West Jefferson Mri, LLC Versus Joseph P. Lopinto, III, Sheriff and Ex-Officio Tax Collector of the Parish of Jefferson

WEST JEFFERSON MRI, LLC NO. 19-CA-82
C/W
VERSUS 19-CA-83

JOSEPH P. LOPINTO, III, SHERIFF AND FIFTH CIRCUIT
EX-OFFICIO TAX COLLECTOR OF THE
PARISH OF JEFFERSON COURT OF APPEAL

C/W STATE OF LOUISIANA

WEST JEFFERSON CT SCAN, LLC

VERSUS

JOSEPH P. LOPINTO, III, SHERIFF AND
EX-OFFICIO TAX COLLECTOR OF THE
PARISH OF JEFFERSON

ON APPEAL FROM THE TWENTY-FOURTH JUDICIAL DISTRICT COURT
PARISH OF JEFFERSON, STATE OF LOUISIANA
NO. 779-075 C/W 779-076, DIVISION "K"
HONORABLE ELLEN SHIRER KOVACH, JUDGE PRESIDING

November 27, 2019

MARC E. JOHNSON
JUDGE

Panel composed of Judges Marc E. Johnson,
Robert A. Chaisson, and John J. Molaison, Jr.

AFFIRMED
MEJ
RAC

DISSENTS, IN PART, WITH REASONS
JJM

COUNSEL FOR PLAINTIFF/APPELLEE,
WEST JEFFERSON MRI, LLC
Daniel A. Ranson
John J. Danna, Jr.
Ryan C. Higgins

COUNSEL FOR DEFENDANT/APPELLANT,
JOSEPH P. LOPINTO, III, SHERIFF AND EX-OFFICIO TAX COLLECTOR
OF THE PARISH OF JEFFERSON
Kenneth C. Fonte

JOHNSON, J.

Appellant/Defendant, Joseph P. Lopinto, III, Sheriff and Ex-Officio Tax

Collector for the Parish of Jefferson, appeals the judgment in favor of

Appellees/Plaintiffs, West Jefferson MRI, LLC and West Jefferson CT Scan, LLC,

for the refund of certain taxes, penalties, and interest paid under protest from the

24th Judicial District Court, Division “K”. For the following reasons, we affirm the

judgment and deny Appellees’ request for attorney’s fees.

FACTS AND PROCEDURAL HISTORY

Appellees provide diagnostic magnetic resonance imaging (“MRI”) and

computed tomography (“CT”) services at two locations in Jefferson Parish. In

early 2015, Sheriff Lopinto notified Appellees that they were being audited for

failure to pay sales and use taxes. In response to the notice, Appellees’ accountant,

Laura Stewart, produced general ledger excerpts and asset depreciation schedules

to the auditor. Sheriff Lopinto selected entries in the general ledger and requested

copies of the corresponding invoices.

On November 6, 2017, Sheriff Lopinto issued formal assessments of

delinquent general sales and use taxes and food and drug taxes to Appellees

referencing three audits (audit numbers 98225, 98218, and 98013) covering the

time period of January 1, 2012 through December 31, 2015. The majority of the

delinquent sales and use taxes assessed against Appellees were for maintenance

and repair services performed by third-parties on MRI and CT scan systems owned

and operated by Appellees at their two locations. When calculating the taxes

owed, Sheriff Lopinto assessed the sales and use taxes on a monthly basis, as if no

taxes had been paid by Appellees.

Appellees paid the tax debts under protest and filed the instant lawsuits,

pursuant to La. R.S. 47:337.63, to recover the amounts paid. Appellees argued that

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the MRI and CT scan systems at issue are component parts of the buildings in

which they are located; therefore, the units are immovable property, and the

services for repairs to equipment cannot be taxed under La. R.S. 47:301. They also

argued that any action to collect the taxes allegedly owed relating to the three

audits at issue were prescribed under La. R.S. 47:337.67. Sheriff Lopinto filed

reconventional demands in both cases, seeking a judgment for the amounts paid

under protest.

The matter went to trial on October 9, 10, and 12, 2018 on the petitions for

refund of taxes paid under protest and the reconventional demand. In a judgment

rendered on October 26, 2018, the trial court found in favor of Appellees for

certain taxes, penalties, and interest paid under protest relative to audit numbers

98225, 98218, and 98013. The trial court specifically entered judgment for any

amounts paid by Appellees relating to sales and use taxes on services to their MRI

and CT systems located in Jefferson Parish, taxes that were paid prior to the

November 6, 2017 assessments, and taxes paid monthly on amounts not exceeding

$500 for taxes levied. The trial court also entered a judgment in favor of Sheriff

Lopinto against Appellees for all tax amounts paid under protest relating to

monthly assessments exceeding $500 for taxes levied, excluding interest and

penalties. A subsequent hearing was set for December 5, 2018 to determine the

exact amounts owed by the parties.

