Mercury Cellular Tel. v. Calcasieu Parish

Decision Date13 December 2000
Docket NumberNo. 00-0318.,00-0318.
PartiesMERCURY CELLULAR TELEPHONE COMPANY v. CALCASIEU PARISH OF LOUISIANA, et al.
CourtCourt of Appeal of Louisiana — District of US

Jesse R. Adams, III, Oreck, Bradley, Crighton, Adams & Chase, New Orleans, LA, Counsel for Plaintiff/Appellant, Mercury Cellular Telephone Company.

Russell J. Stutes, Jr., C. Eston Singletary, David W. Clark, Scofield, Gerard, Veron, Singletary & Pohorelsky, Lake Charles, LA, Counsel for Defendants/Appellees, Calcasieu Parish of Louisiana, et al.

Court composed of Judge THIBODEAUX, Judge SAUNDERS, Judge PETERS, Judge AMY and Judge GREMILLION.

THIBODEAUX, Judge.

A cellular telecommunication service provider contests the assessment of use taxes for cellular telephones it furnishes to its customers for less than their actual value and the assessment of delinquency penalties for the failure to pay the taxes timely. We affirm the trial court's judgment regarding the assessment of use taxes on cellular telephones that are furnished for less than the cost to the cellular provider. We also affirm the assessment of delinquency penalties.

I. ISSUES

We shall consider:

(1) whether furnishing of a cellular telephone to a cellular service customer for a price less than its actual value or for free is a "sale" or "use" of the telephone that is taxable by the parish taxing authority;

(2) whether a tax levied on a cellular telephone which has been furnished for a nominal amount or gratuitously should be based on the cost price or sale price of the telephone or whether the tax for the telephone is included in the cellular service contract;

(3) whether the telecommunication provider owes a delinquency penalty for its failure to pay taxes owed to the parish taxing authority; and,

(4) whether good faith is a defense to delinquency penalties.

II. FACTS

Mercury Cellular Telephone Company (hereinafter "Mercury") is a telecommunication services provider which operates retail outlets in Calcasieu Parish, Louisiana. At those sites, Mercury offered cellular telecommunication equipment, accessories and services for sale to the public. Mercury purchases its inventory of cellular telephones from manufacturers and/or wholesalers to whom it presents a "resale certificate" certifying that Mercury intends to resell the telephones and collect sales taxes from its customers. Because it presented the resale certificate and espoused an intent to resell the telephones, Mercury was not taxed on the initial purchase of the telephones. Double taxation was thus avoided.

During the relevant period, Mercury regularly offered to sell cellular telephones at a discounted price if the customer contracted to purchase cellular telecommunication services from Mercury for a specific period of time. For those customers who entered into contracts for cellular telecommunication services, Mercury provided cellular telephones for free or for a nominal charge or for a discounted price below Mercury's original cost. Customers who purchased telephones from Mercury without entering cellular service contracts were charged the full retail value of the telephones. Mercury charged all of its cellular service customers the same amount, regardless of whether they acquired a cellular telephone from Mercury. Mercury collected applicable taxes on the "sales price" of the telecommunication products and services purchased by the customer.

The Calcasieu Parish School Board (hereinafter "the School Board") collects sales and use taxes within Calcasieu Parish. In performing this function, the School Board conducted an audit of Mercury's financial records for the period of January 1, 1993 through December 31, 1995. Through this audit, the School Board learned that Mercury regularly furnished cellular telephones to its customers for free or a price less than their actual value. The School Board determined that Mercury did not resell the cellular telephones as required by the resale certificates. Accordingly, the School Board assessed use taxes on these telephones in the amount of $66,016.47, as well as $15,859.62 interest and $16,504.23 delinquency penalties.

Mercury paid the assessed amounts under protest and thereafter filed suit for a refund. Both Mercury and the School Board filed motions for summary judgment. A hearing was held on the motions for summary judgment on January 5, 1999. The trial court determined that Mercury "used" the cellular telephones to attract customers and found this use susceptible to the use taxes assessed by the School Board. The trial court also determined that the School Board properly assessed delinquency penalties and that these penalties were not subject to the good faith defense raised by Mercury. The trial court rendered its judgment on November 29, 1999, wherein it granted the School Board's Motion for Summary Judgment and ordered Mercury to pay all taxes, interest and penalties assessed for the relevant period as well as attorney fees in the amount of $9,838.00, ten percent of the aggregate of the award, plus legal interest. The trial court denied Mercury's Cross Motion for Summary Judgment. Mercury brought this appeal.

