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Georgia-Pacific Consumer Operations, LLC v. City of Baton Rouge

Court of Appeals of Louisiana, First Circuit

July 18, 2018

GEORGIA-PACIFIC CONSUMER OPERATIONS, LLC (F/K/A GEORGIA-PACIFIC CORPORATION)
v.
CITY OF BATON ROUGE AND PARISH OF EAST BATON ROUGE GEORGIA-PACIFIC CONSUMER OPERATIONS, LLC (FKA GEORGIA-PACIFIC CORPORATION)
v.
CITY OF BATON ROUGE-PARISH OF EAST BATON ROUGE DEPARTMENT OF FINANCE

          On Appeal from the Nineteenth Judicial District Court In and for the Parish of East Baton Rouge State of Louisiana Nos. C584982, C603482 The Honorable Timothy E. Kelley, Judge Presiding

          Shelton Dennis Blunt Ryan Moon Michael West Attorneys for Plaintiff/Appellee Georgia-Pacific Consumer Operations, LLC

          Jeffrey G. Rice Attorney for Defendant/Appellant City of Baton Rouge, et al

          BEFORE: HIGGINBOTHAM, HOLDRIDGE AND PENZATO, JJ.

          HOLDRIDGE, J.

         The defendant, City of Baton Rouge and Parish of East Baton Rouge (City/Parish), appeals a summary judgment rendered in favor of plaintiff, Georgia-Pacific Consumer Operations, LLC (GP), holding that GP is entitled to tax refunds from the City/Parish. We affirm.

         BACKGROUND

         The facts forming the basis of this lawsuit are largely undisputed. On November 30, 2009, and July 15, 2011, GP filed petitions against the City/Parish seeking judicial review of the City/Parish's denial of its refund claims for sales taxes paid on the purchases of certain chemicals for the taxable periods January 1, 2003, through December 31, 2005, and from January 1, 2006, through January 1, 2008 (sometimes referred to as the "taxable periods").[1] During the taxable periods, GP operated a paper mill in Port Hudson, located in East Baton Rouge Parish, and purchased sodium chlorate, hydrogen peroxide, and elemental oxygen (sometimes collectively referred to as "the bleaching chemicals") for use in the bleaching process of GP's overall manufacturing process for its white paper products. For the first taxable period of 2003 through 2005, GP paid $1, 576, 182.39 to the City/Parish in local sales/use taxes on its purchases of the bleaching chemicals. During the second taxable period of 2006 through 2008, GP paid the City/Parish $1, 695, 105.65 on its purchases of the bleaching chemicals.[2]

         It is undisputed that during the taxable periods, GP purchased the bleaching chemicals for further processing into its pulp and paper products, which are tangible items of property that are ultimately sold at retail. It is further undisputed that the chemicals are beneficial to the final products, are recognized, identifiable, and integral components of the final products, and were purchased for the purpose of inclusion in the final products.

         GP's refund claim is based on the Louisiana Supreme Court's 2008 decision in International Paper, Inc. v. Bridges, 2007-1151 (La. 1/16/08), 972 So.2d 1121. Therein, the Court held that International Paper's purchase of the bleaching chemicals used as a part of its white paper manufacturing process (sodium chlorate, hydrogen peroxide, and oxygen, the same chemicals used by GP) were non-taxable as purchases of "materials for further processing into articles of tangible personal property for sale at retail" pursuant to La. R.S. 47:301(10)(c)(i)(aa), commonly referred to as "the further processing exclusion." The court held that the chemical purchases fell under the further processing exclusion because: (1) they became recognizable and identifiable components of the end products; (2) they were beneficial to the end products; (3) they were materials for further processing, and as such, were purchased with the purpose of inclusion in the end products. International Paper, 972 So.2d at 1136.

         In denying GP's refund requests, the City/Parish relied on a 1984 Compromise Payment Agreement (sometimes referred to as the "1984 Agreement") in which GP and the City/Parish agreed that the bleaching chemicals at issue were subject to the local sales and use tax. The parties acknowledged that GP determined in good faith that its purchases of the bleaching chemicals were exempt from the East Baton Rouge Parish sales and use tax, while the City/Parish believed those purchases were subject to its sales and use tax. The 1984 Agreement recognized that it was in the mutual interest of both parties to reach an agreement as to which chemicals would be considered taxable in the future to avoid the need for litigation and to provide GP with a means of paying its correct sales and use tax liability. The 1984 Agreement sets forth three categories of chemicals and additives: (1) chemicals, the purchases of which are taxable because the chemicals are not processed into pulp or paper; (2) chemicals, the purchases of which are not taxable when used for certain purposes; and (3) chemicals, the purchases of which are non-taxable because the chemicals are processed into pulp or paper. The bleaching chemicals at issue in this case were classified as "taxable" in the 1984 Agreement because they were not processed into pulp or paper. The City/Parish took the position that the 1984 Agreement, a good faith compromise to avoid future litigation with respect to the chemicals listed therein, and which had been followed by the City/Parish and GP, remained in effect, making the bleaching chemicals subject to the sales/use tax, despite the International Paper decision.

         In both lawsuits, GP filed motions for summary judgment asking the court to grant it refunds for payment of sales taxes on the bleaching chemicals during the tax years 2003 through 2008. In its motions, GP asserted that it agreed to pay taxes on the bleaching chemicals in 1984 because the bleaching chemicals were not further processed into pulp or paper products during the manufacturing process in use at that time. However, in the mid-1990s, GP changed it bleaching process to one which was designed to and did in fact further process the chemicals into tangible personal property for subsequent sale at resale. GP urged that the 1984 Agreement only applied to materials used in the manufacturing process utilized in 1984 at the time that document was confected and did not provide for the continued taxation of materials that would be further processed into property for sale at retail under a different manufacturing process.

         In support of the motions for summary judgment, GP attached the following documents to its memorandum: (1) the affidavit of Timothy A. Carlson, its director and senior counsel, who provided the procedural background of the parties' dispute, and to whose affidavit was attached documentation pertaining to GP's unsuccessful refund request from the City/Parish and its successful appeal of the Louisiana Department of Revenue's refund denials for the purchases of the bleaching chemicals at issue; (2) the affidavit of Barry Covington, GP's production manager for the Port Hudson facility; and (3) the affidavit of Dr. William Howard Daly, a chemistry professor.

         Mr. Covington, a chemical engineer, attested that he has been involved in the pulp and paper industry for approximately 28 years, working mainly for International Paper and GP. According to Mr. Covington, GP uses the "Kraft Process" which utilizes subsequent bleaching processes to properly color the paper. He attested that while the Kraft Process has been in place since the Port Hudson facility opened, in the mid-1990s, the bleaching process underwent a significant change. According to Mr. Covington, at that time, GP switched from a chlorine-based bleaching process to a different bleaching process described in detail in his affidavit, which was utilized by the GP Port Hudson facility during the taxable periods from 2003 through 2008. Mr. Covington attested that the current bleaching process utilized by GP is the industry standard process which conforms to that of other manufacturers, including the ...


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