Firestone Polymers v. Calcasieu Parish School System

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

07-0501

FIRESTONE POLYMERS

VERSUS

CALCASIEU PARISH SCHOOL SYSTEM, ET AL.

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APPEAL FROM THE
FOURTEENTH JUDICIAL DISTRICT COURT,
PARISH OF CALCASIEU, NO. 2002-600
HONORABLE RICK BRYANT, DISTRICT JUDGE

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JIMMIE C. PETERS
JUDGE

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Court composed of John D. Saunders, Jimmie C. Peters, and Glenn B. Gremillion,
Judges.

AFFIRMED.

Andre B. Burvant
Oreck, Crighton, Adams & Chase
1100 Poydras Street, Suite 1480
New Orleans, LA 70163
(504) 525-8001
ATTORNEYS FOR PLAINTIFF/APPELLANT:
Firestone Polymers, L.L.C.

Russell J. Stutes
Joel M. Lutz
Stutes, Fonetnot, Lavergne & Lutz
P.O. Drawer 1644
Lake Charles, LA 70601
(337) 433-0022
ATTORNEY FOR DEFENDANTS/APPELLEES:
Calcasieu Parish School System
Rufus R. Fruge, Jr.

PETERS, J.

The issue presented in this appeal is whether Firestone Polymers, L.C.C.

(hereinafter “Firestone”), which operates a synthetic rubber plant in Calcasieu Parish,

Louisiana, may recover a lease tax paid under protest to the Calcasieu Parish School

System (hereinafter “School Board”) on shipping containers leased out-of-state,

delivered to its plant in Calcasieu Parish, and stored and maintained there while

periodically used in interstate commerce. Firestone appeals from the trial court’s

order granting summary judgment in favor of the School Board, ruling that the lease

tax was owed. We affirm.

DISCUSSION OF THE RECORD

The facts giving rise to this litigation are not in dispute. For many years

Firestone has operated a synthetic rubber plant in Calcasieu Parish, Louisiana, and

the synthetic rubber produced at the plant has been shipped outside the state to

numerous tire manufacturers. For shipment the rubber is packed into aluminum

containers measuring approximately three feet by four feet in length and width and

approximately four feet in depth. Firestone utilizes some 38,000 containers for this

transportation.

Firestone leases these containers from various lessors outside Louisiana, and

each lease designates Calcasieu Parish as the location of the containers. At the

beginning of each lease term, the containers are delivered directly to Firestone at its

plant in Calcasieu Parish, where they are imbedded with the Firestone logo, then

placed in a storage area there. When needed for shipment the containers are cleaned,

loaded with rubber, and transported by rail or truck to their destinations outside

Louisiana. After being unloaded at their destinations, the collapsible containers are

returned to the Calcasieu plant site where they are cleaned, repaired if necessary, and

put back into the storage area for subsequent use when needed for further interstate

shipments.

The Calcasieu Parish School Board, by virtue of its Master Sales and Use Tax

Ordinance, assesses a tax on the “lease or rental within the Parish of each item of

tangible personal property.” Calcasieu Parish Sch. Bd. Tax Ordinance § 2.01I-(B).

This ordinance defines “lease or rental” as “the leasing or renting of tangible personal

property and the possession or use thereof by the lessee or renter, for a consideration,

without transfer of the title of such property.” Calcasieu Parish Sch. Bd. Tax

Ordinance § 1.10(A).1

In 2002, Firestone filed a pleading in the district court of Calcasieu Parish

seeking a refund of the taxes paid to the School Board on the shipping container

leases pursuant to the ordinance from July 1998 through December 2000.2 The basis

for Firestone’s dispute of the lease tax on the shipping containers was that they were

used exclusively in interstate commerce and, therefore, not taxable by the School

Board.

Because the lease taxes paid by Firestone for the disputed period were not paid

under protest, the initial claim for a refund was dismissed in June 2002 on an

exception of no right of action. Beginning in April 2002, Firestone began paying the

lease taxes under protest, and it supplemented and amended its petition in January

2003, renewing its claim for refunds only with respect to payments beginning in April

2002. The basis for its renewed claim was again that the containers were used

1
This language tracks La.R.S. 47:301(7)(a). The School Board’s authority to levy a sales tax
upon the sale at retail, the use, the lease or rental, the consumption, and storage for use or
consumption of tangible personal property is found in La.R.S. 33:2737.
2
Firestone also disputed the tax paid on its purchase of propane, but that is no longer an issue
in this litigation.

