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Boyd Louisiana Racing, Inc. v. Bridges

Court of Appeals of Louisiana, First Circuit

January 8, 2020

BOYD LOUISIANA RACING, INC.
v.
CYNTHIA BRIDGES, SECRETARY, DEPARTMENT OF REVENUE & TAXATION, STATE OF LOUISIANA BOYD GAMING CORPORATION
v.
CYNTHIA BRIDGES, SECRETARY, DEPARTMENT OF REVENUE & TAXATION, STATE OF LOUISIANA BOYD KENNER, INC.
v.
CYNTHIA BRIDGES, SECRETARY, DEPARTMENT OF REVENUE & TAXATION, STATE OF LOUISIANA

          On Appeal from the Nineteenth Judicial District Court In and for the Parish of East Baton Rouge State of Louisiana Docket Nos. C539824, C548765, C548766

          Russell J. Stutes, Jr. Shelley Bouillion J. Michael Veron Lake Charles, Louisiana Counsel for Defendant/Appellant Cynthia Bridges, Secretary of the Department of Revenue and Taxation, State of Louisiana

          Linda S. Akchin Jaye A. Calhoun William J. Kolarik, II Baton Rouge, Louisiana Counsel for Plaintiffs/ Appellees Boyd Louisiana Racing Inc., Boyd Gaming Corporation, and Boyd Kenner, Inc.

          BEFORE: WHIPPLE, C.J., MCCLENDON, AND HIGGINBOTHAM, JJ.

          MCCLENDON, J.

         In these consolidated tax cases, the defendant appeals a district court's judgment that granted a partial summary judgment in favor of the plaintiffs. For the following reasons, we affirm in part, reverse in part, and remand.

         FACTS AND PROCEDURAL HISTORY

         Boyd Gaming Corporation (Boyd Gaming) is engaged in the gaming industry, owning and operating through its numerous subsidiaries and affiliate casinos and horse-racing facilities throughout the nation. Boyd Gaming is domiciled in Nevada. Boyd Gaming directly owns two Louisiana subsidiaries, Boyd Kenner, Inc. (Boyd Kenner) and Boyd Louisiana Racing, Inc. (Boyd Louisiana Racing). Boyd Kenner is a partner in Treasure Chest, LLC, a casino in Kenner, Louisiana. Boyd Louisiana Racing owns Boyd's Racing, LLC, which owns and operates Delta Downs, a pari-mutuel racetrack and casino in Vinton, Louisiana.

         For the tax years 2002, 2003, and 2004 (the audit period), each of the Boyd entities reported and paid income and franchise taxes as reflected on their returns. Boyd Kenner and Boyd Louisiana Racing filed their state tax returns as Louisiana entities, and Boyd Gaming filed its Louisiana tax returns as a nonresident.

         In 2005 and 2006, the State of Louisiana, Department of Revenue and Taxation (the Department) issued a Notice of Proposed Tax Due to each of the plaintiffs, Boyd Gaming, Boyd Louisiana Racing, and Boyd Kenner, following an income and franchise tax audit for the audit period. The audits resulted in an upward adjustment of the taxable capital base for each of the three entities and the assessment of additional corporate franchise taxes, with interest, to their businesses. Originally, Boyd Gaming paid a total of $373, 515.00 in franchise taxes, Boyd Louisiana Racing paid a total of $331, 371.00 in franchise taxes, and Boyd Kenner paid a total of $116, 076.00 in franchise taxes. Following the audits, the plaintiffs were assessed additional taxes and interest, for the tax years 2002, 2003, and 2004, in the following amounts: Boyd Gaming was assessed a total of $1, 082, 930.63, Boyd Louisiana Racing was assessed a total of $277, 033.72, and Boyd Kenner was assessed a total of $244, 548.66. The plaintiffs paid to the Department the additional franchise taxes and interest, under protest, and notified the Department that they would be seeking a refund of the amounts paid.

