Chl Enterprises, LLC D/B/A Loewer Lawn & Cycle v. State of La., Dept. of Revenue

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

09-487

CHL ENTERPRISES, LLC, D/B/A LOEWER LAWN & CYCLE

VERSUS

STATE OF LOUISIANA, DEPARTMENT OF REVENUE

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APPEAL FROM THE NINTH JUDICIAL DISTRICT COURT,
PARISH OF RAPIDES, NO. 231,257,
HONORABLE DONALD T. JOHNSON,
DISTRICT COURT JUDGE

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SHANNON J. GREMILLION
JUDGE

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Court composed of Oswald A. Decuir, Michael G. Sullivan and Shannon J.
Gremillion, Judges.

AFFIRMED.

Antonio Charles Ferachi
P.O. Box 4064
Baton Rouge, LA 70821-4064
Attorney for Defendant/Appellant:
State of Louisiana, Department of Revenue

John W. Munsterman
P.O. Box 1848
Alexandria, LA 71309-1848
Attorney for Plaintiff/Appellee:
CHL Enterprises, LLC, d/b/a Loewer Lawn
& Cycle

GREMILLION, Judge.

This appeal emanates from the district court’s judicial review of the decision

of the Louisiana Board of Tax Appeals (BTA) regarding the findings of an audit of

Loewer Lawn & Cycle’s records. That audit found that Loewer failed to collect taxes

on items that purchasers improperly claimed were exempt from sales tax. Loewer

was assessed sales taxes on those items in the amount of $16,237.20 plus interest

totaling $10,115.69. Loewer sought judicial review of the BTA assessment. The

district court reversed the BTA assessment. This appeal ensued. For the reasons that

follow, we affirm the district court.

FACTS

CHL Enterprises, LLC, sells motorcycles, all-terrain vehicles, power equipment

and farm implements under the name “Loewer Power Sports and Equipment,” in

Alexandria, Louisiana. Among the brands Loewer sells are Kubota tractors. It also

offers Toro and Stihl mowers and other lawn care equipment. Loewer and its

competitors are aware of the exemption from state sales taxes codified in La.R.S.

47:305.25 for certain types of equipment.1 Loewer’s customers who feel their

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Louisiana Revise Statute 47:305.25 reads in pertinent part:
A. The tax imposed by R.S. 47:302(A), R.S. 47:321(A), and R.S. 47:331(A) with
respect to the sale and use of farm equipment shall apply only to that portion of the
sale price in excess of fifty thousand dollars for each item of farm equipment. For the
purpose of this Section, “farm equipment” includes the following:
(1) Rubber tired farm tractors, cane harvesters, cane loaders, cotton pickers,
combines, haybalers, and attachments and sprayers.
(2) Clippers, cultivators, discs, plows, and spreaders.
(3) Irrigation wells, drives, motors, and equipment.
(4) Other farm implements and equipment used for agricultural
purposes in the production of food and fiber.
(5) On the farm facilities used to dry or store grain or any materials
used to construct such on the farm facilities.
B. This exemption applies only to sales and use taxes imposed by the state of
Louisiana and does not apply to such taxes authorized and levied by any school
board, municipality, or other local taxing authority, except that in the parish of West

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purchases qualify for one of these exemptions are provided forms prepared by the

Louisiana Department of Revenue (LDR) with which to apply for the exemptions.

Loewer generally relied upon the forms prepared by LDR in determining whether a

transaction qualified for the exemption. Loewer also relies upon the representation

of its customer that the implement is being used for the purposes which qualify it for

the exemption.

In 2004, LDR conducted an audit of Loewer’s records for the period of January

1, 1999, through May 31, 2002. The auditor, Mr. Ronnie Mesick, determined that

Loewer had failed to collect sales taxes on items that Loewer’s purchasers had

claimed were exempt. Following his field audit, Mesick and his supervisor, Mr. Mark

Bynog, met with Mr. David Broussard, Loewer’s Chief Operating Officer, to discuss

Mesick’s findings. In particular, Loewer and the auditors disagreed regarding the

exempt status of various implements that Loewer maintained were “attachments” to

rubber tired farm tractors. They also disagreed over the characterization of some of

the transactions as involving “rubber tired farm tractors.” The third area of

disagreement concerned the sale of equipment that clearly did not qualify as rubber

tired farm tractors, but that did—according to Loewer’s customers—qualify as “other

equipment used in agricultural production of food and fiber.”

