WILLIS-KNIGHTON MEDICAL v. SALES TAX COM'N

• Decision Date: 01 April 2005
• Docket Number: No. 2004-C-0473.,2004-C-0473.
• Parties: WILLIS-KNIGHTON MEDICAL CENTER v. CADDO-SHREVEPORT SALES AND USE TAX COMMISSION.
• Court: Louisiana Supreme Court

903 So.2d 1071

WILLIS-KNIGHTON MEDICAL CENTER v. CADDO-SHREVEPORT SALES AND USE TAX COMMISSION.

No. 2004-C-0473.

Supreme Court of Louisiana.

April 1, 2005.

Opinion on Rehearing June 22, 2005.

Oreck, Bradley, Crighton, Adams & Chase, Jesse R. Adams, III, Andre Brian Burvant, New Orleans, for Applicant.

Barham & Warner, Richard G. Barham, Shreveport, for Respondent.

Timothy Benedict Francis, James Michael Garner, Peter L. Hilbert, Jr., Steven I. Klein, New Orleans, for Amicus Curiae Tuoro Infirmary.

WEIMER, Justice.

This is a suit for refund of sales and use taxes paid under protest. We granted certiorari to address the taxpayer's contention that the court of appeal erred in determining that no refund was due for taxes levied on sales of medical devices used by patients to treat diseases under the supervision of and prescribed by their treating physicians and on repairs and maintenance to medical equipment allegedly incorporated into the structure of taxpayer's buildings so as to become immovable property. In addressing the latter issue, we are called upon to resolve a significant controversy related to the proper interpretation of LSA-C.C. art. 466 and its definition of a component part. See and compare, Equibank v. United States Internal Revenue Service, 749 F.2d 1176 (5th Cir.1985) and Prytania Park Hotel, Ltd. v. General Star Indemnity Co., 179 F.3d 169 (5th Cir.1999). See also, John A. Lovett, Another Great Debate?: The Ambiguous Relationship Between the Revised Civil Code and Pre-Revision Jurisprudence as seen through the Prytania Park Controversy, 48 Loy. L.Rev. 615 (2002) (hereinafter Lovett) and articles cited at footnote 6, infra. After careful review of the issue, we conclude that Article 466 must be applied as written. The article requires only that a component part of an immovable be "permanently attached," a term defined in the article as that which cannot be removed without substantial damage to itself or to the immovable to which it is attached. In reaching this conclusion, we expressly reject the societal expectations test as a means of determining component parts of immovables, and a disjunctive reading of the two paragraphs of Article 466 as creating two independent types of component parts. Finding no error in the ultimate result reached by the court of appeal, we affirm the decision of that court and remand the matter to the district court for further proceedings consistent with our ruling herein.

FACTS AND PROCEDURAL BACKGROUND

Willis-Knighton Medical Center (Willis-Knighton) operates three not-for-profit hospitals in Caddo Parish, and in connection therewith pays sales and use taxes collected by the Caddo-Shreveport Sales and Use Tax Commission (the Commission). By letters dated December 18, 1996, March 6, 1997, and December 16, 1997, respectively, Willis-Knighton wrote the Commission to request a refund or credit for sales and use tax it allegedly overpaid from December 1992 through December 1996. Basically, Willis-Knighton claimed an exemption or exclusion from local sales and use taxes for its purchases of food for resale to patients, medical devices, albumin and other blood products, and for repairs and maintenance on immovable medical equipment. The Commission denied the requests for a refund or credit in early January 1998.

Shortly thereafter, Willis-Knighton filed its monthly tax return for the period December 1 through December 31, 1997. In conjunction therewith, it advised the Commission that $47,221.37 was being paid under protest. On January 29, 1998, Willis-Knighton filed the instant suit, demanding a refund of the $47,221.37 paid under protest. It also demanded $568,984.09 for the alleged overpayments between December 1992 and December 1996.

In the suit, Willis-Knighton claimed that it owed no local sales and use taxes for the following: (1) albumin and other blood products, allegedly exempt under statutes that define "human tissue transplants" to include "blood, or blood products" transplanted into a recipient individual, LSA-R.S. 47:301(10)(d), LSA-R.S.33:2717; (2) medical devices used by patients to treat diseases under the supervision of and prescribed by their treating physicians, allegedly exempt under LSA-R.S. 47:305(D)(1)(s); and (3) repairs and maintenance on medical equipment allegedly incorporated into the structure of Willis-Knighton's buildings so as to become immovable and thus not taxable under the relevant provisions of the city and parish ordinance, which apply only to repairs of tangible personal property. See, Shreveport, LA, Ordinances, Appendix B, Sales and Use Tax § 1.17 (2000).¹ The Commission answered the suit, denying Willis-Knighton's entitlement to a refund.

