Opinion ID: 1592031
Heading Depth: 1
Heading Rank: 6

Heading: Historical Perspective/Sales and Use Taxes

Text: States began enacting sales tax statutes as emergency measures in the early 1930s in response to the plummeting revenues and massive unemployment that coincided with the Great Depression. [3] Since then, states have come to rely heavily on sales and use taxes to meet their fiscal responsibilities. Louisiana collects approximately one third of its total tax revenues in general sales taxes. [4] Sales and use taxes are consumption taxes, meaning they are intended to apply to the final stage in the sales transaction imposed on specific sales. [5] Sales and use taxes are complementary taxes. The sales tax applies when the taxable transaction is consummated within the taxing jurisdiction. 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. Thus, the taxes secure revenues that arise from similar transactions that can occur in different taxing jurisdictions. Sales and use taxes are different in conception and may have to be justified on different constitutional grounds. McLeod v. J.E. Dilworth Co., et al., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944). Therefore, we must distinguish between sales and use taxes to narrow our focus on the issues before us. A sales tax is a single-stage tax [6] on consumer spending that applies to final sales for personal use and consumption. [7] The sales tax is a tax imposed on the buyer's use or consumption of the item sold, that is passed on to the consumer through the addition of the sales tax to the purchase price. [8] Shortly after states adopted the sales tax, it became necessary to impose a complementary use tax because the sales tax alone was unable to reach sales made outside of the state's borders or in interstate commerce, even though the purchased goods were imported into a specific taxing jurisdiction for use. [9] The United States Supreme Court addressed this restriction on the state's ability to tax sales in interstate commerce in Helson v. Commonwealth of Kentucky, 279 U.S. 245, 49 S.Ct. 279, 73 L.Ed. 683 (1929), where the United States Supreme Court held that a state law which directly burdens interstate commerce by taxation regulates beyond the power of the state under the Constitution, i.e. is unconstitutional. Helson, at 249. In this case, the Supreme Court held that requiring an interstate ferryboat to pay use tax on fuel consumed was an unconstitutional burden on interstate commerce. In St. Louis-S.F. Ry. v. Public S.C. of Missouri, 261 U.S. 369, 43 S.Ct. 380, 67 L.Ed. 701 (1923), the Supreme Court noted that although interstate commerce is outside of regulation by a state, there may be instances in which a state, in the exercise of a necessary power, may affect that commerce. Use tax developed because local merchants were disadvantaged when local consumers purchased similar goods in a state where no sales tax or a lower tax was imposed. The states realized that they would lose business and their sales tax base would be eroded because of this lack of tax parity between local purchases and purchases made in non-tax states. The use tax was enacted to address these concerns. The use tax is collected against a taxpayer's use, storage, or consumption of property, typically purchased out of state, that would have been subject to a sales tax in the state of use had the goods been bought within the taxing jurisdiction. [10] In Fontenot v. S.E.W. Oil Corp., 232 La. 1011, 95 So.2d 638 (1957), this court, citing Mouledoux v. Maestri, 197 La. 526, 2 So.2d 11 (La.1941), held that a use tax is an integrated part of a sales tax, its purpose being to remove the buyer's temptation to place their orders in other states in an effort to escape payment of the tax on local sales. Fontenot, supra, at 640. A taxpayer is typically granted a credit against the use tax when the taxpayer has previously paid a sales or use tax to another taxing jurisdiction in connection with the purchase of his taxable goods. [11] This credit prevents multiple taxation by taxing jurisdictions that the goods may move through following the out-of-state purchase. The seminal case on use taxes is Henneford v. Silas Mason Co., Inc., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937) where the United States Supreme Court articulated the underlying philosophy of use taxes as establishing equality between local and foreign merchants and revenue protection for the states. Henneford involved a use tax levied by the state of Washington against goods purchased out-of-state but subsequently imported into Washington for local use. The court analyzed Washington's use tax statute and concluded that the statute imposed a tax equal to the tax that would be imposed on local businesses had the goods been purchased in-state. The court held that: One of its effects must be that retail sellers in Washington will be helped to compete upon terms of equality with retail dealers in other states who are exempt from a sales tax or any corresponding burden. Another effect, or at least another tendency, must be to avoid the likelihood of a drain upon the revenues of the state, buyers being no longer tempted to place their orders in other states in the