Chicago Bridge & Iron Co. v. Cocreham

• Decision Date: 23 June 1975
• Docket Number: No. 55769,55769
• Citation: 317 So.2d 605
• Court: Louisiana Supreme Court
• Parties: CHICAGO BRIDGE & IRON COMPANY v. Roland COCREHAM, Collector of Revenue.

Page 605

317 So.2d 605

CHICAGO BRIDGE & IRON COMPANY v. Roland COCREHAM, Collector of Revenue.

No. 55769.

Supreme Court of Louisiana.

June 23, 1975.

Rehearing Denied Sept. 5, 1975.

John D. Wogan, Monroe & Lemann, New Orleans; John W. Werner, Oak Brook, Ill., for plaintiff-applicant, Chicago Bridge & Iron Co.

James A. Norris, Jr., West Monroe, for defendant-respondent, Collector of Revenue.

Frank W. Middleton, Jr., Benjamin B. Taylor, Jr., Taylor, Porter, Brooks & Phillips, Baton Rouge. Frederic L. Miller, Peters Ward & Miller, Robert G. Pugh, Shreveport, M. Robert Sutherland, New Orleans, and Victor A. Sachse, Jr., Breazeale, Sachse & Wilson, Baton Rouge, for amicus curiae.

CALOGERO, Justice.

This is a tax refund suit which involves the validity and the application of the Louisiana Sales-Use Tax to the activities of plaintiff, Chicago Bridge & Iron Company (hereinafter referred to as CBI) in connection with major construction projects of the taxpayer in the State of Louisiana between December 1, 1955 and December 31, 1960.

Suit was filed in March, 1964 against the Collector of Revenue for the State of Louisiana for a refund of use taxes ($28,180.33) paid under protest for the taxable period and held in escrow by the Collector pursuant to R.S. 47:1576.

In these same proceedings in August of 1967, the Collector filed a reconventional demand claiming additional use taxes from CBI, for the same audit period, taxes in the sum of $63,309.23 which were not involved in the refund claimed in CBI's original petition.

CBI filed a peremptory exception of prescription to the Collector's reconventional demand as well as an answer denying the Collector's claim for additional use taxes.

Subsequently, the Collector amended his petition to claim attorneys' fees on all amounts, if any, that the court should find due by CBI to the Collector as a result of the controversy, including $28,180.33 dollars paid by CBI under protest and the object of the refund suit.

The trial judge rendered a judgment overruling the exception of prescription filed by CBI against the Collector's reconventional demand, denying CBI's claim for refund of the sum paid under protest, granting judgment to the Collector for the amount claimed in the Collector's reconventional demand and denying all claims of the Collector for attorneys' fees.

After motions for new trial of both parties were denied, both CBI and the Collector appealed.

The Court of Appeal affirmed the judgment of the district court in all respects except that the trial court's judgment denying attorneys' fees to the Collector was reversed, and the Collector allowed 10% Attorneys' fees on both the amount of the reconventional demand and on the amount paid by CBI under protest. Chicago Bridge & Iron Company v. Cocreham, 306 So.2d 750 (La.App.1st Cir. 1974).

We granted writs on application of CBI. Chicago Bridge & Iron Company v. Cocreham, 307 So.2d 633 (La.1975).

The Court of Appeal described the activities of CBI which gave rise to the taxpayer's sales-use tax liability as follows:

'During the taxable period the taxpayer, an Illinois corporation authorized to do and doing business in the State of Louisiana, was engaged in the business of constructing specialized steel plate structures, such as storage tanks, generally for municipalities and corporations. The structures built by the taxpayer consisted primarily of fabricated steel plates assembled by the taxpayer's employees on prepared foundations at the job site. Unfinished steel plates were purchased by the taxpayer from out-of-state suppliers, and carried to the taxpayer's out-of-state shops where the steel plates were fabricated with labor and overhead expenses paid by the taxpayer. After fabrication the steel plates were usually transported at the taxpayer's expense from its out-of-state shops by common carrier to Louisiana job sites.' 303 So.2d at 751.

The amount of sales-use tax liability of the taxpayer for the taxable period is the basic issue involved in these proceedings. CBI contends that Louisiana Use Tax is due based simply upon the purchase price paid for the unfinished steel plates to the out of state vendors. That sum has been paid and there is no dispute on this item. The Collector contends that the tax base for Louisiana Sales Use tax includes in addition to the purchase price paid for the unfinished steel plates, the element of labor and shop overhead expenses incurred by CBI in fabricating the steel plates in the taxpayer's out of state shops and the element of transportation expenses (freight) paid by the taxpayer to transport the fabricated steel plates from its out of state shops to Louisiana job sites. The Collector acknowledges that expenses of labor and shop overhead at the construction site are not taxable and such expenses form no part of this litigation.