Following a district court ruling denying cross motions for summary judgment, the case was set for trial. Just prior to trial, the Commission filed an exception of no right of action, averring that Willis-Knighton had no right of action for a refund of taxes which were not paid under protest. The exception was referred to the merits.

On the morning of trial, the parties appeared and announced that they had reached an agreement with respect to all issues except: the exception of no right of action; the exempt status of medical devices; the exempt status of albumin and other blood products; and whether certain pieces of medical equipment (specifically, nuclear cameras owned by Willis-Knighton) had been immobilized and were component parts such that repairs and maintenance to the cameras were not taxable. The parties agreed to try the issues of liability and the amount of taxes due separately. Witnesses were called and evidence received. At the conclusion of testimony, the district court took the case under advisement, and on December 16, 2002, the court issued a written ruling.

The district court first overruled the Commission's exception of no right of action with respect to sales and uses taxes voluntarily remitted without protest from December 1, 1992, through December 31, 1996, concluding that "Section 10 of the Combined Ordinances provides a procedure for the refund of taxes paid without protest and in error when the claim is made within three years." On the merits, the district court found that Willis-Knighton's nuclear cameras are "other installations" and thus component parts within the meaning of LSA-C.C. art. 466, are permanently attached to the hospital building, and, as a result, are immovable property under Louisiana law. The court ruled that inasmuch as the cameras are immovable property, Willis-Knighton is entitled to a refund of all local sales and use taxes paid on maintenance and repairs to the nuclear cameras. Next, it found that medical devices were specifically exempt from local sales and use taxes under LSA-R.S. 47:305(D)(1)(s), as enacted in 1985, and that a 1991 amendment to subsection D(6) did not alter that exemption. Accordingly, the district court ruled that Willis-Knighton is entitled to a refund of all local sales and use taxes paid on medical devices. Finally, the district court found that blood and blood products are exempted from local sales and use taxes only if they are "transplanted from one individual into another recipient individual." LSA-R.S. 33:2717.² Because modern technology is such that blood products are derived from multiple donor pools and because exemptions must be strictly construed against the taxpayer, the court ruled that Willis-Knighton is not entitled to a refund of local sales and use taxes paid on blood and blood products.

Following the district court's ruling as to liability, the parties agreed as to the dollar amounts due, rendering unnecessary a trial as to the amount of taxes due. Final judgment was rendered on March 28, 2003, ordering the Commission to refund overpayments of $6,724.93 for taxes on maintenance and repair to Willis-Knighton's nuclear cameras and $356,551.03 for taxes on medical devices, paid without protest by Willis-Knighton from December 1992 through December 1996. The judgment also ordered a refund of $21,877.80 for taxes on maintenance and repair to the nuclear cameras and $6,850,617.23 for taxes on medical devices, paid under protest since January 1998, together with any such taxes paid under protest since trial. All awards were subject to judicial interest. The judgment denied Willis-Knighton's claims for a refund of taxes paid on blood and blood products. Both parties appealed.

On appeal, the second circuit reversed the district court's ruling in its entirety. Willis-Knighton Medical Center v. Caddo-Shreveport Sales, 37,914 (La.App. 2 Cir. 12/10/03), 862 So.2d 358. First, the court held that the district court erred in overruling the Commission's exception of no right of action as to Willis-Knighton's demand for a refund of sales and use taxes paid without protest, finding that while Section 10.04 of the Combined Ordinances does establish a procedure for obtaining a refund of taxes paid without protest, that procedure is available only in the absence of questions of fact or law, and when the payments have been erroneous. Citing Kean's Partnership v. Parish of East Baton Rouge, 96-0751 (La.11/25/96), 685 So.2d 1043, the court of appeal held that judicial review of the entitlement to a refund of taxes paid without protest is limited to a review of the Administrator's determination as to the existence of a genuine issue of law or fact. In this instance, there was a finding by the Administrator of the existence of factual and legal issues with regard to whether taxes were owed on medical devices, blood and blood products, and repair and maintenance to the nuclear cameras. This finding was not clearly wrong; therefore, as to taxes paid without protest, Willis-Knighton was entitled to no further relief. The judgment of the district court was reversed insofar as it ordered the refund of taxes that were not paid under protest.

Next, the court of appeal examined whether the district court erred in...