         Thereafter, each of the plaintiffs filed a petition for appeal in the district court seeking a refund for the payment of the taxes paid under protest and asserting that the Department erroneously determined that the additional franchise tax and interest were due. After the matters were consolidated, the plaintiffs filed a motion for partial summary judgment on the issue of liability. According to the plaintiffs, the Department's audit determination that they had underpaid Louisiana franchise taxes was erroneous, in part, because the auditors' applications and interpretations of the pertinent law and regulations were incorrect. Particularly, they asserted that the auditors misapplied costs and values to taxable income, based on a misunderstanding of the cash management system employed by the Boyd entities. The plaintiffs also generally asserted that in assessing the taxes, the auditors ignored established accounting principles, precedents, and the franchise tax law itself. In response, the Department asserted, and continues to maintain on appeal, that genuine issues of material fact remain that negate the grant of summary judgment and, further, that it correctly applied the law in computing the additional corporate franchise taxes owed by the plaintiffs.

         After a hearing, the district court issued written reasons on October 1, 2014, finding that there was no evidence of any disputed issues of material fact and that the central dispute in the case involved the interpretation and application of the law. After consideration of the applicable law, the district court granted the plaintiffs' motion for partial summary judgment. Thereafter, the district court signed a judgment on November 24, 2014, granting a partial summary judgment on the issue of liability in favor of the plaintiffs. The Department appealed.

         Subsequently, this court ex proprio motu examined the record and noted a potential jurisdictional defect in the judgment. Following the submission of memoranda and oral argument, we determined that the judgment did not contain sufficient decretal language to constitute a final appealable judgment, declined to convert the invalid appeal to a supervisory writ, dismissed the appeal, and remanded the matter for further proceedings. See Boyd Louisiana Racing, Inc. v. Bridges, 15-0393 (La.App. 1 Or 12/23/15) (unpublished), 2015 WL 9435285.

         After this court's decision, the plaintiffs filed a Motion for Entry of Judgment and attached a proposed judgment. The district court signed the proposed judgment on August 9, 2016, prior to the scheduled hearing on the motion, and mailed notice of the judgment to the parties. The judgment granted the motion for partial summary judgment on the issue of liability, as follows:

1. Because all management services were performed in its offices in Nevada rather than in Louisiana, the Department of Revenue erred in its auditor's adjustments with respect to the management fees collected by Boyd Gaming Corporation.
2. Because Boyd Gaming used generally accepted "equity accounting" principles to value its investment in subsidiaries, the adjustments to surplus and undivided profits made by the Department of Revenue's auditor were not proper.
3. The participation of the Taxpayers in the common cash management system used by Boyd Gaming Corporation and all its affiliates, including Boyd Kenner and Boyd Louisiana Racing, was not a borrowing of capital by Boyd Gaming, Boyd Kenner or Boyd Louisiana Racing, so the auditor's adjustments to borrowed capital were incorrect.
4. Partnership tax losses were properly included in Boyd Gaming's volume of business ratio for the Periods at Issue because the regulation prohibiting that inclusion was not in effect during the years 2002-2004.

         The judgment also provided that the determination of the amount of refund to which the plaintiffs were entitled would be the subject of future proceedings.

         In the meantime, the Department opposed the motion for the entry of judgment. On September 26, 2016, the district court held the hearing on the content of the proposed judgment and took the matter under advisement. Thereafter, the Department filed a suspensive appeal from the district court's August 9, 2016 judgment. The district court signed the order for suspensive appeal on October 12, 2016, but the signature was later scratched through with the following unsigned undated handwritten note: "moot - this is an appeal of a judgment erroneously signed."

         On November 2, 2016, the district court issued a Ruling on Plaintiffs' Motion for Entry of Judgment, ordering that the plaintiffs' proposed judgment be filed and tendered to the court for signature. The judgment was signed on November 18, 2016, and was identical to the August 9, 2016 judgment. Also, as in the August 9, 2016 judgment, the November 18, 2016 judgment ordered that the judgment consituted a final judgment pursuant to LSA-C.C.P. art. 1915B for purposes of an immediate appeal because there was no just reason for delay.[1]

         Thereafter, on April 4, 2017, “[i]n an abundance of caution and due to the unique circumstances present," the Department filed another motion for suspensive appeal, seeking to appeal the August 9, 2016 and November 18, 2016 judgments. The Department filed a memorandum in support of the motion for suspensive appeal, and the plaintiffs filed a memorandum in opposition to the motion.