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exclusively in interstate commerce and, therefore, were not taxable by the School

Board.

Both Firestone and the School Board filed motions for summary judgment.

The issue in each motion was the same question of law: whether Louisiana’s revenue

and taxation laws exclude from local lease taxes these shipping containers used in

interstate commerce. The trial court heard the motions in the early part of 2006 and

rendered a decision later that year, after the Louisiana Supreme Court rendered its

decision in Word of Life Christian Ctr. v. West, 04-1484 (La. 4/17/06), 936 So.2d

1226. Relying on the precepts of Word of Life, the trial court denied Firestone’s

motion and granted the School Board’s motion.

Firestone appeals the trial court’s grant of the summary judgment, contending

that Word of Life applies only to a use tax and not to a tax on the lease of property

ultimately used in interstate commerce. In the alternative, Firestone contends that if

Word of Life does apply to a tax on a lease, it changed the law and cannot apply

retroactively to the taxes paid and involved in this suit.

OPINION

The revenue and taxation statute, La.R.S. 47:305 provides certain exclusions

and exemptions from sales taxation. The language at issue in this appeal is found in

La.R.S. 47:305(E), which reads in pertinent part:

It is not the intention of any taxing authority to levy a tax upon
articles of tangible personal property imported into this state, or
produced or manufactured in this state, for export; nor is it the intention
of any taxing authority to levy a tax on bona fide interstate commerce .
. . . It is, however, the intention of the taxing authorities to levy a tax on
the sale at retail, the use, the consumption, the distribution, and the
storage to be used or consumed in this state, of tangible personal
property after it has come to rest in this state and has become a part of
the mass of property in this state.

3

As can readily be seen, one of the exclusions from local taxation is “a tax on bona

fide interstate commerce.” Id. However, the statute qualifies that exclusion to take

out of its reach “a tax on the sale at retail, the use, the consumption, the distribution,

and the storage to be used or consumed in this state, of tangible personal property

after it has come to rest in this state and has become a part of the mass of property in

this state.” Id.

In the decision on which the trial court relied to validate the lease tax imposed

by the School Board, the supreme court stated that

The statutory intent of the Louisiana use tax law is expressed in
La. R.S. 47:305(E), which provides that it is not its intention “to tax
bona fide interstate commerce” but to “tax tangible personal property
after it has come to rest in this state and has become a part of the mass
of property in this state.” The purpose of the statute is not to burden
goods and products legitimately involved in the flow of interstate
commerce which never come to rest in Louisiana.

Word of Life Christian Ctr., 936 So.2d at 1242 (emphasis in the original, footnote
omitted).

The issue in Word of Life was “the applicability of state and local use tax to the

out-of-state purchase of tangible property which is subsequently imported into

Louisiana then ‘ultimately used’ in interstate commerce, in light of La. R.S. 47:305(E),

which prohibits a tax on bona fide interstate commerce.” Id. at 1231. In Word of Life,

the tax involved was a local use tax, and the tangible personal property was airplanes.

Following the out-of-state purchases of two airplanes, both were imported and

hangared in East Baton Rouge Parish until they were subsequently used in interstate

commerce. The court of appeal held that there was no “taxable moment” when the

subject airplanes were “ultimately used” in interstate commerce. Word of Life

Christian Ctr. v. West, 03-1399, p. 3 (La.App. 1 Cir. 5/14/04), 879 So.2d 213, 214.

In reaching that decision, it relied on the holdings of The Shaw Group, Inc. v.

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Kennedy, 99-1871 (La.App. 1 Cir. 9/22/00), 767 So.2d 937, and Tigator Inc. v. West

Baton Rouge Police Jury, 94-1771, 94-1772 (La.App. 1 Cir. 5/5/95), 657 So.2d 221,

writs denied, 95-2126 (La. 11/17/95), 663 So.2d 712. Both Shaw and Tigator had

held that whether property has come to rest in Louisiana and has become a part of the

mass of the property in this state is determined by its ultimate use.

