tangible personal property is found in La.R.S. 33:2737. 2 Firestone also disputed the tax paid on its purchase of propane, but that is no longer an issue in this litigation.
2 exclusively in interstate commerce and, therefore, were not taxable by the School
Both Firestone and the School Board filed motions for summary judgment.
The issue in each motion was the same question of law: whether Louisiana’s revenue
and taxation laws exclude from local lease taxes these shipping containers used in
interstate commerce. The trial court heard the motions in the early part of 2006 and
rendered a decision later that year, after the Louisiana Supreme Court rendered its
decision in Word of Life Christian Ctr. v. West, 04-1484 (La. 4/17/06), 936 So.2d
1226. Relying on the precepts of Word of Life, the trial court denied Firestone’s
motion and granted the School Board’s motion.
Firestone appeals the trial court’s grant of the summary judgment, contending
that Word of Life applies only to a use tax and not to a tax on the lease of property
ultimately used in interstate commerce. In the alternative, Firestone contends that if
Word of Life does apply to a tax on a lease, it changed the law and cannot apply
retroactively to the taxes paid and involved in this suit.
OPINION
The revenue and taxation statute, La.R.S. 47:305 provides certain exclusions
and exemptions from sales taxation. The language at issue in this appeal is found in
La.R.S. 47:305(E), which reads in pertinent part:
It is not the intention of any taxing authority to levy a tax upon articles of tangible personal property imported into this state, or produced or manufactured in this state, for export; nor is it the intention of any taxing authority to levy a tax on bona fide interstate commerce . . . . It is, however, the intention of the taxing authorities to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state, of tangible personal property after it has come to rest in this state and has become a part of the mass of property in this state.
3 As can readily be seen, one of the exclusions from local taxation is “a tax on bona
fide interstate commerce.” Id. However, the statute qualifies that exclusion to take
out of its reach “a tax on the sale at retail, the use, the consumption, the distribution,
and the storage to be used or consumed in this state, of tangible personal property
after it has come to rest in this state and has become a part of the mass of property in
this state.” Id.
In the decision on which the trial court relied to validate the lease tax imposed
by the School Board, the supreme court stated that
The statutory intent of the Louisiana use tax law is expressed in La. R.S. 47:305(E), which provides that it is not its intention “to tax bona fide interstate commerce” but to “tax tangible personal property after it has come to rest in this state and has become a part of the mass of property in this state.” The purpose of the statute is not to burden goods and products legitimately involved in the flow of interstate commerce which never come to rest in Louisiana.
Word of Life Christian Ctr., 936 So.2d at 1242 (emphasis in the original, footnote omitted).
The issue in Word of Life was “the applicability of state and local use tax to the
out-of-state purchase of tangible property which is subsequently imported into
Louisiana then ‘ultimately used’ in interstate commerce, in light of La. R.S. 47:305(E),
which prohibits a tax on bona fide interstate commerce.” Id. at 1231. In Word of Life,
the tax involved was a local use tax, and the tangible personal property was airplanes.
Following the out-of-state purchases of two airplanes, both were imported and
hangared in East Baton Rouge Parish until they were subsequently used in interstate
commerce. The court of appeal held that there was no “taxable moment” when the
subject airplanes were “ultimately used” in interstate commerce. Word of Life
Christian Ctr. v. West, 03-1399, p. 3 (La.App. 1 Cir. 5/14/04), 879 So.2d 213, 214.
In reaching that decision, it relied on the holdings of The Shaw Group, Inc. v.
4 Kennedy, 99-1871 (La.App. 1 Cir. 9/22/00), 767 So.2d 937, and Tigator Inc. v. West
Baton Rouge Police Jury, 94-1771, 94-1772 (La.App. 1 Cir. 5/5/95), 657 So.2d 221,
writs denied, 95-2126 (La. 11/17/95), 663 So.2d 712. Both Shaw and Tigator had
held that whether property has come to rest in Louisiana and has become a part of the
mass of the property in this state is determined by its ultimate use.