effort to escape payment of the tax on local sales. Id. at 581, 57 S.Ct. 524. Further, the court held as follows: Equality is the theme that runs through all the sections of the statute. There shall be a tax upon the use, but subject to an offset if another use or sales tax has been paid for the same thing . . . When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, but the sum is the same when the reckoning is closed. [12] Id. at 583-585, 57 S.Ct. 524. Henneford determined that the Washington use tax was not a tax on interstate commerce, but a tax on the privilege of use after interstate commerce was at an end. Id. at 582, 57 S.Ct. 524. The United States Supreme Court furthered this analysis in Southern Pacific Co. v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 (1939). In Southern Pacific the Court extended the reach of the use tax by upholding a state's right to apply a use tax to not only out-of-state goods that were imported into a taxing jurisdiction for local use, as in Henneford v. Silas Mason , but also to out-of-state goods that were imported into a taxing jurisdiction for subsequent use in interstate commerce. The issue before the Southern Pacific court was the constitutionality of a California use tax that was levied against the out-of-state purchase of goods by the Southern Pacific Company, a Kentucky corporation that handled intrastate, interstate, and foreign commerce over its railroad system, which traveled over many taxing jurisdictions across the continent. The Southern Pacific Company would purchase materials outside of California and then ship the materials to its California office. The materials were then used, or stored for subsequent use, in Southern Pacific's interstate transportation business. The California Use Tax Act defined use as the exercise of any right or power incident to ownership, except sale in the regular course of business. The court focused on two lines of authority to determine whether or not California's use tax impermissibly burdened interstate commerce. First, the court cited Helson & Randolph v. Kentucky, supra, for the proposition that a tax imposed on the privilege of operating in, or upon carrying on, interstate commerce is invalid. Second, the court cited Nashville, C. & St. L. Ry. Co. v. Wallace, 288 U.S. 249, 53 S.Ct. 345, 77 L.Ed. 730, for the proposition that use and withdrawal from storage for subsequent use, were taxable intrastate events, separate and distinct from interstate commerce. The Southern Pacific court concluded that the goods which Southern Pacific Company imported into California had come to rest in California prior to being used as instruments of interstate commerce, and therefore were subject to a taxable moment. The court held as follows: In the present case some of the articles were ordered out of the state . . . and installed immediately on arrival at the California destination . . . We think there was a taxable moment when the (goods) had reached the end of their interstate transportation and had not begun to be consumed in interstate operation. At that moment, the tax on storage and use  retention and exercise of a right of ownership, respectively  was effective. The interstate movement was complete. The interstate consumption had not begun. Id. at 177, 59 S.Ct. 389. The taxable moment analysis is an inquiry which focuses on three discrete stages of the interstate commerce journey of goods into a taxing jurisdiction. 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. Several state courts have embraced the taxable moment doctrine and the reasoning of Southern Pacific, supra, when analyzing the validity of a state use tax imposed against the out-of-state purchase of corporate airplanes, as in the present case. In Vector v. Benson, supra , the taxpayer was a Tennessee corporation that purchased three airplanes in Georgia and North Carolina to further its real estate development business. The taxpayer paid no sales or use tax to either Georgia or North Carolina in connection with the aircraft. Following the purchase, the airplanes were imported into Knoxville, Tennessee, the taxpayer's domicile, where they were hangared. Thereafter, the planes were used principally in interstate commerce. Id. at 613. The court dismissed the taxpayer's argument that its intended use of the aircraft in interstate commerce negated Tennessee's taxing jurisdiction. The court found this position untenable under Nashville, Chattanooga & St. L. RR. Co. v. Wallace, supra, a case relied on by the United States Supreme Court in Southern Pacific, supra . The Supreme Court of Tennessee cited Wallace, supra, for the principle that, once the out-of-state purchased goods were imported into the taxing jurisdiction, and were stored, they came to rest. Thus, when property has come to rest in storage, the state is free to tax it, notwithstanding its prospective use as an instrument of interstate commerce . . . . quoted in Vector, 491 S.W.2d at 615. The Supreme Court of Oklahoma addressed a similar issue in In Re: Woods Corp., 531 P.2d 1381 (Okl.1975). Here, the taxpayer was a Delaware corporation doing business in Oklahoma, who purchased an airplane from a California seller for $430,000. The airplane was