Opinion
No. 2008 CA 0843.
November 3, 2008.
ON APPEAL FROM THE 32ND JUDICIAL DISTRICT COURT PARISH OF TERREBONNE, STATE OF LOUISIANA NUMBER: 137,307; DIVISION "G" THE HONORABLE GEORGE J. LARKE, JUDGE PRESIDING.
Stephen H. Meyers, Counsel for Plaintiff/Appellant R B Falcon Drilling USA, Inc. Lafayette, LA.
John D. Schoonenberg, Houma, LA, Counsel for Defendant/Appellee Terrebonne Parish Sales Use Tax Department.
BEFORE: CARTER, C.J., WHIPPLE AND DOWNING, JJ.
R B Falcon Drilling USA Inc. (RB Falcon) appeals a judgment against it and in favor of the Terrebonne Parish Sales and Use Tax Department, through its duly authorized collector, Michael S. Elfert (Terrebonne).
The judgment upheld an assessment of sales and use tax, together with attorney fees, interest and costs. For the following reasons, we affirm the judgment of the trial court.
PERTINENT FACTS AND PROCEDURAL HISTORY
After Terrebonne assessed sales and use tax against RB Falcon covering January 1, 1998 through December 31, 2001, RB Falcon paid the tax under protest and filed suit. Terrebonne sought to tax certain drill pipe, supplies and materials provided to drilling rigs, and other purchased equipment used in drilling operations.
The trial court made several findings in its judgment. It found that certain shipping fees were not subject to Terrebonne's taxation. It found certain taxes were duplications and ordered that they be assessed only once. It found that "the barges subject to the audit were not engaged exclusively in interstate or foreign commerce, and that Act 34 of 2006 does not apply." The trial court further found that "the barges subject to the audit were not vessels as contemplated by La.R.S. 47:305.1 as it was written at the time of the audit, and that Act 34 of 2006 does not apply." The trial court found that Terrebonne's methodology of valuation was proper. It reduced the total taxable amount. It then rendered judgment against RB Falcon and in favor of Terrebonne, awarding "Use Taxes," attorney fees, interest and costs.
RB Falcon appeals, asserting five issues and assignments of error, as follows:
1. Did the Trial Court err by holding that Falcon Offshore's drilling vessels that provide drilling services to operators both in and out of OCS waters off of Louisiana and Texas were not engaged in Interstate or Foreign Coastwise Commerce?
2. Did the Trial Court err by holding that Act 34 was not applicable to the present case?
3. Did the Trial Court err in holding that LSA-R.S. 47:305(E) is not applicable [to] this case ?
4. Did the Trial Court err by holding that certain extraterritorial transactions that took place out of Terrebonne Parish were subject to Parish Sales and Use Tax?
5. Did the Trial Court err by holding that a Use Tax be imposed upon drill pipe that is used in drilling operations?
DISCUSSION Tax Exemption per La.R.S. 47:305.1B
For the taxable period at issue, La.R.S. 47:305.1B provided as follows:
The taxes imposed by R.S. 47:302 and R.S. 47:321 shall not apply to materials and supplies purchased by the owners or operators of ships or vessels operating exclusively in foreign or interstate coastwise commerce, where such materials and supplies are loaded upon the ship or vessel for use or consumption in the maintenance and operation thereof. . . .
In its first assignment of error, RB Falcon suggests the trial court erred in finding that it was not entitled to the La.R.S. 47:305.1B tax exemption because its drilling rigs did not operate in foreign or interstate coastwise commerce. We pretermit discussion of this issue in connection with La.R.S. 47:305.1B because of the trial court's finding that the "barges" were not "vessels" as contemplated by the statute "as it was written at the time of the audit." The trial court explained: "The jack-up rigs are nothing more but the same as the barges but made into a little bit more, a better way for the drilling companies to drill and move around their objects." This finding is supported by the evidence and is not manifestly erroneous. Therefore, the tax exclusion provided by La.R.S. 47:305.1B is inapplicable.
In Mallard Bay Drilling, Inc. v. Kennedy, 04-1089 (La. 6/29/05), 914 So.2d 533, 547-48, the supreme court explained that the version of La.R.S. 47:305.1B in effect during the taxable period provided an exemption to ships and vessels. The section did not apply to barges. Id. RB Falcon argues, however, that this language is dicta that we need not follow. It points out that La.R.S. 47:305.1B C have been amended two times since the taxable period, first by Acts 2002, Nos. 40 41, effective June 25, 2002, and then by Acts 2006, 1st Ex. Sess., No. 34, § 1, effective Feb. 23, 2006. Acts 40 41 broadened the meaning of foreign or interstate commerce. Act 34 specifically included barges within La.R.S. 47:305.1B's tax exemption.