In Word of Life, 936 So.2d 1226, the supreme court re-examined the “taxable
moment” and “ultimate use” doctrines and rejected the position taken in Tigator and
Shaw. The supreme court also rejected the theory that if the ultimate use of the
property was for interstate commerce, the property is not subject to the use tax even
if imported to and stored for use in Louisiana. The supreme court noted that it was
well settled in jurisprudence that once these planes were imported and hangared in
East Baton Rouge, the planes came to rest in Louisiana. At that point, according to
the supreme court, a “taxable moment” occurred in this state. Id. at 1239. “At that
moment, however slight, when the airplanes had been withdrawn from interstate
commerce and came to rest in Louisiana, Louisiana’s tax on storage and use was
effective.” Id. (footnote omitted).
The supreme court then concluded that the “taxable moment” analysis required
an inquiry focusing on three discrete stages of the interstate commerce journey of
goods into a taxing jurisdiction, defining the three stages as follows:
The first stage is the interstate transportation of out-of-state purchased goods into the taxing jurisdiction. The second stage is the end of that interstate transportation, which includes the withdrawal of those goods from interstate commerce, and implies that the goods have come to rest in the taxing jurisdiction and become part of the mass of the property of the state. The principal focus here is the period of time, however slight, that the taxpayer used, stored, or consumed the goods in the taxing jurisdiction. The third stage is the subsequent use, if any, of the goods in interstate commerce.
5 Id. at 1235.
The supreme court, in Word of Life, also rejected any interpretation of the word
“use” as meaning “ultimate use.” It noted that while La.R.S. 47:301(18) defines
“use”3 as “the exercise of any right or power over tangible personal property incident
to ownership thereof,” it says nothing about “ultimate use.” Thus, the supreme court
concluded, equating “use” to “ultimate use” conflicted with a plain reading of the
statute and led to absurd consequences. The court then adopted the rule from federal
jurisprudence that a taxable moment occurs when out-of-state purchased goods reach
the end of their interstate transportation into the taxing jurisdiction, but have not yet
begun their subsequent journey in interstate commerce.4 Id. This is the second stage
of the interstate commerce journey.
In the present case, the tax is a lease tax. At the hearing on the motions for
summary judgment, Firestone, relying on the first circuit’s Shaw and Tigator use tax
decisions, argued that “ultimate use” should be applicable to a lease tax. The tax
involved in Word of Life was a use tax. After Word of Life rejected the first circuit’s
“ultimate use” interpretation, Firestone now takes the position in its appeal that the
precepts of Word of Life do not apply to a lease tax. Its argument for that proposition
fails to convince us. The reason given by the supreme court for granting a writ of
certiorari in Word of Life is enough by itself to explain that the precepts apply to a
lease tax. The opinion stated that the reason included the determination of “the
3 Louisiana Revised Statutes 47:301(18) provides, in pertinent part, as follows: “For purposes of the imposition of the sales and use tax levied by a political subdivision or school board, ‘use’ shall mean and include the exercise of any right or power over tangible personal property incident to the ownership thereof. . ..” 4 The decision on which the court primarily relied was Southern Pacific Co. v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 (1939).
6 applicability of state and local use tax to the out-of-state purchase of tangible property
which is subsequently imported into Louisiana then ‘ultimately used’ in interstate
commerce, in light of La.R.S. 47:305(E), which prohibits a tax on bona fide interstate
commerce.” Id. at 1231. We fail to see why the purpose for granting the writ and the
scope of the ruling do not apply equally to a lease tax.
Certainly, although “use” as defined in use tax statutory provisions and “use”
as contemplated under Louisiana lease law are indistinguishable in many aspects both
practical and theoretical, it is clear that a use tax and a lease tax are separate
provisions.5 Sales and use taxes are complementary taxes. Id. The sales tax applies
when the taxable transaction is consummated within the taxing jurisdiction while the
use tax applies when the transaction is consummated outside the taxing jurisdiction,
and the goods are subsequently imported and used in the taxing jurisdiction. Id. Sales
and lease taxes are not complementary taxes and local taxing authorities may tax both
transactions separately. Lafayette Parish Sch. Bd. v. Mkt. Leasing Co., Inc., 440 So.2d
81 (La.1983). Both sales and lease taxes are taxes on discrete transactions and two
separate transactional events are being taxed, one on the sale price of the thing and the
other on the proceeds of a lease of the thing. Id.