After the December 5, 2018 hearing, the trial court rendered a written

judgment on the same date. The trial court ordered Sheriff Lopinto to refund the

taxes, penalties and interest paid under protest in audit number 98013 in the

amount of $36,906.90; $37,364.54 in audit number 98218; and $46,910.72 in audit

number 98225. The trial court then ordered Appellees to pay taxes, penalties and

interest paid under protest on December 5, 2017 in the amounts of $3,842.29 for

audit number 98013, $3,842.29 for audit number 98218, and $6,382 for audit

19-CA-82 C/W 19-CA-83 2

number 98225. The trial court further ordered that, pursuant to La. R.S. 47:337.80,

Appellees were entitled to interest on the refunded amounts at 3.25% per annum

beginning December 5, 2017—the date they made their payments under protest—

through December 31, 2017, and 4% per annum beginning January 1, 2018 until

paid. The trial court denied Appellees’ request for attorney’s fees pursuant to La.

R.S. 47:337.13.1. The instant appeal followed.

ASSIGNMENTS OF ERROR

On appeal, Sheriff Lopinto alleges the trial court erroneously determined

that the contracts for the repairs and maintenance of the two MRI systems and the

CT scan system were not taxable sales of services pursuant to La. R.S.

47:301(14)(g)(i)(aa) by misclassifying all of the MRI and CT scan equipment as

immovable property. Sheriff Lopinto further alleges the trial court erroneously

declined to include accrued interest and penalties to the principal amount of use tax

in determining whether the $500 “amount due” threshold of La. R.S.

47:337.67(D)(4) had been met to interrupt prescription for certain tax periods. In

their Answer to this appeal, Appellees allege the trial court erred in failing to

award them attorney’s fees pursuant to La R.S. 47:337.13.1.

LAW AND ANALYSIS

Taxable Sales of Services

Sheriff Lopinto alleges the trial court committed a legal error in its

determination that the contracts for the repairs and maintenance of the two MRI

systems and the CT scan system were not taxable sales of services by basing its

analysis of the tangible personal property issue on its interpretation of the 2008

version of La. C.C. art. 466, instead of the applicable 2006 version. He argues that

the MRI system equipment and the CT scan system equipment are tangible

personal property subject to use taxes. Sheriff Lopinto further argues that the trial

court compounded its legal error by finding that the term “substantial damage to

19-CA-82 C/W 19-CA-83 3

themselves” includes devaluation of the equipment following removal and by

finding that the equipment could be declared as permanent attachments. He

contends that there is no law or jurisprudence supporting economic devaluation of

the removed equipment as “substantial damage” for the purpose of applying La.

C.C. art. 466 in determining whether the equipment became permanently attached

to a building, or supportive of a finding that when a non-structural part of an

external cinder block wall—designed and constructed as a sealed doorway to serve

as the means of allowing the installation or removal of an MRI magnet—is opened

to remove an MRI magnet, the removal of the cinder blocks to create that opening

constitutes substantial damage to the building for purposes of applying the 2006

version of La. C.C. art. 466.

Appellees maintain that the determination of whether the MRI and CT scan

systems are component parts are questions of fact, not law, and the applicable

standard of review is manifest error. They assert that the trial court’s

determination that the components of the MRI and CT scan systems were attached

to their respective buildings were supported by the evidence, even when

considering the 2006 version of La. C.C. art. 466, because an imaging system and

all of its parts that are incorporated into a building are immovables. They contend

that the mere fact that the parts at issue cannot be removed from their buildings

without substantially damaging themselves or their buildings, results in such things

being considered permanently attached; thus, they are component parts and are

immovable.

It is well-settled that a court of appeal may not set aside a trial court or a

jury’s finding of fact in the absence of manifest error, or unless it is clearly wrong.

Evans v. Lungrin, 97-541 (La. 2/6/98); 708 So.2d 731, 735. However, when a trial

court applies incorrect principles of law and such errors are prejudicial, it commits

legal error and the manifest error standard is no longer applicable. Barnett v.

19-CA-82 C/W 19-CA-83 4

Barnett, 15-766 (La. App. 5 Cir. 5/26/16); 193 So.3d 460, 466, citing Evans,

supra. When one or more trial court legal errors interdict the fact-finding process,

and the record is otherwise complete, the reviewing court must conduct a de novo

review. Id.

