Opinion ID: 1592031
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Heading Rank: 7

Heading: Louisiana's Interstate Commerce Exclusion: Statutory and Constitutional Framework

Text: The Louisiana Legislature enacted Title 47, Louisiana's interstate commerce exclusion, in 1948. The 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, [16] consistent with federal jurisprudence at the time of its enactment. In 1977, the United States Supreme Court made a radical shift in the conceptual framework used to analyze Commerce Clause cases. In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), the United States Supreme Court repudiated its earlier opinions that focused on the formal language of a tax statute and focused instead on the statute's practical effect. Id. at 279, 97 S.Ct. 1076. The shift was necessary because the court recognized that the current law at that time had no relationship to economic realities. Id. Complete Auto, supra, synthesized the evolving federal Commerce Clause jurisprudence into a four-prong test whereby the constitutionality of a state tax on interstate commerce is upheld if: (1) the tax is applied to an activity with a substantial nexus to the taxing jurisdiction; (2) the tax is fairly apportioned; (3) the tax is non-discriminatory; (4) the tax is fairly related to services provided by the taxing jurisdiction. Id. States may now tax interstate commerce so long as the Complete Auto, four-prong test is satisfied. Some states held that the taxable moment doctrine was obsolete after Complete Auto, supra . They opined that there was no longer a need for the doctrine that identified when interstate commerce came to an end since modern Commerce Clause jurisprudence, as announced in Complete Auto, supra, now allowed the states to tax interstate commerce, so long as the four-prong test was met. For example, in Director of Revenue v. Superior Aircraft Leasing Company, 734 S.W.2d 504 (Mo.1987), the Supreme Court of Missouri affirmed the imposition of a state use tax against the taxpayer's purchase, and subsequent importation, of an airplane into Missouri. The court opined that the Director of Revenue contends that the `taxable moment' analysis, adopted by this Court in Management Services [ v. Spradling, 547 S.W. 2d 466 (Mo. banc 1977)] and applied in King [ v. L & L Marine Service, 647 S.W. 2d 524 (Mo. banc 1983)], is no longer the proper method for determining the validity of a state tax and we must agree. The contemporary approach of the United States Supreme Court was announced in Complete Auto Transit, Inc. v. Brady. Director of Revenue v. Superior Aircraft Leasing Company, 734 S.W.2d at 506. The Tax Court of New Jersey in KSS Transportation Corp., v. Baldwin, 9 N.J.Tax 273 (1987), made a similar declaration. In KSS Transportation, the New Jersey Tax Court upheld the imposition of a state use tax on the taxpayer's purchase, and subsequent importation, of an airplane into New Jersey. The court concluded as follows: . . . that the out-of-state purchase of a corporate aircraft having its home base in New Jersey, by a New Jersey corporation which has paid no sales or use tax to any other state on the purchase, is subject to use tax by New Jersey, and that such tax is not in conflict with the Commerce Clause of the United States Constitution. Id. at 287. Louisiana, on the other hand, has maintained its statutory prohibition against taxing interstate commerce despite the fundamental changes in federal Commerce Clause jurisprudence. Louisiana courts typically must approach an issue involving the applicability of Louisiana's interstate commerce exclusion in a two-prong fashion, given the differences between La. R.S. 47:305(E), which recognizes the taxable moment doctrine, and contemporary federal Commerce Clause jurisprudence, as articulated by the United States Supreme Court in Complete Auto, which holds that interstate commerce may be taxed irrespective of a taxable moment. The taxable moment issue was distinguished from the modern commerce clause question by the United States Supreme Court in D.H. Holmes Co. v. McNamara, 486 U.S. 24, 108 S.Ct. 1619, 100 L.Ed.2d 21 (1988), a case involving Louisiana's use tax and mail order catalogs. In that case, the tangible personal property consisted of catalogs designed in New York, printed in Atlanta, Boston, and Oklahoma, then mailed to residents of Louisiana at the direction of the taxpayer, D.H. Holmes. The Louisiana Department of Revenue conducted an audit of the taxpayer and assessed delinquent use taxes on the value of the catalogs. Applying the taxable moment doctrine, the court of appeal concluded that After the catalogs were in Louisiana mailboxes they were not part of interstate commerce and became part of the property mass in this state. Additionally, the court held that Distribution of the catalogs certainly constitutes `use' by Holmes under the statute and is subject to the tax. 505 So.2d 102, 105 (La. App. 4th Cir. 1987). The court then cited the Complete Auto four-prong test and applied it to the facts before it. The court held that the first requirement was met because D.H. Holmes had 13 stores, 5000 employees and over 