III.

LAW AND DISCUSSION

Standard of Review

An appellate court reviews summary judgments de novo, applying the same criteria as the district court in determining whether summary judgment is appropriate. Schroeder v. Board of Supervisors of Louisiana State Univ., 591 So.2d 342 (La.1991); Haley v. Calcasieu Parish School Bd., 99-883 (La.App. 3 Cir. 12/8/99); 753 So.2d 882, writ denied, 2000-54 (La.2/24/00); 755 So.2d 242. Article 966(B) of the Louisiana Code of Civil Procedure provides that summary judgment shall be granted where the pleadings, depositions, answers to interrogatories, admissions on file and affidavits show that there is no genuine issue of material fact and that the mover is entitled to judgment as a matter of law.

The burden of showing that there are no genuine issues of material fact is borne by the mover. La.Code Civ.P. art. 966(C)(2). To satisfy this burden, the mover must present supportive evidence that the motion should be granted. Once the mover establishes a prima facie showing, the burden of production shifts to the nonmoving party to present evidence of the existence of issues of material fact which preclude summary judgement. An adverse party may not rest on the pleadings but must set forth, by affidavit or otherwise, specific facts showing that there is a genuine issue for trial. La.Code Civ.P. art. 967.

Sale v. Use of Cellular Telephones

We first consider whether Mercury "sold" or "used" the cellular telephones it furnished to its customers for less than their actual value, i.e., less than the price for which Mercury purchased the telephones.

Mercury contends that it sold the telephones as part of a "telecommunications package" that included both the cellular telephone and access to Mercury's cellular telecommunication services. Mercury billed its customers for the service package on a monthly basis and collected and remitted sales taxes based on the sale price of this package.

The School Board responds that Mercury "used" rather than "sold" the telephones that it gave away for free or for a nominal amount. The School Board argues that the telephones were not sold in the regular course of business because, although Mercury regularly provided the telephones for free or a nominal amount, no retail business could operate if it regularly engaged in the practice of selling products at or below their cost; rather, Mercury used the telephones to procure cellular service contracts. City of Shreveport v. Kleowdis, 408 So.2d 956 (La.App. 2 Cir.1981) and several cases from other states are cited to buttress this argument.

The Calcasieu Parish School Board Sales and Use Tax Ordinances (hereinafter "the School Board Ordinances") set forth the definitions of "sale" and "use."1 "Sale" includes "any transfer of title or possession or both, exchange, barter, conditional or otherwise, in any manner or by any means whatsoever of tangible personal property for consideration." School Board Ordinance Section 1.16. "Sale is a contract whereby a person transfers ownership of a thing to another for a price in money." La.Civ.Code art. 2439. "Use" is the exercise of any right or power over tangible personal property incident to the ownership thereof, exclusive of the sale at retail of that property in the regular course of business. School Board Ordinance Section 1.23(A). "Sale at retail" includes "a sale to a consumer or to any other person for any purpose other than for resale as tangible personal property." School Board Ordinance Section 1.14(A)(I).

There are three categories of cellular telephone transactions at issue here: (1) those events in which Mercury furnished telephones to its customers for free; (2) those in which Mercury charged only a nominal fee, such as $1.00 for the telephones; and (3) those in which Mercury charged its customers serious consideration but less than the actual price or value of the telephones. Those cellular telephones which were sold at full retail price to persons who did not enter cellular telecommunication service contracts are not at issue in this case.

We begin our analysis with the cellular telephones Mercury provided gratuitously to those customers who entered cellular service contracts. Clearly, free is the antithesis of sale: one cannot "sell" an item that is provided free of charge. Mercury purports to have sold the telephones as part of a telecommunication package, relying, in part, on S & R Hotels v. Fitch, 25,690 (La.App. 2 Cir. 3/30/94); 634 So.2d 922.

In S & R Hotels, 634 So.2d 922, the Second Circuit considered whether a hotel actually charged hotel patrons for foods and beverages it marketed as "complimentary breakfasts." The hotel argued and the court agreed that the designation "complimentary" was a marketing strategy and that the price of the breakfasts was actually included in the...

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