delivered to the taxpayer in Montana and subsequently flown into Oklahoma. No sales or use taxes were paid prior to the airplane's importation into Oklahoma. Id. at 1382. The plane was used for interstate flights 97% of the time after being brought into Oklahoma. Id. The Oklahoma Supreme Court in Woods concluded that the airplane was not an instrumentality of interstate commerce when it arrived in Oklahoma and a taxable moment occurred between the time of delivery to Oklahoma and the time Woods commenced using the aircraft in interstate commerce. Similarly, in Sundstrand Corporation v. Department of Revenue of the State of Illinois, 34 Ill.App.3d 694, 339 N.E.2d 351 (1975), the appellate court of Illinois affirmed the validity of a state use tax imposed on the taxpayer's out-of-state purchase of an airplane which was subsequently imported into Illinois and then used in interstate commerce. The taxpayer's principal office was in Illinois. However, the plane was purchased from an Ohio company, for $850,000. After importation into Illinois, the plane was used principally in interstate commerce, although hangared in Illinois between flights. The taxpayer argued that a levy of the use tax on the airplane was an unconstitutional burden on interstate commerce. The court rejected the taxpayer's contention and affirmed the use tax. The court cited Southern Pacific, supra, for the proposition that a tax on property or upon a taxable event in the state, apart from operation, does not interfere with interstate commerce. Sundstrand, 339 N.E.2d at 354. Furthermore, the court relied on Southern Pacific, supra, for the following principle: what is important is whether there was a taxable moment in the state when the plane had reached the end of its interstate transportation and had not yet begun to be consumed in interstate operation. If so the tax on storage and use  retention and the exercise of a right of ownership  was effective. Sundstrand, 339 N.E.2d at 354. The Tax Court of New Jersey, in KSS Transportation Corp. v. Baldwin, 9 N.J.Tax 273 (1987) gave a succinct summary of the taxable moment doctrine. The court held that the taxable moment doctrine: [G]ives the purchaser control over whether it is subject to tax liability. If the aircraft is brought directly to its home base state, the purchaser is subject to a use tax. If the aircraft is used to transport passengers or property in interstate commerce in the few days preceding its passage to its home base state, the purchaser is not subject to use tax in its home base state and may never be subject to a sales or use tax. This test assumes that the aircraft, while an instrumentality of interstate commerce, is not taxable unless a taxable moment in which the aircraft is not in interstate commerce can be identified. Hangarage and routine maintenance during interstate flights have been held to be a continuation of interstate commerce. For a taxable moment to occur, either the aircraft must come to rest in the taxing state prior to being introduced into interstate commerce, or its stay in the state when it is not engaged in interstate commerce must be protracted. Id. at 282. In the case sub judice, Ascension Parish argues that a taxable moment occurred when Word of Life's airplanes were withdrawn from interstate transportation and came to rest in Louisiana. This occurred prior to the airplanes' ultimate use in interstate transportation. Ascension Parish argues that the airplanes landed at Louisiana airports, were housed in Louisiana hangars, took on and discharged passengers and crew, were refueled, serviced and maintained in Louisiana, and derived the benefits of public airports, state and local fire protection and police protection between flights. Ascension Parish relies on Cotten v. Collector of Revenue, State of Louisiana, 579 So.2d 499 (La.App. 4th Cir.1991) [13] and Comdisco v. Secretary of Revenue and Taxation, 93-1695 (La.App. 1st Cir.10/7/94) 647 So.2d 341, writ denied, 95-0257 (La.3/30/95) 651 So.2d 837. [14] In opposition, Word of Life argues that The Shaw Group, Inc. v. John H. Kennedy, Secretary, Dept. of Revenue, State of Louisiana, (La.App. 1st Cir.2000), 767 So.2d 937 is directly on point and is controlling. Shaw involved a use tax imposed on Shaw's out-of-state purchase of two corporate airplanes. The court of appeal interpreted the taxable moment doctrine as follows: 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. Tigator Inc.v. West Baton Rouge Police Jury, 94-1771, 94-1772 (La.App. 1st Cir.5/5/95) 657 So.2d 221 at 228, writ denied, 95-2126 (La.11/17/95), 663 So.2d 712 citing Mobil Oil Corp./The Superior Oil Company v. McNamara, 517 So.2d 278, 279 (La.App. 1st Cir.1987), Traigle v. PPG Industries, Inc. 332 So.2d 777 (La.1976), and McNamara v. U.O.P., Inc., 389 So.2d 741 (La.App. 2nd Cir. 1980), writ denied, 396 So.2d 898 (La. 1981). Shaw, supra, at 939. Applying the ultimate use test to the taxable moment doctrine, the court held that the taxpayer purchased the airplanes with the intention to transport employees in interstate business travel. Therefore, the ultimate use of the airplanes was in interstate commerce and La. R.S. 47:305(E) barred the State's imposition of a use tax on the airplanes. The