         On January 9, 2018, the district court issued its Ruling on Motion for Suspensive Appeal and denied the Department's appeal, stating that "all counsel of record were informed that the earlier judgment was signed prematurely in error and that the motion for suspensive appeal filed in response to the premature judgment would not be signed by the Court and processed." The district court found that the Department's failure to either file a timely new motion for appeal or to request that the original motion for appeal be processed with a new corrected order "resulted in defendant's failure to timely file an appeal as to the Judgment that it was seeking to have overturned." The order denying the motion for suspensive appeal was signed on January 29, 2018. The Department then applied for supervisory writs with this court. On June 4, 2018, this court granted the writ and reversed the district court's denial of the Department's suspensive appeal, with instructions to enter an order of appeal from the August 9, 2016 judgment and the November 18, 2016 judgment. See Boyd Louisiana Racing, Inc. v. Bridges, 18-0159 (La.App. 1 Cir. 6/4/18) (unpublished writ action). Thereafter, the district court signed the order of appeal.

         Now on appeal, the Department asserts that the district court erred in finding that there were no genuine issues of material fact and that the plaintiffs were not liable for the additional franchise taxes at issue. Particularly, the Department contends that the district court erred in holding that:

1. Management services were performed solely in Nevada, thereby resulting in an improper audit adjustment regarding management fees collected by Boyd Gaming;
2. Audit adjustments to surplus and undivided profits were not proper because the plaintiffs utilized equity accounting principles to value investments in subsidiaries;
3. Treatment of funds maintained by Boyd Gaming in the common cash management system was improperly characterized as borrowed capital on audit; and
4. Partnership tax losses were properly included in Boyd Gaming's volume of business ratio.

         SUMMARY JUDGMENT LAW AND STATUTORY INTERPRETATION

         A motion for summary judgment is a procedural device used to avoid a full scale trial when there is no genuine issue of material fact. GameStop, Inc. v. St. Mary Parish Sales and Use Tax Dept., 14-0878 (La.App. 1 Cir. 3/19/15), 166 So.3d 1090, 1094, writ denied, 15-0783 (La. 6/1/15), 171 So.3d 929. A motion for summary judgment is properly granted if the pleadings, depositions, answers to interrogatories, and admissions, together with affidavits, if any, admitted for purposes of the motion for summary judgment, show that there is no genuine issue of material fact, and that mover is entitled to judgment as a matter of law. LSA-C.C.P. art. 966B(2).[2]

         In determining whether summary judgment is appropriate, this court will review the evidence de novo using the same criteria governing the district court's determination of whether summary judgment is appropriate. Thompson v. Center for Pediatric and Adolescent Medicine, LLC, 17-1088 (La.App. 1 Cir. 3/15/18), 244 So.3d 441, 444, writ denied, 18-0583 (La. 6/1/18), 243 So.3d 1062. When the issue before the court on the motion for summary judgment is one on which the party bringing the motion will bear the burden of proof at trial, the burden of showing there is no genuine issue of material fact remains with the party bringing the motion. Green v. Johnson, 16-1525 (La.App. 1 Cir. 1/10/18), 241 So.3d 1188, 1191.

         A fact is material if it potentially insures or precludes recovery, affects a litigant's ultimate success, or determines the legal outcome of the dispute. A genuine issue is one as to which reasonable persons could disagree. If reasonable persons could reach only one conclusion, there is no need for trial on that issue and summary judgment is appropriate. Thompson, 244 So.3d at 445.

         The interpretation of a statute is a question of law that may be decided by summary judgment. When addressing legal issues, the appellate court gives no special weight to the findings of the district court, but exercises its constitutional duty to review questions of law de novo, after which it renders judgment on the record. Bannister Properties, Inc. v. State, 18-0030 (La.App. 1 Cir. 11/2/18), 265 So.3d 778, 788, writ denied, 19-0025 (La. 3/6/19), 266 So.3d 902.

