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Willow Bend Ventures, LLC v. Collector, St. John Baptist Parish

Court of Appeals of Louisiana, Fifth Circuit

August 14, 2019

WILLOW BEND VENTURES, LLC
v.
COLLECTOR, ST. JOHN THE BAPTIST PARISH, SALES AND USE TAX OFFICE

          ON APPEAL FROM THE BOARD OF TAX APPEAL STATE OF LOUISIANA NO. L00003, HONORABLE CADE R. COLE, JUDGE PRESIDING

          COUNSEL FOR PLAINTIFF/APPELLANT, WILLOW BEND VENTURES, LLC Robert S. Angelico Cheryl M. Kornick

          COUNSEL FOR DEFENDANT/APPELLEE, COLLECTOR, ST. JOHN THE BAPTIST PARISH, SALES AND USE TAX OFFICE Patrick M. Amedee Catherine Masterson

          Panel composed of Judges Fredericka Homberg Wicker, Robert A. Chaisson, and Hans J. Liljeberg

          FREDERICKA HOMBERG WICKER JUDGE

         Appellant, Willow Bend Ventures, L.L.C., (hereinafter "Willow Bend") appeals the Board of Tax Appeals' judgment awarding St. John the Baptist Parish Sales and Use Tax Collector (hereinafter "the Collector") $1, 479, 914.17 in owed taxes, penalties, interest, and attorney fees related to the sale of dirt from Willow Bend's borrow pit located in St. John the Baptist Parish. For the following reasons, we affirm the Board's judgment.

         FACTUAL BACKGROUND

         This litigation arises out of past due taxes allegedly owed on the sale of processed dirt from Willow Bend's borrow pit located in St. John the Baptist Parish. Following Hurricane Katrina, Willow Bend purchased a 540-acre piece of property in the parish and underwent an extensive certification process to have its processed dirt sold on the property certified to be used in Corps of Engineers (COE) projects. On May 23, 2014, the Collector issued a "Notice of Assessment" which reflected that Willow Bend owed a total amount of $1, 605, 244.42 to the Collector in taxes, penalties, and interest for the tax period of January 1, 2010 to June 30, 2013.

         On June 26, 2014, Willow Bend filed a "Petition for Redetermination of Assessment" with the Board of Tax Appeals, representing that it had been aggrieved by the Collector's "improper assessment of St. John Parish sales and use tax, interest and penalties." In its petition, Willow Bend alleged that, because the dirt sold from its pit was used for COE projects, the sales at issue were not "retail sales" as defined under La. R.S. 47:301(10)(g) and, thus, are not subject to sales and use tax. On March 5, 2015, the Collector filed a reconventional demand against Willow Bend additionally seeking attorney fees pursuant to La. R.S. 47:337.13.1.

         The matter proceeded to trial on May 31, 2016 and June 1, 2016.

         At trial, Dr. Bob Thorn testified that Willow Bend retained him in December 2007 to aid in the permitting and certification process for its borrow pit. He explained the certification process, which is required for a vendor to be approved to sell dirt for use in COE hurricane protection levee projects. He further testified that COE project contractors would receive a list of COE-approved borrow pits and that Willow Bend expended a great deal of resources to obtain certification for its 540-acre pit.

         Mr. Wayne Fletcher testified that he worked closely with the formation of Willow Bend after Hurricane Katrina and was in communication with the COE during that time period as well. He testified that the dirt business following Hurricane Katrina was lucrative and that the primary purpose behind the development and certification of the Willow Bend borrow pit, which he estimated at a cost of $7.5 to $8 million dollars, was to sell dirt to be used for COE projects. He further testified that contractors not involved in COE projects would not have been interested in purchasing dirt from Willow Bend, as it was priced higher than dirt at non-certified pits.

         In his testimony, Mr. Fletcher examined the invoices and contracts introduced into evidence to attempt to establish links between the customers' contracts or invoices and various COE projects. Mr. Fletcher discussed thirty customers' contracts or invoices in his testimony. The documents introduced into evidence reflected that while some of the customers had contracts or invoices with clear references to a specific COE contract, other customers' invoices reflected vague descriptions of various projects (such as the term "airport" or "Chalmette") with no reference to a COE project. Additionally, various invoices referenced a COE contract or code but the evidence reflected that the dirt purchaser was not a COE-approved contractor provided on the COE project "Master List" and Willow Bend provided no subcontract or any evidence to show a relationship between the COE project and the dirt purchaser. Moreover, the evidence reflected that, as to some of the invoices that related to a known COE project and contractor, Willow Bend unnecessarily collected, but failed to remit, taxes on those invoices. Willow Bend further acknowledged that other customers clearly had no connection to any COE projects.[1]

         Mr. Thomas Hook, a representative of Assured Compliance, Inc., testified that he works for a third-party administrator that conducts audits for the Collector. He testified that he participated in the audit process for the Willow Bend audit at issue. In his testimony, Mr. Hook also thoroughly discussed each customer's contract and/or invoices to explain whether the customers' invoices or contracts made any reference to any COE projects. He acknowledged that some of the customer contracts did involve COE projects, and that his office properly excluded that amount of sales from the estimated taxes owed in the Notice of Assessment. He testified that, in reviewing the invoices, he interpreted the invoices to the "benefit of the taxpayer," meaning that if he could recognize a code or reference to a COE project by a COE contractor on the COE Master List, he would exclude those invoices from his calculations. [2]

         Tom Hook also testified that, as to some of the contracts or invoices that would generally be excluded as involving COE projects, Willow Bend's records reflected that it had in fact unnecessarily collected from those customers a total of $48, 649.12 in sales tax in 2010; $40, 959.85 in 2011; and $29, 825.63 in 2012 during the audit period. He further testified that, although Willow Bend charged their customers sales tax during this period, it did not remit the taxes collected to the Collector and, thus, that amount actually collected but not remitted was included in the amount owed to the Collector in the Notice of Assessment. Mr. Hook further testified that Willow Bend did not file tax returns or remit any taxes during the three-year audit period at issue.

         Ms. Debbie Fletcher testified that she worked in Willow Bend's office during the audit period and handled the billing. She testified that when trucks arrived to pick up dirt, she would issue each truck a ticket providing the amount of dirt loaded and that the ticket would be compared to the amount of dirt delivered to the contractor's site.[3] Mr. Joe Spivey testified that he worked for Willow Bend in the dirt processing during the audit period. He stated that each truck was weighed before and after it was loaded with the dirt and that Willow Bend would issue each customer a ticket indicating the amount of dirt loaded.

         On April 11, 2017, the Board of Tax Appeals, the Honorable Cade R. Cole presiding, issued a written judgment in favor of the Collector and against Willow Bend for: $609, 471.60 in tax; $182, 841.48 in penalties (25% late penalty and 5% negligence penalty); $539, 608.90 in interest (1.25% per month); $133, 192.19 in attorney fees (10% of tax, penalty, and interest due); and $14, 800 in audit costs.

         The amount of the judgment totaled $1, 479, 914.17.[4] The Board, in ...


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