McNamara v. Stauffer Chemical Co.

• Decision Date: 14 April 1987
• Docket Number: Nos. 86,s. 86
• Citation: 506 So.2d 1252
• Court: Court of Appeal of Louisiana — District of US
• Parties: Shirley McNAMARA, Secretary of the Department of Revenue & Taxation State of Louisiana v. STAUFFER CHEMICAL COMPANY. CITY OF BATON ROUGE and Parish of East Baton Rouge, et al. v. STAUFFER CHEMICAL COMPANY. CA 0822, 86 CA 0823.

Page 1252

506 So.2d 1252

Shirley McNAMARA, Secretary of the Department of Revenue &

Taxation State of Louisiana v. STAUFFER CHEMICAL COMPANY.

CITY OF BATON ROUGE and Parish of East Baton Rouge, et al. v. STAUFFER CHEMICAL COMPANY.

Nos. 86 CA 0822, 86 CA 0823.

Court of Appeal of Louisiana First Circuit.

April 14, 1987.

Rehearing Denied May 11, 1987.

James C. Russell, Jr., Baton Rouge, for Shirley McNamara, etc.

J. David Bourland, Baton Rouge, for City of Baton Rouge, et al.

Roger Fritchie, Robert Roland, Baton Rouge, for Stauffer Chemical Co.

John Wilson, Richard Anderson, New Orleans, for Texaco, amicus curiae.

John Ward, Jr., Baton Rouge, for E.B.R. School Bd., amicus curiae.

Before SAVOIE, CRAIN and JOHN S. COVINGTON, JJ.

JOHN S. COVINGTON, Judge.

This suit arose from an attempt by the State of Louisiana (State), the City of Baton Rouge, Parish of East Baton Rouge, and East Baton Rouge Parish School Board (City-Parish) to levy a sales tax against Stauffer Chemical Company for its process of regenerating sulfuric acid for its customers. The trial court ruled against Stauffer, finding the service to be taxable. Stauffer timely filed this appeal.

The facts of this case are largely undisputed and may be summarized as follows: Stauffer's plant in East Baton Rouge Parish has manufactured sulfuric acid for sale to industrial users and consumers since the 1940's. It also provides a service for its customers by which it "regenerates" the sulfuric acid. This chemical treatment process consists of removing impurities which get into the acid during the manufacturing processes utilized by Stauffer's customers and of removing water absorbed by the acid during its use, which renders the acid less effective due to dilution. ¹ The acid which the customers return to Stauffer for treatment is acid owned by the customers and on which State and City sales taxes were paid at the time of initial purchase. In the manufacturing processes used by Stauffer's customers and in the processing and regeneration by Stauffer, an approximate five percent (5%) loss of acid by volume occurs. To make up this loss in volume, Stauffer sells new sulfuric acid to the customers which is added to the returned sulfuric acid during the treatment process. Both State and local taxes are paid on this new acid but not on the entire service provided by Stauffer in its regeneration process. It is the cost of providing this service, i.e., the regeneration process, which the plaintiffs seek to tax.

In 1979 the Department of Revenue and Taxation of the State of Louisiana filed suit against Stauffer for sales taxes and interest for the years 1973 through 1975, contending that this regeneration process constituted a "repair" of that acid within the "sale of services" provision of the State Sales Tax Statute, LSA-R.S. 47:301 et seq. During the pendency of this suit, the City-Parish filed a tax rule, asserting a claim for local sales taxes, interest, and penalties for the years 1976 through 1984 pursuant to various local tax ordinances, which in all pertinent respects are the same as the State Sales Tax Statute. Additionally, the City-Parish sought attorney fees in the amount of 10% of the taxes, penalties, and interest determined to be due, pursuant to Section 8(c) of the City-Parish ordinance. The issue raised with respect to taxes due in the tax rule filed by the City-Parish was identical to that raised by the States' claim, i.e., whether Stauffer's regeneration process of sulfuric acid is taxable as a service under the various tax laws at issue. Consequently, the cases were joined for trial.

The trial court rendered judgment in favor of the State in the amount of $641,410.17 and in favor of the City-Parish in the amount of $6,524,483.49 for delinquent taxes and interest. The City-Parish's additional claim for penalties was denied and the trial judge found the mandatory attorney fee portion of LSA-R.S. 47:1512 and its local counterpart unconstitutional. He found attorney fees of $50,000 to be reasonable under the circumstances and ordered Stauffer to pay this amount.

Stauffer has suspensively appealed both of these judgments specifying the following assignments of error:

1. The Trial Court erred in holding that the regeneration of sulfuric acid by Stauffer constituted a "repair" and this was taxable as a service under R.S. 47:301(14)(g).