court rejected the State's contention that a taxable moment occurred when the airplanes were delivered in Louisiana. In so doing, the court relied on Tigator, supra, as follows: Although the court in Tigator found a taxable moment and upheld the tax imposed with regard to the trailers and repair parts, that portion of the court's decision concerned a sales tax, not a use tax. The facts surrounding those transactions are different than the one we are faced with in this case. That portion of the Tigator opinion is not applicable. Id. at 940. In the present case, Word of Life states that the parallels between Shaw and the case sub judice are clear. Specifically, in both instances, the planes were purchased for and subsequently used in interstate commerce. La. C.C. art. 9 provides that when a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the legislature. In interpreting a statute, we are required to give the words of a law their generally prevailing meaning. La. C.C. art. 11; Rester v. Moody & Stewart, 172 La. 510, 134 So. 690 (1931). La. R.S. 47:301(19) states that use tax includes the use, the consumption, the distribution, and the storage as herein defined. La. R.S. 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. . . . The statute says nothing about ultimate use merely use. The interpretation of use as ultimate use conflicts with a plain reading of the statute and leads to absurd consequences. Under Word of Life's reading, so long as a taxpayer intends to use out-of-state purchased goods in interstate commerce, any and all use in the taxing jurisdiction would be immune from state taxation. Such a conclusion contradicts the underlying purposes of the use tax which are: (1) to protect local merchants who would face a competitive disadvantage if resident consumers could purchase similar goods without tax, or at a lower tax rate, in another jurisdiction; and (2) to compensate the state for the erosion of its sales tax base when resident consumers purchase out-of-state goods and then import those goods into Louisiana for use. Indeed, that is the reality of the present case. If Word of Life or similar resident consumers can travel out-of-state and purchase airplanes or other tangible personal property and not pay a sales or use tax, then import those goods into Louisiana for subsequent use in interstate commerce, and be immune from Louisiana use tax because they ultimately used, or planned to use, the goods in interstate commerce, then they have effectively circumvented decades of use tax jurisprudence. The Supreme Court of Arkansas, in Skelton v. Federal Express Corporation, 259 Ark. 127, 531 S.W.2d 941 (Ark.1976), a case involving the imposition of a state use tax on the taxpayer's importation and use of an airplane, held that Regardless of the ultimate use of the aircraft, the use and storage . . . are taxable intrastate events, separate and apart from interstate commerce. Id. at 131, 531 S.W.2d 941. The Supreme Court of Tennessee in Vector, supra, held that [t]he idea that the craft was not taxable, because Vector intended to use the aircraft in interstate commerce after they had acquired a local situs, is untenable under Nashville, Chattanooga & St.L.RR. Co. v. Wallace . . . . Vector, 491 S.W.2d at 614. We reject an interpretation which defines use as ultimate use, and instead embrace the reasoning of Southern Pacific, supra, which holds that a taxable moment occurs when out-of-state purchased goods have not yet reached the end of their interstate transportation into the taxing jurisdiction, and have not yet begun their subsequent journey in interstate commerce. Id. at 177, 59 S.Ct. 389. Consequently, we expressly overrule Shaw and Tigator, which barred a use tax by substituting an ultimate use test as it relates to La. R.S. 47:305(E). This Court rejects Tigator's and Shaw's position 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.  Tigator, 657 So.2d at 228, and Shaw, 767 So.2d at 939. This Court also refutes 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, stored and occasionally used in Louisiana. Id. Further, Tigator erroneously reasoned that the temporary time the property remained in Louisiana precludes the taxation of the property in Louisiana. Id. at 229. In the present case, the primary issue is whether a taxable moment occurred when the out-of-state purchased airplanes were imported in Louisiana and had not yet begun to be consumed in interstate operation. We note that Word of Life paid no sales or use taxes to either Oklahoma for the purchase of Airplane I or South Carolina or Texas in connection with the purchase of Airplane II. Following the purchases, both planes were imported and hangared in East Baton Rouge Parish until the planes were subsequently used in interstate commerce. Notwithstanding the prospective use of the plane as instruments of interstate commerce, it is 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 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. [15] Therefore, a taxable moment occurred in Louisiana. After determining that a taxable moment occurred, we must now focus on whether the Louisiana Legislature intended to bar Word of Life from tax liability pursuant to La. R.S. 47:305(E).