Loewer continued to maintain that the exemptions were proper, and took the

Carroll, the parish school board may exempt the equipment as provided in this
Section from additional sales and use taxes after approval by a majority of the
qualified electors of the parish and the police jury may exempt the equipment as
provided in this Section from all sales and use taxes which it is presently levying and
collecting and shall exempt such equipment from any additional sales and use tax or
taxes which it may hereafter levy and collect.

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matter up with an audit reviewer, Ms. Peggy Parker. Ms. Parker did amend the

original “Notice of Assessment” to recognize as exempt transactions amounting to

$2,072.78. Thus, LDR maintained, Loewer owed taxes of $16,237.20, plus interest.

Loewer appealed to the BTA. Its appeal was heard on November 13, 2007. At

the hearing, Loewer attempted to introduce into the record the original documentation

of the sales at issue. The chair of the BTA asked whether a three-page summary

prepared by Loewer’s CPA, Mr. Mark McKay, would suffice in lieu of the box of

original documents. No objection was voiced. This summary offers only vague

descriptions of the items sold, and is the only documentary evidence of the nature of

these transactions.

McKay’s summary broke the items down into twelve categories: (1)

attachments for which exemption certificates were filed that were purchased with

tractors; (2) attachments not purchased with tractors, but for which exemption

certificates were filed; (3) tractors for which exemption certificates were filed; (4)

equipment for which exemption certificates were filed; (5) attachments for which no

exemption certificates were filed; (6) equipment for which no exemption certificates

were filed; (7) sales on which taxes were paid; (8) a sale to a state governmental

entity; (9) a sale to an out-of-state customer; (10) sales not reviewed by the auditor;

(11) sales not exempt that Loewer admittedly owned and subsequently paid taxes on;

and (12) an “unknown” transaction. In its ruling, the BTA also referred to these

categories, but we find that for purposes of our decision, it is only necessary to group

the transactions into two categories: rubber tired farm tractors and attachments, and

other equipment.

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ASSIGNMENTS OF ERROR

LDR assigns five errors it contends were committed by the trial court:

(1) Reversing the BTA findings regarding the transactions being characterized
as lawn and garden tractors, in light of the strict construction given tax exemptions;
(2) Finding the Category 4 and 6 equipment exempt given the legislature’s
suspension of the exemption for such equipment used in the production of food and
fiber;
(3) Not applying a heightened standard for estoppel against a government
agency;
(4) Finding that Loewer relied upon the exemption certificates issued by LDR
to its detriment; and,
(5) Finding that the exemption certificate entitled Loewer to the exemptions.

ANALYSIS

The most basic precept of Louisiana law is that the sources of law are

legislation and custom. La.Civ.Code art. 1. In interpreting law, courts in Louisiana

are to apply clear and unambiguous laws as written, without resort to the legislature’s

intent, unless that application leads to absurd consequences. La.Civ.Code art. 9.

Because the issue before us is the interpretation of La.R.S. 47:305.25, our analysis

must begin with the determination of whether this statute is clear and unambiguous.

Section 305.25(A) establishes the broad proposition that the first $50,000.00

per item of the sale and use of “farm equipment” is exempt from the taxes imposed

by La.R.S. 47:302(A), La.R.S. 47:321(A) and La.R.S. 47:331(A). The legislature

defines “farm equipment” as: (1) rubber tired farm tractors, cane harvesters, cane

loaders, cotton pickers, combines, haybalers, and attachments and sprayers; (2)

clippers, cultivators, discs, plows, and spreaders; (3) irrigation wells, drives, motors,

and equipment; (4) other farm implements and equipment used for agricultural

purposes in the production of food and fiber; and (5) on the farm facilities used to dry

or store grain or any materials used to construct such on the farm facilities.