Here, in its “Reasons for Judgment,” the trial court based its rationale on the

2008 version of La. C.C. art. 466. During the December 5, 2018 hearing, the trial

judge acknowledged that the reasons for judgment failed to apply the correct

version of La. C.C. art. 466 to the facts of the case; yet, she did not think that it

affected her analysis. There is no dispute from any party that the 2006 version of

La. C.C. art. 466, not the 2008 version, is the applicable law in this matter.

Therefore, because the trial court based its decision upon the wrong version of the

law at issue, we will conduct a de novo review.

In 2006, La. C.C. art. 466 stated,

Things permanently attached to a building or other construction
are its component parts. Things such as plumbing, heating, cooling,
electrical, or other installations are component parts of a building or
other construction as a matter of law. Other things are considered to
be permanently attached to a building or other construction if they
cannot be removed without substantial damage to themselves or to the
building or other construction or if, according to prevailing notions in
society, they are considered to be its component parts.

At trial, William Dixon, an expert in the installation and removal of medical

imaging equipment, testified on behalf of Appellees regarding the installation and

removal of the systems at issue. Mr. Dixon studied images of Appellees’ MRI and

CT scan systems in Jefferson Parish, along with the service contracts pertaining to

the equipment, and visited the sites to get a broad picture of the actions necessary

to remove the machines. He explained that the MRI and CT scan machines are not

just composed of the visible parts. The systems include magnets, patient tables,

chiller systems, cooling systems, electrical systems, computer systems, power filter

systems, exhaust systems, wiring, patient air ventilation systems, cables, pipes, and

19-CA-82 C/W 19-CA-83 5

shielding. He stated that all of these systems are constructed into the building and

tested before the visible equipment is installed.

Mr. Dixon also explained the removal process in great detail. In order to

remove an MRI system, a general contractor must coordinate with plumbers and

electricians to disconnect the electrical, water, exhaust, and cooling systems.

Then, the contractor would tear down inside walls, as well as an outside wall. The

room is reduced to metal wall studs. Once the room is deconstructed, the visible

part of the machine is moved out of the area with dollies and rolled through the

hole in the building to be picked up by a crane or forklift. All walls, ceilings and

floors in the room must be rebuilt.

With regard to the CT scan system, Mr. Dixon admitted that the process

would be somewhat easier than removing the MRI systems. He stated that the CT

scan system is smaller, and the exterior wall would not need to be demolished.

However, the doors and door frames would have to be dismantled. The drywall

would have to be broken down on all four sides of the room to remove the lead

within the wall. When the process is complete, the room is reduced to metal studs,

just like the process for removal of the MRI machines. The machine cannot be

removed without removing the lead walls because of the health hazard.

Mr. Dixon further testified that, once removed, the MRI and CT scan

equipment become nothing more than a stack of parts, retaining little of their prior

value. In order to regain their value, they must be refurbished, reassembled,

recalibrated and reinstalled at great expense. The value of the equipment is

substantially diminished, unless it is installed in a building with all of the necessary

support systems constructed by contractors, plumbers, and electricians.

Furthermore, Mr. Dixon stated that one machine cannot be simply removed and

attached to another building. The rooms are custom built for the equipment.

When a CT scan machine is removed, the lead room does not survive, as the lead is

19-CA-82 C/W 19-CA-83 6

malleable and cannot be reused. A new lead room must be built for that machine.

Charles Silbernagel, an expert in architecture regarding the designing of

medical facilities with imaging equipment, also testified on behalf of Appellees.

He explained that the designs of such facilities must include special foundation

specifications, dedicated power systems, and special HVAC and shielding systems.

He also testified that removal of these systems is a substantial construction project

requiring a construction permit, preparation of plans and specifications by an

architect and an engineer, along with employment of a general contractor. The

demolition process takes approximately two weeks, and the damage to the building

is significant.

After de novo review, we find that the parts of the MRI and CT scan systems

are component parts of the medical facilities in this matter. The evidence

presented at trial by Appellees revealed that the parts of those systems cannot be

removed without substantial damage to themselves or to the building in which they

are installed, and Sheriff Lopinto failed to rebut that evidence.1 Thus, like the trial

court, we find that any costs associated with the repair and maintenance of the MRI

and CT scan systems are not subject to sales and use taxes.