In R B Falcon Drilling USA, Inc. v. Lafourche Parish School Bd., 06-0064 (La.App. 1 Cir. 11/3/06), 950 So.2d 696, 700, however, we noted that the supreme court, in its interpretation of the effective statute, drew a specific distinction between vessels, which were exempt from taxation, and barges, which were not. We reversed a grant of summary judgment because a question of fact existed regarding the proper characterization of R B Falcon's rigs under La.R.S. 47:305.1B. Id., 950 So. 2d at 702.
Here, we conclude the trial court's characterization of the rigs is not manifestly erroneous. Accordingly, RB Falcon's first assignment of error is without merit.
In its second assignment of error, RB Falcon argues that the trial court erred in holding Act 34 inapplicable. It points out that the legislature stated these amendments were interpretive. However, in R B Falcon Drilling USA, Inc. v. Lafourche, 950 So.2d at 700, we concluded that Acts 2006, 1st Ex. Sess., No. 34, § 1 represented "new substantive law passed under the guise of interpretive legislation." Accordingly, we held that it could only have prospective effect and could not be applied therein. Id., 950 So.2d 700-01. We concluded that since retroactive application of the 2006 amendments to La.R.S. 47:305.1 was not permissible, we were constrained to apply the law in effect at the time of the disputed transactions. Here that period is January 1998 through December 2001.
For these reasons, RB Falcon's second assignment of error is without merit.
In its fifth assignment of error, RB Falcon argues that certain drill pipe purchased in Texas was exempt from use taxation under La.R.S. 47:305.1B's tax exclusion for supplies and materials loaded upon the ship or vessel for use or consumption in the maintenance and operation of the rig. However, as discussed above, we affirm the trial court's ruling that RB Falcon is not entitled to the tax exclusion provided by La.R.S. 47:305.1B in effect during the taxable period because its rig is not a ship or vessel. Therefore, drill pipe used as supplies or materials is not exempt from taxation on the basis of the statute. This assignment of error lacks merit.
Tax Exemption per La.R.S. 47:305E
RB Falcon also claims that it is excluded from the assessed taxes under La.R.S. 47:305E, which provides:
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; however, nothing herein shall prevent the collection of the taxes due on sales of tangible personal property into this state which are promoted through the use of catalogs and other means of sales promotion and for which federal legislation or federal jurisprudence enables the enforcement of the sales tax of a taxing authority upon the conduct of such business. 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. At such time as federal legislation or federal jurisprudence as to sales in interstate commerce promoted through the use of catalogs and other means of sales promotions enables the enforcement of this Chapter or any other law or local ordinance imposing a sales tax against vendors that have no other nexus with the taxing jurisdiction, the following provisions shall apply to such sales on which sales and use tax would not otherwise be collected. (Emphasis added.)
RB Falcon suggests that sales and use tax cannot be imposed on its property at issue because it had not "come to rest" in Louisiana and become "part of the common mass of property located in Louisiana." RB Falcon cites Mississippi Chemical Exp., Inc. v. Glover, 467 So.2d 1261 (La.App. 2 Cir. 1985), and Tigator, Inc. v. Police Jury of West Baton Rouge Parish, 94-1771 (La.App. 1 Cir. 5/5/95), 657 So.2d 221, in support of this proposition. The trial court seems not to have considered La.R.S. 47:305E in making its rulings.
The Louisiana Supreme Court has more recently considered the effect and consequences of La.R.S. 47:305E in Word of Life Christian Center v. West, 04-1484 (La. 4/17/06), 936 So.2d 1226. La.R.S. 47:305E was at "the heart of [that] case." Id., 936 So.2d at 1237 n. 13. The Word of Life court expressly overruled Tigator where it barred a use tax by substituting an "ultimate use" test into La.R.S. 47:305E, which allows taxation on "use" in the state. The court stated:
This Court rejects Tigator's . . . position 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." This Court also refutes 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, stored and occasionally used in Louisiana." Further, Tigator erroneously reasoned that the "temporary time" the property remained in Louisiana precludes the taxation of the property in Louisiana. (Citations omitted.)
Word of Life Christian Center, 936 So.2d at 1239.
The Word of Life court examined the interplay of La.R.S. 47:305E and the Interstate Commerce clause, Art. I, sec. 8, clause 3, of the United States Constitution. The court concluded that the state may now tax interstate commerce so long as the Complete Auto, four-prong test is satisfied. Id., 936 So.2d at 1240. The court also explained that Louisiana continued to utilize the "taxable moment" doctrine. The court explained that the "taxable moment" analysis focused on three discrete stages of goods in interstate commerce, as follows:
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), The Word of Life Christian Center court explained the test as follows:
Complete Auto. . . ., synthesized the evolving federal Commerce Clause jurisprudence into a four-prong test whereby the constitutionality of a state tax on interstate commerce is upheld if: (1) the tax is applied to an activity with a substantial nexus to the taxing jurisdiction; (2) the tax is fairly apportioned; (3) the tax is non-discriminatory; (4) the tax is fairly related to services provided by the taxing jurisdiction. Word of Life Christian Center, 936 So.2d at 1240.