2. The Trial Court erred in failing to conclude that the sulfuric acid owned by Stauffer's customers was an immovable by destination (or declaration) and therefore not "tangible personal property."

3. The Trial Court erred in failing to apply the reprocessing exclusion provided by R.S. 47:301(10), to the oleum or fuming sulfuric acid furnished to some of Stauffer's customers, which became a necessary and beneficial part of their final product.

4. The Trial Court erred in allowing taxation of the charges made by Stauffer to Exxon Corporation for unused reserve capacity which involved no regeneration of acid at all.

Prior to the instant appeal, the City of Baton Rouge filed a direct appeal to the Louisiana Supreme Court contesting the district court's ruling that LSA-R.S. 47:1512 and Section 8(c) of the City-Parish ordinance dealing with attorney fees are unconstitutional. In City of Baton Rouge v. Stauffer Chemical Company, 500 So.2d 397 (La.1987), the supreme Court reversed the lower court's ruling and found these provisions to be constitutional. The case was then remanded to us to consider "whether the attorney fees (if owed) as mandated under the laws in question are excessive and unreasonable for the legal services performed and, if so, whether the amount of attorney fees fixed by the trial judge was reasonable under the circumstances." Accordingly, the issue pertaining to attorney fees is properly before us and will be considered in conjunction with the other issues on appeal, as specified in Stauffer's assignments of error.

By its first assignment of error, Stauffer contends that their regeneration process does not constitute a "repair of tangible personal property" within the meaning of LSA-R.S. 47:301(14)(g) and, therefore, is not subject to sales tax.

The key to disposition of this case lies in resolution of whether or not restoration of spent sulfuric acid by Stauffer, on behalf of its customers, constitutes a "repair" and is thus a taxable service. Ancillary thereto is the issue concerning whether or not the reprocessing exclusion provided by R.S. 47:301(10) applies to the oleum or fuming sulfuric acid furnished to some of Stauffer's customers.

Pursuant to Acts 1948, No. 9, the Louisiana Legislature levied a sales tax on specifically enumerated services. This tax is presently found in LSA-R.S. 47:302 C, which provides in part: "There is hereby levied a tax upon all sales of services, as herein defined, ..." (Emphasis added). As the statutory language states, only the services defined in the statute are taxable. Likewise, the rules and regulations promulgated by the Secretary of the Department of Revenue and Taxation for the State of Louisiana, which rules and regulations parallel the comparable sections of Title 47 of the Revised Statutes, clearly states in Reg. Art. 47:301(14) thereof:

The Louisiana Sales Tax Law basically treats the furnishing of services and permission to use certain kinds of property the same as the sale of merchandise, and the law classifies those items as sales of services. Only those services specifically itemized under the provisions of R.S. 47:301(14)(a) through (g) are taxable. (Emphasis added).

LSA-R.S. 47:301(14) enumerates the taxable services and subparagraph (g) thereof contains the language germane to the basic issue in this case. ² LSA-R.S. 47:301(14)(g) reads as follows: "(g) [T]he furnishing of repairs to tangible personal property, including by way of illustration and not of limitation, the repair and servicing of automobiles and other vehicles, electrical and mechanical appliances, watches, jewelry, refrigerators, radios, shoes, and office appliances and equipment." (Emphasis added.)

After a careful review of the record, we agree with the holding of the trial court that this regeneration process is taxable under the sales tax statutes in question. We hold that, by whatever semantics, Stauffer was furnishing a service to its customers. To use a colloquialism: You can paint a cow purple and call it a horse, but it is still a cow! (Emphasis supplied.)

Examination of the contracts in the record, between Stauffer and its customers, clearly reflects that the parties consider the service performed by Stauffer a "restoration" of spent sulfuric acid to original usable condition. In fact, the contract between Stauffer and one of its customers, Exxon, U.S.A., states in its preamble the following: "... which has the capacity to restore spent sulfuric acid to original usable condition and to convert commercial sulfur to sulfuric acid; ... Exxon, U.S.A., wishes to have restored to its original usable condition, ...." (Emphasis added.)

In the definitions portions of that same contract, we note under subparagraph (h), the following: "Regenerated Acid shall mean sulfuric acid restored to original usable condition by Stauffer from spent acid delivered to Stauffer by Exxon, U.S.A. hereunder." (Emphasis added.)

Black's Law Dictionary, 5th Edition, defines the word "repair," which appears in both state statute and local ordinance, as the operative verb for construing that taxing provision, as follows: "To mend, remedy, restore, renovate. To restore to a sound or good state after decay, injury, dilapidation, or partial destruction." (Emphasis added.)

The commentary following this definition states: "The word 'repair' contemplates an existing structure or thing which has become imperfect, and means to supply in the original existing structure that which is lost or destroyed, and thereby restore it to the condition in which it originally existed, or as near as may be." (...