1,000 catalogs distributed in the state. Id. at 106. Next, the court determined that the second and third prong requirements of fair apportionment and non-discrimination were met because La. R.S. 47:305 was applied to catalogs printed within the state and outside the state used to boost sales in Louisiana for the benefit of D.H. Holmes and its employees. Lastly, the court determined that Louisiana provided essential benefits and services to D.H. Holmes' stores, and that there was no multiplicity of taxes since the taxpayer had paid no taxes to any other jurisdiction. The United States Supreme Court affirmed the lower court's decision and held that imposition of the Louisiana use tax did not violate the Commerce Clause of the United States. Id. at 24, 108 S.Ct. 1619. This court discussed both the taxable moment doctrine and the Complete Auto, supra, four-prong test in Columbia Gulf v. Broussard, 94-1650 (La.04/10/95), 653 So.2d 522, a case involving Louisiana's use tax and natural gas. [17] In Columbia Gulf v. Broussard, 94-1650 (La.04/10/95), 653 So.2d 522, this court held that natural gas had come to rest in the state and was thus, subject to the state use tax, and that the commerce clause did not preclude imposition of the tax. Id. at 522. The issue before this court was whether La. R.S. 47:305(E) or Complete Auto, supra, barred the imposition of Louisiana's use tax on compressor fuel. Columbia Gulf, at 523. The taxpayer was a Delaware corporation doing business in Louisiana that used underground pipes to transport natural gas from offshore Louisiana to its Kentucky affiliate. During the course of travel, the gas would lose some of its pressure and would be recompressed at four Louisiana compressor stations. The compressor stations used diverted gas from the pipelines to power its engines and boost the interstate gas pressure. The Louisiana Department of Revenue assessed a use tax on the diverted gas that was consumed in the state. The taxpayer, Columbia Gulf, paid the tax liability under protest and filed suit to recover the amounts paid. The taxpayer argued that a use tax on natural gas diverted from interstate gas and used solely to propel other interstate gas violated the Commerce Clause of the United States Constitution and violated the requirements of La. R.S. 47:305(E). This court rejected the taxpayer's arguments and affirmed the tax. This court cited La. R.S. 47:305(E) and held that the statute clearly intends taxation of property consumed in the state. Moreover, this court concluded that when the natural gas compressor fuel is consumed, it comes to rest and becomes a part of the state's property. At oral arguments before this court, the taxpayer asserted that it was not attacking the constitutionality of the subject use taxes, but rather was arguing that Airplanes I and II were used in interstate commerce and were excluded from state taxation by La. R.S. 47:305(E). Therefore, the threshold issue before this court pertains to whether the legislature intended to exclude Word of Life from tax liability pursuant to La. R.S. 47:305(E). The statutory intent of the Louisiana use tax law is expressed in La. R.S. 47:305(E), [18] 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. In evaluating the statute, it is important to note that every word serves some useful purpose. Sultana Corporation v. Jewelers Mutual Insurance Company, 03-0360, p. 9 (La.12/3/03), 860 So.2d 1112, 1119. We previously determined that both airplanes came to rest and became a part of the mass of property in Louisiana. Next, we must analyze the terms bona fide interstate commerce used in La. R.S. 47:305(E). The legislature carefully drafted the statute to include the words bona fide, which describes and limits the scope of interstate commerce which the state is prohibited from taxing. It is clear that the legislature did not intend to exclude all forms of interstate commerce from taxation. BLACK'S LAW DICTIONARY 285 (7th ed.1999), defines commerce as [t]he exchange of goods and services . . . involving transportation between cities, states, and nations. To interpret bona fide interstate commerce as goods traveling in interstate commerce would be to ignore the insertion of the terms bona fide, which clearly limits the definition of interstate commerce. The fact that owners use the durable goods (such as airplanes and/or automobiles) for travel across state lines does not necessarily classify the goods as part of bonafide interstate commerce as used in La. R.S. 47:305(E). In the case sub judice, we agree with Ascension Parish and hold that a taxable moment occurred which permits Louisiana to apply the use tax to Word of Life's out-of-state airplane purchases since the airplanes came to rest here and became a part of the mass of property in Louisiana. Therefore, we find that La. R.S. 47:305(E) clearly speaks to taxing both planes in Louisiana since the planes came to rest in Louisiana and became a part of the mass of Louisiana property. Thus, Word of Life is subject to the use tax in Louisiana. Recognizing such, we must evaluate whether Ascension Parish has authority to assess a use tax under its parish taxing ordinances.