System Fuels, Inc. v. Kennedy
| Decision Date | 27 June 2003 |
| Docket Number | 2002 CA 1723. |
| Citation | 858 So.2d 585 |
| Parties | SYSTEM FUELS, INC. v. JOHN N. KENNEDY, SECRETARY OF DEPARTMENT OF REVENUE, STATE OF LOUISIANA. |
| Court | Court of Appeal of Louisiana — District of US |
On Appeal from the Nineteenth Judicial District Parish of East Baton Rouge State of Louisiana, Trial No. 457,007.
Honorable R. Michael Caldwell, Judge Presiding.
Cheryl M. Kornick, New Orleans, LA, Counsel for Appellee, System Fuels, Inc.
Robert G. Pugh Shreveport, LA, Counsel for Appellant Secretary, Department of Revenue, State of Louisiana.
BEFORE: FOIL, McCLENDON, AND KLINE1, JJ.
Defendant, the Louisiana Department of Revenue ("Department"), appeals the trial court's grant of summary judgment in favor of plaintiff, System Fuels, Inc. ("System Fuels"), determining that its lease obligations, under various leases, did not constitute "borrowed capital" for Louisiana corporate franchise tax purposes. For the following reasons, we affirm.
The Department conducted an audit of System Fuels' books and records for the franchise tax years ending December 1988, 1989, 1990, 1992, 1993, and 1994 to determine whether System Fuels had paid the proper Louisiana corporate franchise tax for those years. As a result of the audit, the Department concluded that System Fuels had underpaid its corporate franchise taxes during the audited years.
The Department's conclusion was based on the existence of five long-term lease agreements entered into by System Fuels during the 1970s. Three of the agreements were leases of immovable property, specifically, leases for fuel oil storage facilities. The remaining two agreements were bareboat charter agreements for the lease of water vessels to transport fuel oil, thus, they were leases of movable property. The Department maintained that System Fuels' obligations to pay rent pursuant to these five leases constituted "borrowed capital" as defined by La. R.S. 47:603 and thus, should have been included in the company's franchise tax base. Because the company excluded those amounts in calculating its franchise tax obligation, the Department claimed that System Fuels had underpaid its franchise taxes during the pertinent years and that the unpaid taxes, together with interest, totaled $459,401.67.
On December 10, 1998, System Fuels made payment under protest of the total amount allegedly owed and, pursuant to La. R.S. 47:1576, the Department placed the disputed amount in escrow. On January 8, 1999, System Fuels filed suit seeking recovery of the $459,401.67 paid under protest. Soon thereafter, pursuant to an agreement by the parties, an additional sum of $51,846.40 was also paid under protest by System Fuels and put into escrow. This additional sum pertained to alleged corporate franchise taxes owed for the franchise tax years ending December 1997, 1998, and 1999.
On November 26, 2001, System Fuels filed a motion for summary judgment contending that its lease obligations did not constitute "borrowed capital" for Louisiana corporate franchise tax purposes. Argument on the motion was heard on April 8, 2002.
In its oral reasons for judgment, the trial court stated "that whatever reasons there may be when a lease is entered into[, other] ... than a conveyance of complete title, that it is still a lease." The trial court determined that the contested agreements were "in fact leases" and based on the case of Traigle v. Gulf Coast Aluminum Corp., 422 So.2d 1190 (La.App. 1 Cir. 1982), writ denied, 429 So.2d 143 (La. 1983), it concluded that System Fuels' obligations pursuant to the leases were not borrowed capital. Accordingly, summary judgment was rendered in favor of System Fuels on May 16, 2002. From this judgment, the Department appeals asserting the following two assignments of error:
1. The Honorable Court below erred when [it] held that a lease could not include "borrowed capital" and that there must be a conveyance of complete title to support an obligation to pay Louisiana Franchise Tax on "Borrowed capital."
2. The Honorable Court below erred in that the indebtedness of System Fuels, as Lessee, to the interposed Lessor should not be included as "borrowed capital" in the franchise tax base of System Fuels pursuant to the Louisiana Tax Statutes [La. R.S. 47:601, et seq.].
On appeal, summary judgments are reviewed de novo under the same criteria that govern the district court's consideration of whether summary judgment is appropriate. Brumfield v. Gafford, 99-1712, p. 3 (La.App. 1 Cir. 9/22/00), 768 So.2d 223, 225. An appellate court thus asks the same questions as does the trial court in determining whether summary judgment is appropriate: whether there is any genuine issue of material fact, and whether the mover is entitled to judgment as a matter of law. Ferguson v. Plummer's Towing & Recovery Inc., 98-2894, pp. 3-4 (La.App. 1 Cir. 2/18/00), 753 So.2d 398, 400.