LDR argues that the exemption does not apply if the equipment is not being

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sold to a farmer or if the equipment is not being used in the production of food or

fiber. This interpretation of the statute does not comport with its unambiguous

language. Certain equipment is specifically exempted: rubber tired farm tractors,

cane harvesters, cane loaders, cotton pickers, combines, haybalers, clippers,

cultivators, discs, plows, spreaders, irrigation wells and accouterments that operate

and drive them, attachments, sprayers and farm facilities used to dry or store grain

and the materials used to construct same. The statute also contains an omnibus

exemption for “other farm implements and equipment used for agricultural purposes

in the production of food and fiber.” LDR also argues that items not specifically

listed, such as augers or loaders, are not exempted from the tax despite the fact that

they may constitute either attachments to rubber tired farm tractors and the like, or

that they may qualify as other farm implements and equipment used for agricultural

purposes.

Another time-honored precept of statutory interpretation is that the legislature

never adopts superfluous language. It is presumed that the legislature’s choice of

language was intended to produce a result. ABL Mgt., Inc. v. Board of Sup'rs of

Southern Univ., 00-0798 (La.11/28/00), 773 So.2d 131; Wimberly v. Blue, 08-1535

(La.App. 3 Cir. 5/9/09), 11 So.3d 560.

Under LDR’s interpretation of the statute, it would have been unnecessary for

the legislature to have specifically defined farm equipment in the manner it did. All

that would have been necessary was for the legislature to have exempted equipment

used for agricultural purposes in the production of food and fiber. In other words,

LDR’s interpretation of the statute effectively writes out of the statute the other four

categories of equipment defined as “farm equipment.” The statute is very

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straightforward: if an item falls within one of the five categories, it is exempt. There

appears to be no ambiguity in the statute. No absurd consequences flow from

applying the law as written.

LDR does not seem to consistently apply this standard. In the present matter,

it allowed exemptions to customers who were quite clearly identified as commercial

nurseries, who arguably are not involved in the production of food and fiber. LDR’s

reliance on the “food and fiber” test is particularly perplexing in light of its

insistence—correctly, as it turns out—that exemptions (3), (4) and (5) were

suspended by the legislature for the period Loewer was audited. See La.R.S.

47:302(N) and (O). The “food and fiber” language only involves the omnibus

exemption of La.R.S. 47:305.25(A)(4).

LDR counters that tax statutes are different. When determining whether a tax

is imposed, courts are to strictly construe the enabling statute in favor of the taxpayer;

conversely, exemptions are strictly construed against the taxpayer. Sherwood Forest

Country Club v. Litchfield, 08-194 (La. 12/19/08), 998 So.2d 56; McNamara v.

Central Marine Serv., Inc., 507 So.2d 207 (La. 1987). The burden is on the taxpayer

to establish unequivocally and affirmatively that he is entitled to the exemption.

Archer Daniels Midland Co. v. Parish Sch. Bd. of the Parish of St. Charles, 01-511

(La. 11/28/01), 802 So.2d 1270. Because of these standards of proof, a discussion of

the district court’s role in reviewing administrative decisions of bodies such as BTA,

and this court’s role in reviewing the decisions of the district court, is necessary.

The Louisiana Administrative Procedures Act defines the scope of the district

court’s judicial review of administrative decisions in La.R.S. 49:964. Section (F)

provides that the district court’s review is confined to the record. Section (G)

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provides:

The court may affirm the decision of the agency or remand the
case for further proceedings. The court may reverse or modify the
decision if substantial rights of the appellant have been prejudiced
because the administrative findings, inferences, conclusions, or
decisions are:
(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion; or

(6) Not supported and sustainable by a preponderance of evidence as
determined by the reviewing court. In the application of this rule, the
court shall make its own determination and conclusions of fact by a
preponderance of evidence based upon its own evaluation of the record
reviewed in its entirety upon judicial review. In the application of the
rule, where the agency has the opportunity to judge the credibility of
witnesses by first-hand observation of demeanor on the witness stand
and the reviewing court does not, due regard shall be given to the
agency's determination of credibility issues.

Thus, the role of the district court is to review the record prepared at the

administrative proceeding, and determine whether the substantial rights of the

appellant have been prejudiced in any one of the six ways prescribed. We have

previously stated that BTA acts as a trial court, and its findings of fact are to be

accepted when supported by substantial evidence. Daigle Bros. Sand & Gravel, Inc.

v. Sec. of Dep’t of Revenue and Taxation, 594 So.2d 935 (La.App. 3 Cir. 1992). Such

findings are subject to review under the manifest error standard. Id. Because BTA

acts as a trial court, due deference is to be given to its determinations of credibility

of witnesses. La.R.S. 49:964(G)(6).