Although a use tax and a lease tax are separate provisions, this creates no
rational basis for applying La.R.S. 47:305(E) to use taxes but not to lease taxes. The
essential issue in the present case is whether the interstate commerce exclusion applies
to the transaction. The taxable moment analysis does not depend on whether the
5 Louisiana Revised Statutes 47:301(18)(a)(iii) now provides that “[b]eginning July 1, 2002, for purposes of the imposition of the tax levied by any political subdivision of the state, the term ‘use’ shall not include the purchase, the importation, the consumption, the distribution, or the storage of any tangible personal property which is to be leased or rented in an arm’s length transaction in the form of tangible personal property.”
7 goods are owned by the user or merely leased by him; the test is whether the goods at
the end of the first stage of their interstate journey came to rest in the taxing
jurisdiction and became part of the mass of property in the taxing jurisdiction. It is
true that the owner of property has the unrestricted usus or right to use his property as
an incident of ownership, while the lessee is bound by the law applicable to the
contract of lease to use the thing (goods) only for the purpose for which it was leased.6
Still, whether the goods are leased or owned, the test is the same: whether there was
a taxable moment; whether the goods came to rest in Calcasieu Parish (the taxing
jurisdiction of the School Board) and became a part of the mass of property in that
parish.
It is clear that the test is met in this case. In this state a lease is “a synallagmatic
contract by which one party, the lessor, binds himself to give to the other party, the
lessee, the use and enjoyment of a thing for a term in exchange for a rent that the
lessee binds himself to pay.” La.Civ.Code art. 2668.7 Leases are characterized
according to the agreed use of the leased thing; when the thing is to be used for
business or commercial purposes, it is a commercial lease. La.Civ.Code art. 2671.
Essential elements of a lease are that it must be for a term and the rent must be
sufficient to support an onerous contract. La.Civ.Code arts. 2678 and 2675. The
lessor is bound to deliver the thing leased at the agreed time and in good condition.
La.Civ.Code art. 2684.
6 One of the contractual obligations imposed by law on the lessee is to use the thing only for the purpose for which it was leased. La.Civ.Code art. 2686. 7 In tax law the basic definition of lease as found in the first sentence of La.R.S. 47:301(7)(a) is “the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter, for a consideration, without transfer of the title of such property.” This definition is consistent with the La.Civ.Code art. 2668 definition of lease.
8 In Lafayette Parish Sch. Bd., 440 So.2d at 86, the supreme court, focusing its
analysis on the domicile of the lessee in determining whether a lease tax could be
assessed, stated that it is necessary to identify one situs for the act of leasing:
The “act of leasing” takes place where the vehicle is kept; that is, where the lessee can be located if lease payments are missed or if the leased property is damaged. The parish declared by the lessee as his domicile, residence, or business address, the place where he can be found, is entitled to receive tax on the proceeds from the lease.
In that case, the supreme court concluded that the taxable incident was not the isolated
act of signing the lease agreement, but rather the act of the lessor sending his property
into the domiciliary parish of the lessee and collecting monthly rentals for the use of
his property there; the act of leasing included the possession by the lessee, and
continued contact between lessor and lessee to ensure that the property is “properly
maintained and protected against waste; that it is kept in an acceptable state of repair;
that it is covered by insurance sufficient to protect the interest of the owner; . . . that
the rents . . . are paid by the lessee as they periodically accrue under the terms of the
lease.” Id.
Firestone argues that a lease is a continuing transaction with the tax due on each
lease payment, such that “one cannot take a snapshot of a moment in time during a
lease transaction and have that moment determinative of the tax consequences for the
entire lease.” In effect, Firestone is saying that the lease follows the property leased
such that the property never came to rest in Calcasieu Parish. This argument, aside
from misinterpreting the nature of a lease, is essentially a repetition of the idea that
there is no “taxable moment” when the subject property is “ultimately used” in
interstate commerce, a theory which was rejected by Word of Life.
9 Actually, a contract of lease is not a series of transactions but a single
transaction; it is the performance that is continuous. A contract of lease is one
providing for continuous performance, in that it can be performed only through an
uninterrupted series of acts of performance. See La.Civ.Code art. 2019 and its
Revision Comments (b) – 1984. With regard to the second stage of the taxable
moment analysis, we can perceive no differences between the taxing of “use” and the
taxing of “use-by-lease” sufficient to undercut the application of the precepts of Word
of Life to a lease tax.