In Word of Life, 936 So.2d 1226, the supreme court re-examined the “taxable

moment” and “ultimate use” doctrines and rejected the position taken in Tigator and

Shaw. The supreme court also rejected the theory that if the ultimate use of the

property was for interstate commerce, the property is not subject to the use tax even

if imported to and stored for use in Louisiana. The supreme court noted that it was

well settled in jurisprudence that once these planes were imported and hangared in

East Baton Rouge, the planes came to rest in Louisiana. At that point, according to

the supreme court, a “taxable moment” occurred in this state. Id. at 1239. “At that

moment, however slight, when the airplanes had been withdrawn from interstate

commerce and came to rest in Louisiana, Louisiana’s tax on storage and use was

effective.” Id. (footnote omitted).

The supreme court then concluded that the “taxable moment” analysis required

an inquiry focusing on three discrete stages of the interstate commerce journey of

goods into a taxing jurisdiction, defining the three stages as follows:

The first stage is the interstate transportation of out-of-state purchased
goods into the taxing jurisdiction. The second stage is the end of that
interstate transportation, which includes the withdrawal of those goods
from interstate commerce, and implies that the goods have come to rest
in the taxing jurisdiction and become part of the mass of the property of
the state. The principal focus here is the period of time, however slight,
that the taxpayer used, stored, or consumed the goods in the taxing
jurisdiction. The third stage is the subsequent use, if any, of the goods
in interstate commerce.

5

Id. at 1235.

The supreme court, in Word of Life, also rejected any interpretation of the word

“use” as meaning “ultimate use.” It noted that while La.R.S. 47:301(18) defines

“use”3 as “the exercise of any right or power over tangible personal property incident

to ownership thereof,” it says nothing about “ultimate use.” Thus, the supreme court

concluded, equating “use” to “ultimate use” conflicted with a plain reading of the

statute and led to absurd consequences. The court then adopted the rule from federal

jurisprudence that a taxable moment occurs when out-of-state purchased goods reach

the end of their interstate transportation into the taxing jurisdiction, but have not yet

begun their subsequent journey in interstate commerce.4 Id. This is the second stage

of the interstate commerce journey.

In the present case, the tax is a lease tax. At the hearing on the motions for

summary judgment, Firestone, relying on the first circuit’s Shaw and Tigator use tax

decisions, argued that “ultimate use” should be applicable to a lease tax. The tax

involved in Word of Life was a use tax. After Word of Life rejected the first circuit’s

“ultimate use” interpretation, Firestone now takes the position in its appeal that the

precepts of Word of Life do not apply to a lease tax. Its argument for that proposition

fails to convince us. The reason given by the supreme court for granting a writ of

certiorari in Word of Life is enough by itself to explain that the precepts apply to a

lease tax. The opinion stated that the reason included the determination of “the

3
Louisiana Revised Statutes 47:301(18) provides, in pertinent part, as follows: “For purposes
of the imposition of the sales and use tax levied by a political subdivision or school board, ‘use’ shall
mean and include the exercise of any right or power over tangible personal property incident to the
ownership thereof. . ..”
4
The decision on which the court primarily relied was Southern Pacific Co. v. Gallagher, 306
U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 (1939).

6

applicability of state and local use tax to the out-of-state purchase of tangible property

which is subsequently imported into Louisiana then ‘ultimately used’ in interstate

commerce, in light of La.R.S. 47:305(E), which prohibits a tax on bona fide interstate

commerce.” Id. at 1231. We fail to see why the purpose for granting the writ and the

scope of the ruling do not apply equally to a lease tax.

Certainly, although “use” as defined in use tax statutory provisions and “use”

as contemplated under Louisiana lease law are indistinguishable in many aspects both

practical and theoretical, it is clear that a use tax and a lease tax are separate

provisions.5 Sales and use taxes are complementary taxes. Id. The sales tax applies

when the taxable transaction is consummated within the taxing jurisdiction while the

use tax applies when the transaction is consummated outside the taxing jurisdiction,

and the goods are subsequently imported and used in the taxing jurisdiction. Id. Sales

and lease taxes are not complementary taxes and local taxing authorities may tax both

transactions separately. Lafayette Parish Sch. Bd. v. Mkt. Leasing Co., Inc., 440 So.2d

81 (La.1983). Both sales and lease taxes are taxes on discrete transactions and two

separate transactional events are being taxed, one on the sale price of the thing and the

other on the proceeds of a lease of the thing. Id.

