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Louisiana Department of Revenue v. Apeck Construction, Inc.

Court of Appeals of Louisiana, Third Circuit

February 28, 2018

LOUISIANA DEPARTMENT OF REVENUE
v.
APECK CONSTRUCTION, INC.

         APPEAL FROM THE THIRTIETH JUDICIAL DISTRICT COURT PARISH OF VERNON, NO. 87, 424 B HONORABLE C. ANTHONY EAVES, DISTRICT JUDGE

          Nicole F. Gould Frey David R. Cassidy Breazeale, Sachse & Wilson, LLP COUNSEL FOR DEFENDANT/APPELLEE: Apeck Construction, LLC.

          Aaron D. Long Antonio C. Ferachi Brandea P. Averett Adrienne Quillen Attorneys for the Secretary of the Department of Revenue, COUNSEL FOR PLAINTIFF/ APPELLANT: Louisiana Department of Revenue.

          Court composed of John D. Saunders, Marc T. Amy, and D. Kent Savoie, Judges.

          JOHN D. SAUNDERS, JUDGE

         This is a tax case wherein the trial court found that the Louisiana Department of Revenue (LDR) failed to carry its burden to prove that the taxpayer owed taxes on purchases on materials for resale or on purchases of aggregates. Further, the trial court found that the taxpayer did not owe tax on freight charges to get aggregate into the State via railcar when those charges were passed on to the taxpayer from its sister company.

         LDR appeals the trial court's judgment. We affirm, in part, and reverse, in part.

         FACTS AND PROCEDURAL HISTORY:

         LDR conducted a sales and use tax compliance audit of the books and records of Apeck Construction, LLC (AC) for the tax period of January 1, 2007, through December 31, 2009. LDR initially assessed AC with eleven schedules, one for each tax issue involved. After resolution of several issues, only Schedules 2, 5, and 6a remained. Schedule 2 lists tax assessed on purchases of materials used in projects for Graybar Electrical Company, Inc. (Graybar) in which AC invoiced materials and labor separately under multiple contracts dealing with work to be performed at Fort Polk. Graybar's contract with the United States Government was attached as an Exhibit to each of the contracts between Graybar and AC. Further, Graybar gave AC certificates of tax exemption issued by LDR and, according to AC, claimed to be exempt from any taxes. As such, AC did not collect any taxes from its transactions with Graybar.

         Schedule 6a involves similar issues to Schedule 2, but does not involve Graybar. Schedule 5 is made up of railroad leasing charges accrued by Williams Equipment Services, LLC (Williams Equipment) and Apeck Aggregate Supply, LLC (AA) in getting aggregates from Texas into Louisiana. Williams Equipment and/or AA then passed those charges through to AC separately from the aggregates. No sales tax was collected from AC on the amount arbitrated to the railroad leasing charges. Williams Equipment, AA, and AC share common ownership.

         LDR filed suit to collect sales and use tax on Schedules 2, 5, and 6a. After hearing testimony from two employees of LDR and the owner of AC, Williams Equipment, and AA, the trial court ruled that the burden was on LDR to prove that any taxes were owed on the transactions in question: purchases for Graybar projects and purchases of aggregate. The trial court found that the purchases by AC for the Graybar projects were sales for resales and, therefore, not taxable, such that LDR failed to sustain its burden. The trial court also found that freight charges are not subject to tax. Thus, the trial court denied LDR the taxes sought from AC though Schedules 2, 5, and 6a. LDR files this appeal, alleging five assignments of error.

         ASSIGNMENTS OF ERROR:

         1. The trial court committed legal error in incorporated [sic] into the construction contracts between Apeck and Graybar certain provisions from Graybar's contract with the United States Government regarding when title to the tangible personal property transferred, when the Government was not a party to those contracts and when the Government's provisions specifically contradicted the express agreements between the parties.

         2. The trial court committed error is [sic] finding that title of the tangible personal property transferred from Apeck to Graybar upon delivery of the property to Fort Polk.

         3. The trial court committed error in ruling that Apeck reasonably relied upon a resale certificate and blanket exemption certificate presented by Graybar such that the doctrine of equitable estoppel applies to prevent the Department from assessing Apeck with use tax for its own purchases of the tangible personal property at issue here.

         4. The trial court committed legal error in ruling that the exception in La. R.S. 47:305.50, which concern the lease of railcars, applied such that the cost to Appek [sic] Aggregate Supply, LLC and Williams Supply, LLC of getting the aggregate to market by railcar did not form part of the taxable sales price when such costs were included in the total costs they charged to Apeck for the aggregate.

         5. The trial court committed legal error in ruling that the Departments [sic] longstanding definition of "sales price" located in its regulation at LAC 61:I.4301 was not valid when it states that any part of the sales prices that is related to costs incurred by the vendor to bring the product to market or make the product available to customers becomes part of the tax base and is subject to sales tax and that costs included in the sales prices are freight or shipping costs from the supplier to the vendor with such costs not be excludable from the taxable sales price.

         ASSIGNMENTS OF ERROR NUMBERS ONE, TWO AND THREE:

         LDR's first three assignment of errors deal with use taxes it claims are owed by AC, as a contractor, on all materials AC consumed in the performance of various projects. Schedule 2 lists the tax LDR assessed on the purchases of material used in projects AC performed for Graybar in which AC invoiced materials and labor. Schedule 6a presents the same issues as those in Schedule 2, but are purchases by AC that LDR claims do not involve Graybar.

         AC counters that ownership of the materials at issue in Schedules 2 and 6a transferred prior to installation. Thus, according to AC, the materials were sold prior to consumption, i.e., they were sales for resale. Moreover, AC argues that even if the transactions had been shown to be taxable, it detrimentally relied on Graybar's exemption certificate issued by LDR.

         The burden to prove that a taxpayer owes tax is on the Department. SeeBridges v. Geoffrey, Inc., 07-1063 (La.App. 1 Cir. 2/8/08), 984 So.2d 115, writd ...


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