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The standard of review before this court is that applicable to most appeals,

manifest error. Lirette v. City of Baton Rouge, 05-1929 (La.App. 1 Cir. 10/6/06), 945

So.2d 40, writ denied, 06-2659 (La. 1/8/07), 948 So.2d 129. That is, the district

court’s findings of fact must have no reasonable support in the record, and the finding

must be clearly wrong to be reversed. Stobart v. State, through DOTD, 617 So.2d

880 (La.1993).

The district court reviewed the record of the BTA proceedings and found that

the witnesses testified that the attachments were attachments for rubber tired farm

tractors. BTA held that they constituted lawn and garden tractors and attachments.

Our review of the record reveals unequivocal testimony that the items were rubber

tired farm tractors and attachments thereto. Nothing supports the notion that these

transactions involved lawn and garden tractors, other than Parker’s testimony as to

what her auditor thought the transactions involved. We, therefore, find that the

district court’s findings that these constituted rubber tired farm tractors and

attachments thereto is supported by the record. Those findings are affirmed.

The items that constitute equipment other than rubber tired farm tractors and

attachments are problematic. LDR correctly points out that La.R.S. 47:302(N) and

(O) suspended by exclusion the exemptions contained in La.R.S. 47:305.25(A)(3),

(4) and (5). The district court found that, while the exemptions had been suspended,

Loewer relied to its detriment on the forms for applying for the exemptions prepared

by LDR. LDR argues that the district court erred in applying detrimental reliance,

because a different standard applies to governmental agencies against which such a

theory is being urged.2 When faced with an unambiguous statute, LDR urged at oral

2
This would be more aptly termed judicial estoppel.

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argument, estoppel is “shut down,” regardless of what advice a taxpayer is given by

the agency.

In support of this argument, LDR directs our attention to the case of Showboat

Star Partnership v. Slaughter, 00-1227 (La. 4/3/01), 789 So.2d 554. In Showboat

Star, the supreme court established a four-pronged test to determine whether a party

may avail itself of estoppel against a public agency: (1) unequivocal advice from an

unusually authoritative source; (2) reasonable reliance on that advice; (3) extreme

harm resulting from the reliance; and (4) gross injustice occurring in the absence of

estoppel. An examination of the Showboat Star facts is useful in understanding how

courts view these factors.

During the Louisiana gaming industry’s infancy, representatives of LDR (then

known as the Louisiana Department of Revenue and Taxation) and the Internal

Revenue Service met with representatives of the gaming industry to educate and

assist the industry in dealing with taxation issues. One issue discussed was the sales

tax exemptions for materials incorporated into gaming boats. LDR determined that

operators were entitled to an exemption for the gaming equipment incorporated into

the boats. This was communicated to the operators during one of these meetings.

Plaintiffs in the Showboat Star case relied upon these representations and upon the

exemption certificates published by LDR in claiming exemption for gaming

equipment. Two years later, LDR audited plaintiffs’ operators and determined that

they owed a sizeable amount of unpaid sales taxes, on the premise that gaming

equipment and other items not secured to the decks of the vessels were not exempt

from the sales tax. This represented a clear reversal of LDR’s previous position as

communicated during the industry meetings and in the exemption certificates.

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The plaintiffs paid the taxes under protest. They then sued to recover the

protested payment. The trial court sided with LDR on the issue of whether the

equipment was exempted, but determined that it was estopped from collecting the

taxes based upon the representatives’ assertions during the industry meetings. LDR

appealed the decision, which was affirmed. Showboat Star Partnership v. Slaughter,

98-2882 (La.App. 1 Cir. 2/18/00), 752 So.2d 390. The supreme court granted writs,

Showboat Star, 00-1227 (La. 6/16/00), 763 So.2d 612.

The supreme court’s analysis began by noting that the exemption did not apply

to equipment that was not a component part of the gaming vessel. Therefore, the tax

was due by the wording of the statute. It then examined the estoppel claim. The four-

step analysis noted above actually came from the first circuit’s opinion. The supreme

court simply noted that plaintiffs sustained no extreme harm from the application of

the taxes, nor did extreme injustice result. Citing Arizona jurisprudence, the court

held that there was no detriment to plaintiffs in being forced to pay taxes they owed.