Although a use tax and a lease tax are separate provisions, this creates no

rational basis for applying La.R.S. 47:305(E) to use taxes but not to lease taxes. The

essential issue in the present case is whether the interstate commerce exclusion applies

to the transaction. The taxable moment analysis does not depend on whether the

5
Louisiana Revised Statutes 47:301(18)(a)(iii) now provides that “[b]eginning July 1, 2002,
for purposes of the imposition of the tax levied by any political subdivision of the state, the term
‘use’ shall not include the purchase, the importation, the consumption, the distribution, or the storage
of any tangible personal property which is to be leased or rented in an arm’s length transaction in the
form of tangible personal property.”

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goods are owned by the user or merely leased by him; the test is whether the goods at

the end of the first stage of their interstate journey came to rest in the taxing

jurisdiction and became part of the mass of property in the taxing jurisdiction. It is

true that the owner of property has the unrestricted usus or right to use his property as

an incident of ownership, while the lessee is bound by the law applicable to the

contract of lease to use the thing (goods) only for the purpose for which it was leased.6

Still, whether the goods are leased or owned, the test is the same: whether there was

a taxable moment; whether the goods came to rest in Calcasieu Parish (the taxing

jurisdiction of the School Board) and became a part of the mass of property in that

parish.

It is clear that the test is met in this case. In this state a lease is “a synallagmatic

contract by which one party, the lessor, binds himself to give to the other party, the

lessee, the use and enjoyment of a thing for a term in exchange for a rent that the

lessee binds himself to pay.” La.Civ.Code art. 2668.7 Leases are characterized

according to the agreed use of the leased thing; when the thing is to be used for

business or commercial purposes, it is a commercial lease. La.Civ.Code art. 2671.

Essential elements of a lease are that it must be for a term and the rent must be

sufficient to support an onerous contract. La.Civ.Code arts. 2678 and 2675. The

lessor is bound to deliver the thing leased at the agreed time and in good condition.

La.Civ.Code art. 2684.

6
One of the contractual obligations imposed by law on the lessee is to use the thing only for
the purpose for which it was leased. La.Civ.Code art. 2686.
7
In tax law the basic definition of lease as found in the first sentence of La.R.S. 47:301(7)(a)
is “the leasing or renting of tangible personal property and the possession or use thereof by the lessee
or renter, for a consideration, without transfer of the title of such property.” This definition is
consistent with the La.Civ.Code art. 2668 definition of lease.

8

In Lafayette Parish Sch. Bd., 440 So.2d at 86, the supreme court, focusing its

analysis on the domicile of the lessee in determining whether a lease tax could be

assessed, stated that it is necessary to identify one situs for the act of leasing:

The “act of leasing” takes place where the vehicle is kept; that is, where
the lessee can be located if lease payments are missed or if the leased
property is damaged. The parish declared by the lessee as his domicile,
residence, or business address, the place where he can be found, is
entitled to receive tax on the proceeds from the lease.

In that case, the supreme court concluded that the taxable incident was not the isolated

act of signing the lease agreement, but rather the act of the lessor sending his property

into the domiciliary parish of the lessee and collecting monthly rentals for the use of

his property there; the act of leasing included the possession by the lessee, and

continued contact between lessor and lessee to ensure that the property is “properly

maintained and protected against waste; that it is kept in an acceptable state of repair;

that it is covered by insurance sufficient to protect the interest of the owner; . . . that

the rents . . . are paid by the lessee as they periodically accrue under the terms of the

lease.” Id.

Firestone argues that a lease is a continuing transaction with the tax due on each

lease payment, such that “one cannot take a snapshot of a moment in time during a

lease transaction and have that moment determinative of the tax consequences for the

entire lease.” In effect, Firestone is saying that the lease follows the property leased

such that the property never came to rest in Calcasieu Parish. This argument, aside

from misinterpreting the nature of a lease, is essentially a repetition of the idea that

there is no “taxable moment” when the subject property is “ultimately used” in

interstate commerce, a theory which was rejected by Word of Life.

9

Actually, a contract of lease is not a series of transactions but a single

transaction; it is the performance that is continuous. A contract of lease is one

providing for continuous performance, in that it can be performed only through an

uninterrupted series of acts of performance. See La.Civ.Code art. 2019 and its

Revision Comments (b) – 1984. With regard to the second stage of the taxable

moment analysis, we can perceive no differences between the taxing of “use” and the

taxing of “use-by-lease” sufficient to undercut the application of the precepts of Word

of Life to a lease tax.