         Moreover, taxing statutes are to be interpreted liberally in favor of the taxpayer and against the taxing authority. If the statute can reasonably be interpreted more than one way, the interpretation less onerous to the taxpayer is to be adopted. Entergy Louisiana, Inc. v. Kennedy, 03-0166 (La.App. 1 Cir. 7/2/03), 859 So.2d 74, 77-78, writ denied, 03-2201 (La. 11/14/03), 858 So.2d 430. Furthermore, words defining a thing to be taxed should not be extended beyond their clear import. Cleco Evangeline, LLC v. Louisiana Tax Com'n, 01-2162 (La. 4/3/02), 813 So.2d 351, 355. Absent evidence to the contrary, the language of the statute itself must clearly and unambiguously express the intent to apply to the property in question. Id.

         DISCUSSION

         Article VII, § 1 of the Louisiana Constitution vests the power of taxation in the legislature. Pursuant to LSA-R.S. 47:601A, the Louisiana corporate franchise tax is imposed on “[e]very domestic corporation and every foreign corporation, exercising its charter, or qualified to do business or actually doing business in this state, or owning or using any part or all of its capital, plant, or any other property in this state." LSA-R.S. 47:601.[3] Taxable capital is defined for purposes of corporate franchise tax in LSA-R.S. 47:602A, which, during the audit period, provided:

Taxable capital. Every corporation taxed under this Chapter shall determine the amount of its issued and outstanding capital stock, surplus, undivided profits and borrowed capital as the basis for computing the franchise tax levied under this Chapter and determining the extent of the use of its franchise in this state.

         Further, Article VII, § 3(A) of the Louisiana Constitution mandates the legislature to "provide a complete and adequate remedy for the prompt recovery of an illegal tax paid by a taxpayer." To fulfill its obligation, the legislature has provided three remedies to taxpayers: 1) the Claims Against the State procedure, LSA-R.S. 47:1481-1486; 2) the Payment Under Protest procedure, LSA-R.S. 47:1576; and, 3) the Overpayment Refund procedure, LSA-R.S. 47:1621-1627. St. Martin v. State, 09-0935 (La. 12/1/09), 25 So.3d 736, 738; Bannister, 265 So.3d at 788. Relevant to our analysis is the Payment Under Protest procedure.

         During the tax years at issue, the Payment Under Protest procedure provided that if a taxpayer protested the payment of any tax or enforcement of any tax law, the taxpayer had to pay the amount due and at that time give notice of intention to file suit for recovery of the tax. The amount paid was then placed in escrow for thirty days. If suit was filed within that period, the funds would be further held pending outcome of the suit.[4] Church Point Wholesale Beverage Co., Inc. v. Tarver, 614 So.2d 697, 703-04 (La. 1993). Following the audits, and in accordance with LSA-R.S. 47:1576, the plaintiffs remitted the additional franchise taxes at issue, advised the Department that the taxes were paid under protest, and timely filed a petition for appeal from the decision of the Department for the franchise taxes paid under protest and for statutory interest thereon.

         In its assignments of error on appeal, the Department has identified four disputed audit adjustments. We will address each one separately.

         Management fees

         The Department first asserts that Boyd Gaming mischaracterized management fees received from Boyd Kenner and Boyd Louisiana Racing. The Department acknowledged that it allowed the plaintiffs to exclude support fees from the numerator of the franchise tax computation, taking the position that such fees constituted a reimbursement for expenses, or recovery costs, paid on behalf of a subsidiary. However, with regard to management fees, the Department maintains that such fees were not "net sales made to customers," as asserted by the plaintiffs, or reimbursements of expenses. The Department contends that the fees were actually revenues transferred between a parent company and its subsidiaries, which must be included in the volume of business ratio of Boyd Gaming under LSA-R.S. 47:606A(1)(k) and 606B.

         Therefore, we first consider LSA-R.S. 47:606, regarding the allocation of taxable capital, which provided, in relevant part:

A. General allocation formula.
For the purpose of ascertaining the tax imposed in this Chapter, every corporation subject to the tax is deemed to have employed in this state the proportion of its entire issued and outstanding capital stock, surplus, undivided profits, and borrowed capital, computed on the basis of the ratio obtained by taking the arithmetical average of the following ratios:
(1)The ratio that the net sales made to customers in the regular course of business and other revenue attributable to Louisiana bears to the total net sales made to customers in the regular course of business and other revenue. For the purposes of this Subsection net sales and other revenues attributable to Louisiana shall be determined as follows:
* * *
(f) Revenues from services other than those described above shall be attributed within and without Louisiana on the basis of the location ...

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