Chicago Bridge & Iron Co. v. Cocreham

• Decision Date: 12 November 1974
• Docket Number: No. 9975,9975
• Citation: 303 So.2d 750
• Parties: CHICAGO BRIDGE & IRON CO. v. Roland COCREHAM, Collector of Revenue.
• Court: Court of Appeal of Louisiana — District of US

Page 750

303 So.2d 750

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

No. 9975.

Court of Appeal of Louisiana, First Circuit.

Nov. 12, 1974.

Rehearing Denied Dec. 16, 1974.

Writ Granted Feb. 14, 1975.

John D. Wogan, New Orleans, John W. Werner, Oak Brook, Ill., for appellant.

James A. Norris, Jr., West Monroe, for appellee.

Before LOTTINGER, COVINGTON and BAILES, JJ.

COVINGTON, Judge.

Chicago Bridge & Iron Company, the taxpayer herein, filed this suit against the Collector of Revenue for the State of Louisiana, seeking a refund of certain use taxes paid under protest. The Collector filed a reconventional demand for additional use taxes, and also made a subsequent claim for attorney's fees; to which actions the taxpayer filed exceptions of prescription and no cause of action.

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.

Basically this suit involves the application and validity of the Louisiana use tax to the activities of Chicago Bridge & Iron Company, the taxpayer, during the taxable period. On December 6, 1972, the suit was tried, with most of the facts stipulated. In general, the testimony of the witnesses concerned the policy and practice of the Department of Revenue with regard to the assessment and collection of the use tax during the taxable period.

After considering the evidence and the briefs of counsel, the trial court, having assigned written reasons, rendered judgment dismissing the taxpayer's claim for a refund and its exception of prescription, and granting the Collector the additional use tax claimed. The judgment also rejected the Collector's claim for attorney's fees. Motions for new trial by both parties were denied. Then both parties appealed the judgment.

The taxpayer concedes that a use tax based on the purchase price paid for the unfinished steel plates to the out-of-state sellers was owed to the State of Louisiana; and it having been paid, there is no dispute on this item. There is also no dispute as to the amount of the use tax due, the amount having been stipulated at the trial, if the Court decides that the taxpayer owes additional use taxes.

The taxpayer complains that the Collector employed an incorrect tax base in that he included the element of labor and shop overhead expenses for fabricating the steel plates in the taxpayer's out-of-state shops and the element of transportation expenses paid by the taxpayer to transport the fabricated steel plates from its out-of-state shops to Louisiana job sites. Specifically the taxpayer contends that the Louisiana sales-use tax laws do not impose a use tax on labor and shop overhead expenses and transportation expenses. Of course, the Collector asserts that he employed the correct tax base.

The trial court found, with which finding we agree, that by a preponderance of the evidence the following pertinent facts were established: Chicago Bridge & Iron Company purchased its raw materials, operated its fabricating shops, incurred its labor and overhead expenses at out-of-state locations; and further the taxpayer incurred transportation expenses in shipping its fabricated materials by common carrier from its out-of-state locations to Louisiana job sites. No sales or use tax was paid by the taxpayer on any of these activities.

In addition to the tax upon the cost of the raw materials (which tax is not disputed), the Collector seeks to collect a use tax based upon the labor and shop overhead expenses and the transportation expenses.

The facts further establish that if the taxpayer had purchased its materials, operated its fabricating shops, and incurred its labor and overhead expenses at in-state locations, there would have been due to the State of Louisiana a sales tax upon the cost of the materials purchased in this State and a use tax on materials purchased out-of-state. There would also have been a Louisiana sales tax or use tax due to the State of Louisiana upon the labor and shop overhead expenses and the transportation expenses.

Concerning these established pertinent facts there are two basic questions to be answered:

First, what is the proper tax base for the Collector to employ in collecting the Louisiana use tax?, and

Secondly, is the Louisiana use tax constitutional?

The first question concerning the proper tax base for the use tax has largely been answered by this Court in the recent case of Mouton v. Klatex, Inc., La.App., 238 So.2d 1 (1st Cir. 1970), writ refused 256 La. 873, 239 So.2d 365, and application denied by United States Supreme Court, 401 U.S. 968, 91 S.Ct. 1192, 28 L.Ed.2d 318.

In Klatex, the Collector sued to recover use taxes from Klatex, Inc., using as the tax base the purchase price and the transportation expenses. Klatex, Inc. purchased goods in Arkansas for use in Louisiana and purchased separate from the purchase price of the goods transportation from common carriers, which then delivered the goods to Louisiana destinations. The trial court ruled that such transportation expenses were not includable in the 'cost price' of the goods, with the result that no additional use tax was due the State. The Court of Appeal reversed the judgment of the trial court, holding that such transportation expenses are included in the 'cost price' or tax basis for imposition of the use tax.

In its opinion in the Klatex case, the Court said:

'We feel the legislative intent is clear and that transportation charges and any other expenses 'whatsoever' are not to be deducted from cost price in figuring the tax basis for imposition of the use tax.'

The reasoning of the Court in the Klatex case in determining that transportation expenses are properly includable as an element of the tax base is equally applicable to the question of whether labor and shop overhead expenses are includable as an element of the tax base of the use tax.

La.R.S. 47:302 is the basic statute imposing the sales-use tax in Louisiana. This statute provides in part:

'There is hereby levied a tax upon the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state, of each item or article of tangible personal property, as defined herein, the levy of said tax to be as follows: . . .

'(2) 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, consumed, distributed, or stored for use or consumption in this state; provided there shall be no duplication of the tax.'

Where the tax liability exists because there is use or consumption of tangible property in Louisiana, the measure of the use tax liability is two per centum of the 'cost price' of each item or article of tangible personal property. La.R.S. 47:302, subd. A(2).

'Cost price' is defined in La.R.S. 47:301(3) as follows:

"Cost price' 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 . . .'

There is no language in the statutory definition of 'cost price' to suggest that the term is restricted to 'purchase price of raw materials only.' The term explicitly means 'actual cost' of the articles of tangible personal property and is made even more definite by the express statement that 'cost of materials used, labor or service cost, transportation charges or any other expenses whatsoever' are not to be deducted in arriving at the 'cost price' of the property.

Moreover, La.R.S. 47:303, subd. A states that the use tax is paid on all articles of tangible personal property imported and used, 'the same as if the said articles had been sold at retail for use or consumption in this state.' This statute was correctly interpreted by the Court in Fontenot v. S.E.W. Oil Corporation, 232 La. 1011, 95 So.2d 638 (1957), as follows:

'These provisions, 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.'

In addition to the above citations and the language used in defining 'cost price,' we consider the following applicable portion of La.R.S. 47:305(5):

'. . . It is, however, the intention of this Chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state, of 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.'

As pointed out by the Court in Mouton v. Klatex, Inc., supra, in discussing this section:

'The taxable moment or time when the use tax may properly be imposed is when the property has been withdrawn from interstate commerce and has become part of the mass of the property of the taxing state.'

This determination of the incidence of tax is supported by the dissenting opinion of Justice Clark, joined by Justice Black, in the Halliburton case, 373 U.S. 64, 83 S.Ct. 1201, 10 L.Ed.2d 202 (1963), infra, as follows:

'. . . the incidence of the tax in Louisiana's Tax Act . . . is the moment that the product becomes a part of the...