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.
Word of Life Christian Center, 936 So.2d at 1235.
The court explained further that "Louisiana courts typically must approach an issue involving the applicability of Louisiana's interstate commerce exclusion in a two-prong fashion, given the differences between La.R.S. 47:305(E), which recognizes the 'taxable moment' doctrine, and contemporary federal Commerce Clause jurisprudence, as articulated by the United States Supreme Court in Complete Auto, which holds that interstate commerce may be taxed irrespective of a 'taxable moment.'" Word of Life Christian Center, 936 So.2d at 1241. RB Falcon does not challenge the interstate commerce component of the assessment analysis. It does, however, challenge the assessment under La.R.S. 47:305E.
In this regard, the supreme court explained further that at the "moment, however slight, when the [products] had been withdrawn from interstate commerce and came to rest in Louisiana, Louisiana's tax on storage and use was effective.
Therefore, a 'taxable moment' occurred in Louisiana." Word of Life, 936 So.2d at 1239.
Here, Terrebonne taxed the use of drill pipe and materials that were brought into and used in Terrebonne Parish. As such, if RB Falcon was engaged in interstate commerce when taxed, which we do not decide, a "taxable moment" occurred in Terrebonne Parish such that tax could be imposed. Accordingly, La.R.S. 47:305E does not preclude Terrebonne from imposing a use tax on RB Falcon. RB Falcon does not challenge the methodology of the taxation. Nor does it claim any setoff or miscalculation. Accordingly, we find no merit in RB Falcon's third assignment of error.
Extraterritorial Transactions
In its fourth assignment of error, RB Falcon asserts that the trial court erroneously held three extraterritorial transactions totaling $13,857.80 were subject to taxation by Terrebonne Parish. RB Falcon seems to misapprehend the trial court's ruling in these regards, which were in its favor. The judgment provides:
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that supplies purchased for "first use offshore" shall not be subject to tax and the total taxable amount shall be reduced by $13,857.80. (Second emphasis added.)
The trial court allowed this exemption pursuant to La.R.S. 47:301 (19), as RB Falcon requested. Since RB Falcon received the relief it now requests, there is no further relief we can grant.
Louisiana Revised Statutes 47:301(19) provides as follows:
(19) "Use tax" includes the use, the consumption, the distribution, and the storage as herein defined. No use tax shall be due to or collected by:
(a) The state on tangible personal property used, consumed, distributed, or stored for use or consumption in the state if the sale of such property would have been exempted or excluded from sales tax at the time such property became subject to the taxing jurisdiction of the state.
(b) Any political subdivision on tangible personal property used, consumed, distributed, or stored for use or consumption in such political subdivision if the sale of such property would have been exempted or excluded from sales tax at the time such property became subject to the taxing jurisdiction of the political subdivision.
DECREE
For the foregoing reasons, we affirm the judgment of the trial court. Costs of this appeal are assessed against R B Falcon Drilling USA, Inc.
AFFIRMED
RB Falcon Drilling USA, Inc., conducts drilling operations using jack-up rigs. The record evidence establishes that these jack-up rigs are different from barges in that they have legs that sit on the ocean floor, allowing drilling in deeper waters. However, like barges, the jack-up rigs are not self-propelled and must be towed.
As amended in 2006, LSA-R.S. 47:305.1 specifically provides a sales tax exemption for certain goods that are loaded upon a barge for use or consumption in its maintenance and operation. However, this court has determined that the amended law can be applied prospectively only. See RB Falcon Drilling USA, Inc. v. Lafourche, 06-0064 (La.App. 1 Cir. 11/3/06), 950 So.2d 696, 700-701. The applicable law is that which was in effect at the time of the transactions, which occurred January 1998 through December 2001.
The majority's opinion correctly states that the applicable version of the statute provided the sales tax exemption only for ships and vessels. In Mallard Bay Drilling, Inc., v. Kennedy, 04-1089 (La. 6/29/05), 914 So.2d 533, 549, the supreme court determined that since barges have no motive power of their own and require another craft to move, they cannot be classified as vessels for purposes of the applicable version of La.R.S. 47:3501.1. Since the jack-up rigs at issue herein are likewise not self-propelled and must be towed from one location to another, I am constrained by the supreme court's interpretation of the statute and therefore concur in the majority's conclusion that the jack-up rigs do not qualify as vessels for purposes of the statute. I write separately to emphasize my belief that the legislature properly included barges with ships and vessels in the tax exemption, as evidenced by the legislature's subsequent amendment of the statute.
For these reasons, I respectfully concur.