This brings us to the application of Showboat Star to this case. With regard to

the first element, we note that the exemption certificate (Form R-1060) on which

Loewer relied was promulgated by LDR. That certificate stated:

Covered by the exemption is the first $50,000.00 of the sales price
of each unit of rubber tired farm tractors, cane harvesters, cane loaders,
cotton pickers, combines, haybalers, similar commercial farm
implements, and attachments to such implements, including sprayers,
clippers, discs, plows, and spreaders; and irrigation wells, drivers,
motors and equipment. The parts used in the repair or modification of
any of the above are not eligible for exemption.

This certificate was employed by LDR through three iterations that are contained in

the record, the last of which was revised in 2002, and still mentioned nothing about

the legislature’s suspension of exemptions (3), (4) and (5). Indeed, it appears that

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LDR did not inform taxpayers of the suspension of those exemptions until 2006.

We find that a document prepared by the governing agency and promulgated

for the purpose of use by the general public constitutes an “unusually authoritative

source” on which people can rely, as opposed to advice rendered by an agent or

employee of the agency. Loewer was relying upon unequivocal advice from an

unusually authoritative source in accepting the exemption certificates from customers.

Loewer’s witnesses testified that they did rely upon the exemption certificates.

If the advice was from the agency itself, which we have already noted is unusually

authoritative, the reliance cannot be said to be unreasonable. LDR drafted and

promulgated as an official document the exemption forms on which Loewer relied.

Its position now is that Loewer was unreasonable in relying upon that document.

That position is absurd as illustrated by the 2006 revision LDR undertook, which

clarifies the exemptions that had been suspended.

Having found that Loewer met the first two conditions for establishing

estoppel, we next look to whether extreme harm resulted from Loewer’s reliance, and

whether gross injustice must result in an absence of estoppel. Loewer is merely the

collector of sales taxes, in contrast to the plaintiffs in the Showboat Star case who

were themselves the taxpayers. La.R.S. 47:304 places the onus on the dealer to

collect the taxes, the failure of which not only can result in the dealer being liable for

those taxes but also subject to fine and/or imprisonment. Loewer’s failure to collect

the taxes in reasonable reliance on LDR’s flawed exemption certificate resulted in its

liability to LDR for those taxes and interest. There is no harm in requiring a business

to pay its own taxes. That business is clearly harmed, however, when it is required

to pay someone else’s taxes. We find that Loewer has established the third element

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of estoppel under Showboat Star.

Had the exemption certificate properly informed the dealer and purchaser that

the “other equipment” was not exempt, Loewer would have collected those taxes at

the point of sale. As it is, Loewer is without recourse against the true taxpayer, as

Section 304 only allows the merchant to recover from the purchaser when the sales

tax is added at the point of sale. See Baton Rouge Press, Inc. v. Andries, 03-808

(La.App. 3 Cir. 2/4/04), 865 So.2d 950, writ denied, 04-592 (La. 6/4/04), 876 So.2d

91. Both extreme harm and gross injustice result from an agency officially

misconstruing the exemption.3 Had Loewer been advised properly, the taxes would

have been collected from those whom Loewer was charged with collecting. Nor

would Loewer be faced with interest on those taxes in excess of 62 percent.

We are unpersuaded by LDR’s argument that an unambiguous statute precludes

the application of estoppel. Were that the case, the supreme court’s application of

estoppel analysis would be superfluous.

CONCLUSION

LDR interpreted the exemption contained in La.R.S. 47:305.25 in an overly-

restrictive manner. The plain wording of the statute exempts rubber tired farm

tractors and attachments from state sales taxes. Loewer did not collect sales taxes on

rubber tired farm tractors and attachments because those sales were exempt. LDR

promulgated an exemption certificate that represented unequivocal advice from the

agency itself that equipment used in the production of food and fiber was exempt.

3
We do not use this phrase flippantly. That LDR misinterpreted what is and is not
exempt is illustrated not only by its exemption certificate but also by its insistence that rubber
tired farm tractors are only exempt when sold to “farmers” who are using them in the production
of food and fiber, which is, as noted above, an interpretation of the statute wholly unsupported by
the wording of La.R.S. 47:305.25.

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Loewer relied to its detriment on that advice. LDR is now estopped from collecting

the sales taxes on such equipment.

AFFIRMED.

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