A motion for summary judgment is a procedural device used to avoid a full-scale trial when there is no genuine factual dispute. The motion should be granted only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law. Naquin v. Louisiana Power & Light Company, 98-2270, p. 4 (La.App. 1 Cir. 3/31/00), 768 So.2d 605, 607, writ denied, 2000-1741 (La. 9/15/00), 769 So.2d 546. In the present case, the facts are undisputed, thus we need only make a determination as to whether System Fuels is entitled to judgment as a matter of law.
In making this determination, we must look to the Louisiana corporate franchise tax statutes set forth in La. R.S. 47:601, et seq. Louisiana Revised Statute 47:601 specifically provides, in pertinent part:
A. Every domestic corporation and every foreign corporation, exercising its charter, or qualified to do business or actually doing business in this state, or owning or using any part or all of its capital, plant, or any other property in this state, subject to compliance with all other provisions of law, except as otherwise provided for in this Chapter shall pay an annual tax at the rate of $3.00 for each $1,000.00, or major fraction thereof on the amount of its capital stock, surplus, undivided profits, and borrowed capital, determined as hereinafter provided[.] (Emphasis added.)
Further, La. R.S. 47:602 A, states:
A. Taxable capital. Every corporation taxed under this chapter shall determine the amount of its issued and outstanding capital stock, surplus, undivided profits and borrowed capital as the basis for computing the franchise tax levied under this chapter and determining the extent of the use of its franchise in this state. (Emphasis added.)
The term "borrowed capital" is then defined in La. R.S. 47:603 as "all indebtedness of a corporation, subject to the provisions of this Chapter, maturing more than one year from the date incurred, or which is not paid within one year from the date incurred regardless of maturity date."
The sole issue before us is a question of law which requires a determination of whether the obligations undertaken by System Fuels pursuant to various lease agreements constitute "borrowed capital" under the aforementioned laws. In making this determination, we are mindful that tax statutes are to be interpreted liberally in favor of the taxpayer. Goudchaux/Maison Blanche, Inc. v. Broussard, 590 So.2d 1159, 1161 (La. 1991). If the statute can reasonably be interpreted more than one way, the interpretation less onerous to the taxpayer is to be adopted. Id.
More specifically, words defining a thing to be taxed should not be extended beyond their clear import. Cleco Evangeline, LLC v. Louisiana Tax Commission, 2001-2162, p. 6 (La.4/3/02), 813 So.2d 351, 355. Absent evidence to the contrary, the language of the statute itself must clearly and unambiguously express the intent to apply to the property in question. Unless the words imposing the tax are expressly in the statute, the tax cannot be imposed. Id., 2001-2162 at p. 7, 813 So.2d at 355.
With these precepts in mind, we address the Department's respective assignments of error.
The Department contends that the trial court erred in finding that the lease obligations did not constitute "borrowed capital" thus, mistakenly mandating that there must be a conveyance of title to support an obligation to pay the Louisiana franchise tax under the "borrowed capital" provisions. The Department concedes that the present case involves leases, wherein no titles are conveyed; however, it argues that the leases in question are actually "financed leases," as opposed to "true leases." According to the Department, any lease obligations owed pursuant to a "financed lease" constitute "borrowed capital" for Louisiana franchise tax purposes, even though no title has passed.
To buttress its argument, the Department relies upon the Louisiana Lease of Movables Act, which defines and distinguishes the terms "financed lease" and "true lease" in La. R.S. 9:3306 as follows:
(12)(a) "Financed lease" means a lease entered into prior to the time Chapter 9 of the Louisiana Commercial Laws (R.S. 10:9-101, et seq.) becomes effective under which:
(i) The lessee is obligated to pay total compensation over the base lease term which is substantially equivalent to or which exceeds the initial value of the leased property; and
(ii) The lessee is obligated to become, or has the option of becoming, the owner of the leased property upon termination of the lease for no additional consideration or for nominal consideration.
* * * *
(26) "True lease" means (a) a lease entered into before January 1, 1990 under which:
(i) The lessee has no obligation to pay total compensation over the base lease term which is substantially equivalent to or in excess of the initial value of the...
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