Interruption of Prescription

Sheriff Lopinto alleges the trial court erroneously declined to include

accrued interest and penalties with the principal amount of tax owed in

determining whether the $500 “amount due” threshold of La. R.S. 47:337.67(D)(4)

1
We acknowledge Hitachi Medical Systems America, Inc. v. Bridges, 15-658 (La. App. 1 Cir. 12/9/15);
2015WL8479021 (unpublished opinion), writ denied, 16-42 (La. 2/26/16); 187 So.3d 1004, and find that
this matter is distinguishable. In Hitachi, the Louisiana First Circuit was presented with the same issue
raise in this case: whether the MRIs serviced and repaired were component parts of the medical facility in
which they were installed. The First Circuit upheld the Board of Tax Appeals’ decision that the MRIs in
that matter were not component parts of the medical facilities in which they were installed, and thus, were
movable property/tangible personal property. Id. at 9. However, the underlying factual findings made by
the Board of Tax Appeals were that: the testimony established that the MRIs could be removed without
substantial damage to the building in which they were housed or to the MRIs themselves; there was a
market for used MRIs; the MRIs were not permanently attached to the building housing them; and there
was a skylight through which the magnets of the MRIs could be removed by the use of an overhead crane.
Id. at n.5. The evidence presented in this matter is substantially different from the evidence presented in
Hitachi, thus leading us to a different conclusion.

19-CA-82 C/W 19-CA-83 7

had been met to interrupt prescription for delinquent use taxes when the tax returns

have not been filed. He argues that the trial court’s interpretation of the “amount

due” is directly at odds with both La. R.S. 47:337.69(A) and La. R.S.

47:337.70(A)(1) and (B). He contends that those statutes expressly declare that

interest and penalties are part of the tax due, and are collected and accounted for in

the same manner as if it were part of the underlying tax due.

Appellees argue that the evidence at trial showed that there is no tax return

required by Sheriff Lopinto to report use taxes for services. They contend that

Sheriff Lopinto’s tax return and instructions state that use tax is only to be reported

on the purchase price of goods, merchandise, and equipment used or consumed in a

taxpayer’s business. Appellees further argue that, even if a tax return was required

to report use tax services, prescription was not interrupted because the amounts

levied for each month between 2012 and 2013 were below $500.

The trial court found that, since Appellees did not file sales and use tax

returns for any of the tax periods during the years 2012 and 2013, the prescriptive

period did not run. However, it further found that the statute applies to the

interruption only when the amount due exceeds $500 for the tax levied, and

prescription was interrupted only for those monthly amounts exceeding $500 for

the tax levied without interest and penalties.

La. R.S. 47:337.67 provides, in pertinent part,

A. Sales and use taxes levied by any political subdivision shall
prescribe as of three years from the thirty-first day of December of the
year in which such taxes became due.

***

D. (1) The failure to file any return required to be filed by this
Chapter shall interrupt the running of prescription, and prescription
shall not commence to run again until the subsequent filing of such
return. Once prescription commences to run, the tax, interest, and
penalty, or other charge which is reported on such return shall
prescribe in three years after the thirty-first day of December of the
year of the filing of the return.

19-CA-82 C/W 19-CA-83 8

***

(4) The provisions of the Subsection shall apply only to use tax
returns when the amount due exceeds five hundred dollars for the tax
levied.

After review, we find that a plain reading of La. R.S. 47:337.67 supports the

trial court’s ruling concerning the $500 threshold amount. It is clear that the

provisions of suspension or interruption of prescription only apply to use tax

returns when the amount exceeds $500 for the tax levied, without consideration for

interests and penalties. Therefore, we do not find the trial court erred in entering

judgment in favor of Sheriff Lopinto for all tax amounts paid under protest relating

to monthly assessments exceeding $500 for the tax levied, excluding interest and

penalties.

Attorney’s fees

Appellees allege the trial court erred in failing to award them attorney’s fees

up to 10% of the amount of taxes, penalties and interest that were at issue, pursuant

to La. R.S. 47:337.13.1. They argue that they clearly prevailed with respect to the

most significant issue or set of issues presented, and they substantially prevailed as

to the amount in controversy. Additionally, they argue that Sheriff Lopinto’s

position was not substantially justified because he did not have a reasonable basis

in law and fact. As such, Appellees contend they are entitled to attorney’s fees.

According to La. R.S. 47:337.13.1(B)(1),

Except as otherwise provided for in Paragraph (A)(3) of this
Section, the prevailing party in a dispute, contest, or other controversy
involving the determination of sales and use tax due shall be entitled
to reimbursement of attorney fees and costs, not to exceed ten percent
of the taxes, penalties, and interest at issue, unless the position of the
non-prevailing party is substantially justified. The prevailing party is
defined as the party which has substantially prevailed with respect to
the amount in controversy or substantially prevailed with respect to
the most significant issue or set of issues presented. A position is
substantially justified if it has a reasonable basis in law and fact. The
reimbursement amount for attorney fees and costs shall be subject to
the discretion of the court or Board of Tax Appeals as to

19-CA-82 C/W 19-CA-83 9

reasonableness.

