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Lerner New York, Inc. v. Normand

Court of Appeals of Louisiana, Fifth Circuit

December 26, 2019

LERNER NEW YORK, INC.
v.
NEWELL D. NORMAND, SHERIFF, AND EX-OFFICIO TAX COLLECTOR FOR JEFFERSON PARISH; JEFFERSON PARISH SHERIFF'S OFFICE, BUREAU OF REVENUE AND TAXATION, SALES AND USE TAX DIVISION

          ON APPEAL FROM THE BOARD OF TAX APPEALS STATE OF LOUISIANA NO. L00393

          COUNSEL FOR PLAINTIFF/APPELLEE, LERNER NEW YORK, INC. Andre B. Burvant Matthew A. Mantle John F. Fletcher

          COUNSEL FOR DEFENDANT/APPELLANT, JOSEPH P. LOPINTO, III, SHERIFF AND EX-OFFICIO TAX COLLECTOR FOR THE PARISH OF JEFFERSON, SUCCESSOR IN OFFICE TO FORMER JEFFERSON PARISH SHERIFF NEWELL NORMAND Kenneth C. Fonte

          Panel composed of Judges Robert A. Chaisson, Hans J. Liljeberg, and John J. Molaison, Jr.

          JOHN J. MOLAISON, JR. JUDGE

         This is an appeal from a judgment of the Louisiana Board of Tax Appeals ("Board") taken by petitioner, Lerner New York, Inc. ("Lerner"), concerning a request for a refund of $147, 967.00 of sales taxes paid under protest pursuant to a Rule for Taxes filed by the tax collector for Jefferson Parish ("Collector") for the period of January 1, 2010 through April 30, 2017. The Board rendered judgment granting partial relief to Lerner and partial relief to the Collector. Both parties have appealed. For the following reasons, we affirm the judgment in part, and remand the matter to the Board with instructions as set forth in this opinion.

         PROCEDURAL HISTORY

         On May 8, 2017, following an audit in September of 2016, the Collector filed a Rule for Taxes demanding sales taxes, plus interest and penalties totaling $147, 576.09 collected by Lerner from online sales to customers in Jefferson Parish for the period of January 1, 2010 through April 30, 2017. The petition alleges that Lerner made a "false and bad faith claim" that it was not required to file Jefferson Parish sales tax returns on these sales because it qualified as a Direct Marketer under La. R.S. 47:302(K)(5).

         In response, Lerner paid $147, 967.00, representing the assessment of sales taxes, plus interest and penalties, under protest. Lerner filed a petition to the Board seeking to recover the taxes paid under protest. In the petition, Lerner alleged that it filed timely sales tax returns for sales taxes collected from in-store purchases in its stores in Jefferson Parish. Lerner also alleged it paid the sales taxes collected on its remote online sales to customers in Louisiana to the Louisiana Department of Taxation ("Department") "in good faith pursuant to La. R.S. 47:302(K)."

         The Collector answered the petition and filed a reconventional demand reasserting a demand for taxes and making the same claims as set forth in the Rule for Taxes. Lerner filed an answer to the reconventional demand seeking the refund of the sales taxes paid under protest and an award of reasonable attorney fees and costs. Lerner also filed a motion for partial summary judgment asserting prescription as to taxes for the period of January 1, 2010 through November 30, 2013. That motion was denied.

         After a hearing on the merits of the main claim, the Board rendered a judgment on January 8, 2019[1] finding that Lerner is liable to the Collector for sales taxes collected from online sales in Jefferson Parish, and improperly remitted to the Department via Direct Marketer Returns for the tax periods of January 1, 2010 through April 30, 2017. The Board also determined that Lerner is not entitled to a credit under La. R.S. 47:337.86(A)(1), but ruled that Lerner is entitled to a credit under La. R.S. 47:337.86(E)(1) in the amount of $45, 191.14. In that judgment, the Board also ruled in favor of the Collector for the taxes due, interest, penalties and attorney's fees at a rate of 10% on the amount due after the application of the credit. Finally, the Board ruled that the parties had fifteen days to submit a proposed money judgment with calculations in accordance with the judgment and declared the judgment was not final or appealable.

         After receiving the proposed judgments from the parties, the Board rendered a final judgment on April 16, 2019. That judgment denied Lerner a credit under La. R.S. 47:337.86(A)(1), but gave Lerner a credit under La. R.S. 47:337.86(E)(1) in the amount of $45, 223.69. The judgment also found Lerner liable to the Collector for sales taxes in the amount of $84, 611.29, interest in the amount of $27, 861.41 and penalties in the amount of $21, 152.82. The judgment also awarded the Collector $13, 362.55 in attorney's fees. Finally, the judgment ordered the refund of $46, 202.61 of the taxes paid under protest plus interest, based on direct marketer sales tax distribution to the Collector by the Department.