Accordingly, the two disputed elements in calculating the correct tax basis involved in these proceedings are 1) labor and shop overhead expenses, and 2) transportation expenses (freight).

The tax amounts applicable to these two elements (should they be found legally due) were stipulated at the trial.

It was the transportation expense in the sum of $28,180.33 which CBI paid under protest and made the subject of its refund suit. It was the element of labor and shop overhead expense in the sum of $63,309.23 which was made the subject of the Collector's reconventional demand.

The issues which we will hereinafter consider and resolve in the order in which we propose to consider them are the following: ¹

1. Does the correct tax basis for the sales-use tax for the taxable period properly include the element of labor and shop overhead expenses?

2. If the sales-use tax includes the element of labor and shop overhead expenses, is the statute to that extent unconstitutional?

3. Does the correct tax basis for the sales-use tax for the taxable period properly include the element of transportation expenses?

4. If the sales-use tax includes the element of transportation expense, is the statute to that extent unconstitutional?

If the Collector is correct in one or both of his contentions with respect to the elements of the corrected tax basis of the Louisiana sales-use tax, whether the Collector is entitled to statutory attorneys' fees under the provision of R.S. 47:1512 with respect to either or both of such elements, is an additional issue which we must resolve.

LABOR AND SHOP OVERHEAD EXPENSES AND THE USE TAX

Are labor and shop overhead expenses includable elements of added value in determining the tax basis of the use tax as applied to the out of state manufacturer-user?

The Court of Appeal properly answered the foregoing question in the affirmative. They pointed out that R.S. 47:302 levies a tax upon the use of each item or article of tangible personal property (when the same is not sold within the State); that the measure of the use tax liability is 2% ² of the 'cost price' of each item or article of tangible personal property, R.S. 47:302, subd. A(2); that 'cost price' as defined in R.S. 47:301(3) means 'the actual cost of the articles of tangible personal property Without any deductions therefrom on account of the cost of materials used, labor or service cost, transportation charges or any other expenses whatsoever'; and that properly construed these statutes impose the use tax upon the cost price (or value) at the time the tangible property becomes a part of the mass of the property of the taxing state, including therein the 'labor or service costs' (in effect, the labor and shop overhead expenses).

This conclusion of the Court of Appeal is supported by decisions of this Court.

'These provisions (referring to R.S. 47:303A) along with the others above mentioned, clearly indicate that the 'use' tax is to be computed on the retail price the property would have brought when imported--that is, its then value or worth.' Fontenot v. S.E.W. Oil Corp., 232 La. 1011, 1018, 95 So.2d 638, 640 (1957).

See also this Court's opinion in Halliburton Oil Well Cementing Company v. Reily, 241 La. 67, 127 So.2d 502 (1961), reversed on other grounds, 373 U.S. 64, 83 S.Ct. 1201, 10 L.Ed.2d 202 (1963).

CONSTITUTIONALITY OF USE TAX AS APPLIED TO LABOR AND SHOP OVERHEAD EXPENSES OF THE OUT OF STATE MANUFACTURER-USER.

CBI takes the position that the use tax as applied to the elements of labor and shop overhead (and transportation expenses as well--this will be discussed hereinafter) is unenforceable because it is illegally discriminatory principally in violation of the protection guaranteed in Article I, § 8, C1. 3 (the commerce clause) of the United States Constitution.

As this is the central issue in this litigation it is well that we briefly review Louisiana's sales-use tax law and pertinent prior jurisprudence.

R.S. 47:302 provides for the imposition of a tax 'at the rate of 2 per centum (2%) of the sales price of each item or article of tangible personal property when sold at retail in that state . . ..'

It imposes another tax 'at the rate of two per centum (2%) of the cost price of each item or article of tangible personal property when the same is not sold but is used . . . in this state . . ..' This latter tax is the use tax. It is reduced by the amount of a similar sales or use tax paid on the item in a different state. R.S. 47:305.

The purpose of the sales-use tax scheme is to make all tangible personal property used or consumed in the state subject to a uniform tax burden irrespective of whether it is acquired in the state, making it subject to the sales tax, or acquired from without the state, making it subject to the use tax at the same rate.

The United States Supreme Court in Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937), held that the use tax, a 'compensating tax' (inasmuch as it complements the sales tax), is not, as applied to chattels purchased in another state and used in the taxing state thereafter, a...