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Coastal Drilling Co., L.L.C. v. Dufrene

Court of Appeals of Louisiana, First Circuit

June 5, 2015

COASTAL DRILLING COMPANY, L.L.C.
v.
BARRY J. DUFRENE, IN HIS CAPACITY AS DIRECTOR OF ST. MARY PARISH SALES AND USE TAX DEPARTMENT AND EX-OFFICIO TAX COLLECTOR FOR ST. MARY PARISH

On Appeal from the Sixteenth Judicial District Court, In and for the Parish of St. Mary, State of Louisiana. Docket No. 122,277. Honorable James R. McClelland, Judge.

Robert S. Angelico, Cheryl M. Kornick, Matthew D. Simone, Brianne S. Rome, New Orleans, LA and Frederick T. Haas, III, William W. Sentell, III, New Orleans, LA, Counsel for Plaintiff/Appellant, Coastal Drilling Company, L.L.C.

Robert R. Rainer, Drew M. Talbot, Frederick Mulhearn, Counsel for Defendant/Appellee, Jeffery LaGrange (successor in office to Barry J. Dufrene) in his official capacity as Director of the St. Mary Parish Sales and Use Department.

Lindsey K. Hunter, Baton Rouge, LA, Counsel for State of Louisiana through James D. " Buddy" Caldwell, Attorney General.

BEFORE: GUIDRY, THERIOT, AND DRAKE, JJ.

OPINION

Page 674

[2014 0960 La.App. 1 Cir. 2] GUIDRY, J.

This is an appeal of a judgment rendered following remand of this matter to the district court to consider the constitutionality of a Louisiana Department of Revenue regulation. The district court found the subject regulation to be unconstitutional and rendered summary judgment in favor of the local taxing authority holding Coastal Drilling Company, L.L.C. (" Coastal" ) liable for the use tax assessed on parts and materials used to restore an inland marine drilling barge that was damaged by fire.

Page 675

FACTS AND PROCEDURAL HISTORY

After being damaged by fire in 2005, Rig 21 was transported to Jefferson Parish to be restored, and following restoration, Rig 21 was transported back to St. Mary Parish for resumed use. After an audit revealed that Coastal had not paid state or local sales tax on the parts, materials, equipment and machinery purchased in Jefferson Parish in connection with the work performed to restore the barge, the Director of the St. Mary Parish Sales and Use Tax Department and Ex-Officio Sales and Use Tax Collector for St. Mary Parish (hereinafter " the Collector" ),[1] issued a use tax assessment for the items used in restoring Rig 21. Coastal timely paid the amount assessed under protest and then filed suit to recover the amount paid.

In answer to Coastal's suit, the Collector alleged that the tax exemption provided in La. R.S. 47:305.1(A) only applied to " articles of tangible personal property that are installed on ships, vessels, barges, commercial fishing vessels, drilling ships and drilling barges during original construction," and as the parts installed on Rig 21 were not installed during " original construction," the Collector denied that Coastal was entitled to a refund of the taxes it paid under protest. The Collector further alleged that the provisions of the Louisiana Department of [2014 0960 La.App. 1 Cir. 3] Revenue regulation, LAC 61.I:4403 (Regulation 4403), by which Coastal claimed authority for extension of the exemption provided in La. R.S. 47:305.1 against the use taxes assessed, did not apply, because Rig 21 was not " destroyed" by fire, but instead " damaged." However, the Collector also reconvened to challenge the constitutionality of Regulation 4403.

Coastal and the Collector subsequently filed cross motions for summary judgment. The district court granted the Collector's motion based solely on the finding that the repairs to Rig 21 did not qualify as reconstruction under Regulation 4403, and therefore, Coastal was not entitled to the tax exemption granted under La. R.S. 47:305.1(A). The district court did not reach the constitutionality of Regulation 4403. Coastal appealed the summary judgment, and on appeal, this court vacated the district court's judgment and remanded the matter for a determination of the constitutionality of Regulation 4403 and reconsideration of the parties' cross motions for summary judgment. Coastal Drilling Company, L.L.C. v. Dufrene, 12-0744 (La.App. 1st Cir. 2/18/13) (unpublished opinion).

On remand, Coastal filed a third-party demand against the State of Louisiana and the Secretary of the Louisiana Department of Revenue, alleging that " the State of Louisiana and the administrative agency are properly made parties to an action involving a challenge to the validity of state agency regulations." Thereafter the parties re-urged their cross motions for summary judgment, arguing the constitutionality of Regulation 4403. Following a hearing on the cross motions, the district court declared Regulation 4403 to be unconstitutional as exceeding the scope of the exemption ...


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