         The Collector filed a timely appeal in which he argues the Board erred as a matter of law by granting Lerner a credit pursuant to La. R.S. 47:337.86 (E)(1), and, in the alternative, if a credit is allowed, an incorrect amount was awarded. Lerner filed an answer to the appeal and assigns eight errors relating to the Board's determination that it was not entitled to a full refund of taxes paid under protest, that it was not entitled to a credit under La. R.S. 47:337.86(A)(1), and challenging the award of attorney fees, interest and penalties to the Collector. Lerner also challenges the interim judgment denying its motion for partial summary judgment on the prescription issue.

         FACTS

         Lerner is a national retail outlet selling women's clothing that maintains brick and mortar stores in Jefferson Parish, and also sells merchandise online through its website. Lerner collects sales taxes from both in-store and online customers. The taxes at issue herein relate solely to the online sales to customers in Jefferson Parish.

         Lerner maintains a third-party database that captures the online sales and computes the sales tax based on the shipping address. The information is retrieved monthly and sent to its sales tax preparers. One of the reports generated relates to e-commerce sales taxes collected throughout the entire state, categorized by parish. The sales taxes collected through e-commerce sales statewide were reported and paid to the State of Louisiana on a Direct Marketer Sales Tax Return ("DMR") for each of the months in question. Sales taxes collected in the brick and mortar stores located in Jefferson Parish were reported and paid to the Collector.

         Mr. Thomas Magaldi, the Tax Director of Lerner, testified that EisnerAmper prepares the tax returns for Lerner. He explained that online sales taxes collected are reported on a DMR. Mr. Magaldi stated that an audit by the Louisiana Department of Revenue for the sales taxes reported for the years 2015 through 2017 was just concluded. The audit resulted in no change, no deficiency, and no under payment. Mr. Magaldi also stated that Lerner filed two affidavits with the Department seeking to get a refund of the Jefferson Parish portion of the direct marketer sales tax on the theory that the taxes were paid to an incorrect taxing authority pursuant to La. R.S. 47:337.86. The refund was denied.

         Ms. Andria Siciliano, a director of EisnerAmper, the company that prepares the tax returns for Lerner, testified at the hearing. Ms. Siciliano explained that her company took over preparation of Lerner's DMR remittances from Vertex in January of 2016. She reviewed the returns Vertex prepared previously that were reported on the DMR. Since this was the first time she prepared reports in Louisiana, she read and researched the applicable statutes. Ms. Siciliano also called the state for guidance, but could not get a definitive answer on whether Lerner's online sales should be reported in this manner. Based on what was historically done and her interpretation of applicable law, Ms. Siciliano reported and remitted the online sales taxes on a DMR to the State of Louisiana. She testified that she signed the return and believed it to be in compliance with law.

         Michelle Galland, Assistant Director of Income Tax in the Policy Services Division of the Louisiana Department of Revenue, testified that the Department keeps records of the amount of taxes collected through the DMR remittances. The Department also keeps records of the amount of taxes distributed from the DMR to the parishes. Ms. Galland explained that the state collects income taxes, consumer use taxes and direct marketer's sales taxes. After the state takes its share of the taxes, the remainder is distributed to the parishes throughout the state according to population.

ASSIGNMENTS OF ERROR
Collector
1) The trial court erred as a matter of law by granting Lerner a credit pursuant to La. R.S. 47:337.86(E)(1) for misappropriated Jefferson Parish sales taxes belonging to Collector unlawfully used by it to pay Direct Marketer Sales Taxes contrary to the requirements and prohibitions of La. R.S. 47:302(K)(5).
2) The amount of the credit awarded to Lerner is contrary to Law.
Lerner
1) The Board erred in ruling that Lerner is liable to the Collector for any additional taxes or related amounts relating to Lerner's online sales into Jefferson Parish during the Sales Tax Periods.
2) The Board erred in ruling that Lerner improperly remitted the taxes relating to Lerner's online sales into the Parish to the Department via the Direct Marketer Returns as such remittances were proper under the applicable tax statutes.
3) The Board erred in separately ruling that the proper prescriptive period in this case was ten (10) years under the judicial doctrine announced in Sabine Pipe & Supply v. McNamara, instead of the standard constitutional and statutory three-year prescriptive period.
4) The Board erred in separately ruling that Lerner is not entitled to full relief under the statutory safe harbor immunity provision in La. R.S. 47:337.86(E)(1) for the entire amount of taxes at issue.
5) The Board erred in separately ruling that Lerner is not entitled to a credit under La. R.S. 47:337.86(A)(1).
6) The Board erred in separately ruling that Lerner is liable to the Collector for interest and penalties.
7) The Board erred in finding that Lerner could not have continued to remit the sales taxes on Direct Marketer Returns "absent gross negligence of bad faith after September 2016" based solely on the fact that the Collector began an audit of Lerner in September 2016.
8) The Board erred in separately ruling that Lerner is liable to the Collector for attorney's fees. In the alternative, the Board erred in the calculation of attorney's fees.

         LAW AND ANALYSIS

         The issues presented herein require two standards of review. Issues relating to the applicability and interpretation of the statutes is by de novo review. Glob. Constr. & Equip., L.L.C. v. Rathborne Properties, L.L.C., 18-169 (La.App. 5 Cir. 5/29/19), 274 So.3d 837, 841, writ denied, 19-01096 (La. 10/8/19). However, factual issues ...


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