Here, the trial court denied Appellees’ request for attorney’s fees. In its

denial, the trial court inherently found that Sheriff Lopinto’s position was

substantially justified, despite the fact that it ruled against him. We decline to

disturb the trial court’s ruling.

DECREE

For the foregoing reasons, we affirm the judgment of the trial court. The

parties are to each bear their costs for this appeal.

AFFIRMED

19-CA-82 C/W 19-CA-83 10

WEST JEFFERSON MRI, LLC NO. 19-CA-82 C/W 19-CA-83

VERSUS FIFTH CIRCUIT

JOSEPH P. LOPINTO, III, SHERIFF AND COURT OF APPEAL
EX-OFFICIO TAX COLLECTOR OF
THE PARISH OF JEFFERSON STATE OF LOUISIANA

C/W

WEST JEFFERSON CT SCAN, LLC

VERSUS

JOSEPH P. LOPINTO, III, SHERIFF AND
EX-OFFICIO TAX COLLECTOR OF
THE PARISH OF JEFFERSON

MOLAISON, J., DISSENTS, IN PART, WITH REASONS

I respectfully dissent from portion of the majority’s opinion affirming the

trial court’s finding that MRI and CT scanning machines are immovable devices

for the purpose of determining whether service contract charges for the repair of

that equipment is taxable.

In Hitachi Med. Sys. Am., Inc. v. Bridges, 15-0658 (La. App. 1 Cir.

12/9/15), writ denied, 16-0042 (La. 2/26/16), 187 So.3d 1004, the First Circuit

concluded that an MRI machine was not an immovable, based upon specific

criteria. Among the considerations were the facts that “MRIs were not

permanently attached to the building; were not plumbing, heating, cooling,

electrical or other installations; and were not permanently attached so as to cause

substantial damage to either the MRIs or building if removed.”

In the instant matter, the record demonstrates that the equipment at issue

meets the same criteria detailed in Hitachi, supra. Testimony at trial established

19-CA-82 C/W 19-CA-83 11

that nearly all of the various components of the MRI and CT setups could be

disassembled without damage and then re-sold. In instances where parts of the

rooms housing the units needed to be opened to remove equipment, plans to

accomplish this were included when the rooms were constructed. This supports

the conclusion that the units were not permanently affixed to the hospital

buildings. I do not find, as suggested by the majority, that Hitachi is

distinguishable on its facts.

Accordingly, I would reverse the trial court’s ruling that West Jeff MRI,

LLC and West Jeff CT Scan, LLC were entitled to a refund for taxes paid on

services to those systems.

In all other respects, I join in the majority opinion in affirming the trial

court’s judgment.

19-CA-82 C/W 19-CA-83 12

SUSAN M. CHEHARDY CURTIS B. PURSELL

CHIEF JUDGE CLERK OF COURT

MARY E. LEGNON
FREDERICKA H. WICKER
CHIEF DEPUTY CLERK
JUDE G. GRAVOIS
MARC E. JOHNSON
ROBERT A. CHAISSON SUSAN BUCHHOLZ
STEPHEN J. WINDHORST
FIRST DEPUTY CLERK
HANS J. LILJEBERG
JOHN J. MOLAISON, JR. FIFTH CIRCUIT
MELISSA C. LEDET
JUDGES 101 DERBIGNY STREET (70053)
DIRECTOR OF CENTRAL STAFF
POST OFFICE BOX 489
GRETNA, LOUISIANA 70054 (504) 376-1400

(504) 376-1498 FAX
www.fifthcircuit.org

NOTICE OF JUDGMENT AND CERTIFICATE OF DELIVERY
I CERTIFY THAT A COPY OF THE OPINION IN THE BELOW-NUMBERED MATTER HAS BEEN DELIVERED
IN ACCORDANCE WITH UNIFORM RULES - COURT OF APPEAL, RULE 2-16.4 AND 2-16.5 THIS DAY
NOVEMBER 27, 2019 TO THE TRIAL JUDGE, CLERK OF COURT, COUNSEL OF RECORD AND ALL
PARTIES NOT REPRESENTED BY COUNSEL, AS LISTED BELOW:

19-CA-82
C/W 19-CA-83
E-NOTIFIED
24TH JUDICIAL DISTRICT COURT (CLERK)
HONORABLE ELLEN SHIRER KOVACH (DISTRICT JUDGE)
DANIEL A. RANSON (APPELLEE) KENNETH C. FONTE (APPELLANT) JOHN J. DANNA, JR. (APPELLEE)
RYAN C. HIGGINS (APPELLEE)

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