We next turn to a consideration of Firestone’s argument based on a regulation
in the Louisiana Administrative Code dealing with the treatment of tax levies by local
taxing authorities for inter-jurisdictional lease or rental transactions. Louisiana
Administrative Code 61:I.4303(B)(3) provides that the tax on the initial lease or rental
period is due where the transfer of possession (delivery) of the leased property occurs,
and that for subsequent lease periods, when there is no additional transfer of
possession, the tax is due to the local taxing jurisdiction where the property is
primarily located. That provision then provides for credit to the taxpayer where the
primary location of the property moves to another local taxing jurisdiction and that
jurisdiction seeks to collect the tax for the lease period that the property is there.
It is clear in the present case that the containers were delivered to Calcasieu
Parish, and that at all times involved in the present lawsuit Calcasieu Parish was their
primary location. Nevertheless, Firestone argues that LAC 61:I.4303(B)2(a)(I), not
B(3), recognizes the interstate commerce exclusion on lease taxes by its provision that
“lease tax is not due on the lease of tangible personal property for those periods of
time that it is used in bona fide interstate commerce, whether the use in bona fide
10 interstate commerce is in Louisiana or outside of Louisiana.” Firestone offers this
language from Section 4303(B)(2) as another argument that the taxable moment test
adopted in Word of Life cannot be applied to lease taxes. We disagree with Firestone’s
interpretation of LAC 61:I.4303(B)(2), and conclude that the lease taxes were properly
paid to the School Board under LAC 61:I.4303(B)(3).
The reason we cannot accept Firestone’s interpretation in this context is found
in what the supreme court had to say about the statutory intent of La.R.S. 47:305(E)
in Word of Life Christian Ctr., 936 So.2d 1226. According to the supreme court, it is
not the intent of the statute “to tax bona fide interstate commerce” but to “tax tangible
personal property after it has come to rest in this state and has become a part of the
mass of property in this state.” Id. at 1242. That is to say, if the goods and products
were legitimately involved in the flow of interstate commerce and never came to rest
in Louisiana, the statute precludes local taxation. However, the supreme court went
on to explain that the term “bona fide” described and limited the scope of “interstate
commerce” which the state was prohibited from taxing. Id. In interpreting the
legislative intent, the supreme court concluded that the fact that owners use goods for
travel across state lines does not necessarily classify the goods as part of bona fide
interstate commerce as used in La.R.S. 47:305(E). Id. The court concluded that
notwithstanding the prospective use of the Word of Life airplanes as instruments of
interstate commerce, once the planes were imported and hangared in East Baton
Rouge Parish, they came to rest there and became a part of the mass of property there,
and a taxable moment occurred there. Id. at 1239.
The same reasoning is applicable to the lease taxes in the present case. The
situs of the leases at issue is Calcasieu Parish and delivery under the leases occurred
11 the moment the containers came to rest in Calcasieu Parish. At this point, the
containers came into Firestone’s possession, and a taxable moment occurred at that
time.
Finally, we consider Firestone’s last contention, which is that if Word of Life
applies to a lease tax, then it changed the law and cannot be applied retroactively to
the taxes Firestone paid under protest. We find no merit to this assignment of error.
First, Word of Life did not change the law with respect to lease taxes. The supreme
court, in Lafayette Parish Sch. Bd., 440 So.2d 81, recognized in 1983 that the parish
where the property is kept is the situs of the act of leasing. Furthermore, as pointed
out in Word of Life, Louisiana’s interstate commerce exclusion under consideration,
La.R.S. 47:305(E), has been in effect since 1948. The statute’s pronouncement that
it is not the state’s intention to levy a tax on bona fide interstate commerce has been
a part of the statute since its inception, consistent with federal jurisprudence at the
time of its enactment. Word of Life Christian Center, 936 So.2d 1226. Also, one of
the announced purposes of the court in granting writs in Word of Life was to resolve
conflicting decisions among the circuit courts of appeal. Id.
DISPOSITION
For the foregoing reasons, we affirm the judgment of the trial court in all
respects. We assess all costs of this appeal to Firestone Polymers, L.L.C.