We next turn to a consideration of Firestone’s argument based on a regulation

in the Louisiana Administrative Code dealing with the treatment of tax levies by local

taxing authorities for inter-jurisdictional lease or rental transactions. Louisiana

Administrative Code 61:I.4303(B)(3) provides that the tax on the initial lease or rental

period is due where the transfer of possession (delivery) of the leased property occurs,

and that for subsequent lease periods, when there is no additional transfer of

possession, the tax is due to the local taxing jurisdiction where the property is

primarily located. That provision then provides for credit to the taxpayer where the

primary location of the property moves to another local taxing jurisdiction and that

jurisdiction seeks to collect the tax for the lease period that the property is there.

It is clear in the present case that the containers were delivered to Calcasieu

Parish, and that at all times involved in the present lawsuit Calcasieu Parish was their

primary location. Nevertheless, Firestone argues that LAC 61:I.4303(B)2(a)(I), not

B(3), recognizes the interstate commerce exclusion on lease taxes by its provision that

“lease tax is not due on the lease of tangible personal property for those periods of

time that it is used in bona fide interstate commerce, whether the use in bona fide

10

interstate commerce is in Louisiana or outside of Louisiana.” Firestone offers this

language from Section 4303(B)(2) as another argument that the taxable moment test

adopted in Word of Life cannot be applied to lease taxes. We disagree with Firestone’s

interpretation of LAC 61:I.4303(B)(2), and conclude that the lease taxes were properly

paid to the School Board under LAC 61:I.4303(B)(3).

The reason we cannot accept Firestone’s interpretation in this context is found

in what the supreme court had to say about the statutory intent of La.R.S. 47:305(E)

in Word of Life Christian Ctr., 936 So.2d 1226. According to the supreme court, it is

not the intent of the statute “to tax bona fide interstate commerce” but to “tax tangible

personal property after it has come to rest in this state and has become a part of the

mass of property in this state.” Id. at 1242. That is to say, if the goods and products

were legitimately involved in the flow of interstate commerce and never came to rest

in Louisiana, the statute precludes local taxation. However, the supreme court went

on to explain that the term “bona fide” described and limited the scope of “interstate

commerce” which the state was prohibited from taxing. Id. In interpreting the

legislative intent, the supreme court concluded that the fact that owners use goods for

travel across state lines does not necessarily classify the goods as part of bona fide

interstate commerce as used in La.R.S. 47:305(E). Id. The court concluded that

notwithstanding the prospective use of the Word of Life airplanes as instruments of

interstate commerce, once the planes were imported and hangared in East Baton

Rouge Parish, they came to rest there and became a part of the mass of property there,

and a taxable moment occurred there. Id. at 1239.

The same reasoning is applicable to the lease taxes in the present case. The

situs of the leases at issue is Calcasieu Parish and delivery under the leases occurred

11

the moment the containers came to rest in Calcasieu Parish. At this point, the

containers came into Firestone’s possession, and a taxable moment occurred at that

time.

Finally, we consider Firestone’s last contention, which is that if Word of Life

applies to a lease tax, then it changed the law and cannot be applied retroactively to

the taxes Firestone paid under protest. We find no merit to this assignment of error.

First, Word of Life did not change the law with respect to lease taxes. The supreme

court, in Lafayette Parish Sch. Bd., 440 So.2d 81, recognized in 1983 that the parish

where the property is kept is the situs of the act of leasing. Furthermore, as pointed

out in Word of Life, Louisiana’s interstate commerce exclusion under consideration,

La.R.S. 47:305(E), has been in effect since 1948. The statute’s pronouncement that

it is not the state’s intention to levy a tax on bona fide interstate commerce has been

a part of the statute since its inception, consistent with federal jurisprudence at the

time of its enactment. Word of Life Christian Center, 936 So.2d 1226. Also, one of

the announced purposes of the court in granting writs in Word of Life was to resolve

conflicting decisions among the circuit courts of appeal. Id.

DISPOSITION

For the foregoing reasons, we affirm the judgment of the trial court in all

respects. We assess all costs of this appeal to Firestone Polymers, L.L.C.

AFFIRMED.

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