Willis-Knighton Med. Ctr. v. Caddo-Shreveport Sales

• Court: Court of Appeal of Louisiana
• Writing for the Court: MOORE, J.
• Citation: Willis-Knighton Med. Ctr. v. Caddo-Shreveport Sales, 862 So.2d 358 (La. App. 2003)
• Decision Date: 10 December 2003
• Docket Number: No. 37,914-CA.,37,914-CA.
• Parties: WILLIS-KNIGHTON MEDICAL CENTER, Plaintiff-Appellee, v. CADDO-SHREVEPORT SALES and Use Tax Commission, Defendants-Appellant.

862 So.2d 358

WILLIS-KNIGHTON MEDICAL CENTER, Plaintiff-Appellee, v. CADDO-SHREVEPORT SALES and Use Tax Commission, Defendants-Appellant.

No. 37,914-CA.

Court of Appeal of Louisiana, Second Circuit.

December 10, 2003.

Applications for Rehearing Denied January 22, 2004.

Barham & Warner, L.L.C. by Richard G. Barham, Shreveport, for Appellant.

Oreck, Bradley, Crighton, Adams & Chase, by Jesse R. Adams, III, Andre B. Burvant, for Appellee.

Before BROWN, CARAWAY and MOORE, JJ.

MOORE, J.

The Caddo-Shreveport Sales and Use Tax Commission ("the Commission") appeals a judgment awarding a substantial refund to the plaintiff, Willis-Knighton Medical Center ("Willis-Knighton"), of sales and use taxes it paid on certain transactions. Willis-Knighton answers the appeal, contesting the denial of other refunds. Finding merit in both parties' positions, we reverse and render.

Procedural Background

Willis-Knighton operates a not-for-profit medical center with three hospitals in Shreveport. In December 1996, Willis-Knighton wrote the Commission to claim a credit for sales and use taxes it overpaid from December 1992 through September 1994; later, it also claimed a credit for overpayments from October 1994 through December 1996. Willis-Knighton claimed, in essence, that its purchases of food for resale to patients, medical devices, blood and blood products, and contract maintenance on immovable equipment, were either excluded or exempt from local sales and use taxes. In early January 1998, the Commission denied both requests for credits.

In mid-January 1998, when Willis-Knighton filed its monthly tax return, it advised the Commission that $47,221 was being paid under protest. Willis-Knighton filed the instant suit in late January 1998, demanding a refund of the sum paid under protest, pursuant to Combined Ordinance ("C.O.") § 11.01, providing for the refund of taxes paid under protest. It also demanded $568,984 for the alleged overpayments between December 1992 and December 1996, pursuant to C.O. §§ 11.02 and 11.04, providing for the full adjudication of any finding of the Commission. Willis-Knighton claimed that it owed no local sales and use taxes for the following¹:

(1) Albumin and other blood products, allegedly exempt under statutes that define "human tissue transplant" to include "blood and blood products" that are placed in a recipient individual. La. R.S. 47:301(10)(d), 33:2717.

(2) Medical devices used by patients to treat diseases under the supervision of and prescribed by their treating physicians, allegedly exempt under R.S. 47:305 D(1)(s).

(3) Repairs and maintenance on Willis-Knighton's MRI, Starcam, X-rays and large sterilizers, on grounds that sales and use tax applies only to repairs of tangible personal property, R.S. 47:301(14)(g), while these items were permanently attached to the hospital building and thus immovable under La. C.C. arts. 465, 466.

The Commission conceded that Willis-Knighton had been cooperative with its auditors, but vigorously denied every other aspect of the claims. The parties filed several motions for summary judgment, all of which were denied. The matter was finally set for trial in September 2002.

On the morning of trial, the Commission filed an exception of no right of action, urging that the only way a taxpayer can obtain a refund is by paying under protest, pursuant to C.O. § 11.01. The court took this under advisement. The parties announced that they had reached agreements with respect to all issues except the exempt status of the medical devices, blood and blood products; whether the nuclear cameras were immobilized; and whether Willis-Knighton waived its claim to any overpayments not made under protest. Three witnesses testified, and the Commission filed a post brief regarding the nuclear cameras.

In December 2002, the district court rendered a written ruling. It first overruled the Commission's exception of no right of action: "Section 10 of the Combined Ordinances provides a procedure for the refund of taxes paid without protest and in error when the claim is made within three years." On the merits, the court found that the nuclear cameras were permanently attached to the hospital, were "other installations" as contemplated by C.C. art. 466, and thus Willis-Knighton was entitled to a refund of local sales and use taxes on contract maintenance for them. Next it found that medical devices were specifically exempt from local sales and use tax under R.S. 47:305 D(1)(s), as enacted in 1985; the court rejected the Commission's argument that a 1991 amendment to subsection D(6), which generally lifted medical exemptions from local taxes, also removed the exemption for medical devices. Thus it found that Willis-Knighton was entitled to a refund of these taxes. Finally, the court found that tissue transplants are exempt from local sales and use tax only if they are "blood or blood products transplanted from one individual into another recipient individual." R.S. 33:2717. The court accepted testimony that currently most transfusions consist of blood products taken from multiple donors. The court therefore rejected this claim for refund.

The judgment ordered the Commission to refund overpayments of $6,724.93 for taxes on service to the nuclear cameras and $356,551.03 for taxes on medical devices for the period December 1992-December 1996, not paid under protest. The judgment also ordered a refund of $21,877.80 for taxes on service to the nuclear cameras and $6,850,617.23 for taxes on medical devices, all paid under protest since January 1998, together with any such taxes paid under protest since trial. All awards were subject to judicial interest. The judgment denied Willis-Knighton's claims totaling $135,590.11 for local taxes paid on blood and blood products.

The Commission appealed suspensively, urging the court erred in overruling the exception of no right of action, exempting the sales of medical devices, and finding that the nuclear cameras were component parts of the building. Willis-Knighton answered the appeal, urging the court should have found that blood products were excluded from local sales and use taxes.

Discussion: Exception of No Right of Action

By its first assignment the Commission urges the court should have sustained its exception of no right of action. It contends that as a general rule, if there is a question of fact or law, a taxpayer must pay the taxes under protest as a predicate to filing suit. Kean's Partnership v. Parish of East Baton Rouge, 96-0751 (La.11/25/96), 685 So.2d 1043; Ingram Oil Co. v. St. John the Baptist Parish School Bd., 406 So.2d 784 (La.App. 4 Cir.1981),writ denied,412 So.2d 87 (La.1982). Payment under protest is a specific requirement of C.O. § 11.01, and refund without payment under protest is available only when there is "no question of fact or law," C.O. § 10.04, a situation not present in this case.

Willis-Knighton concedes that § 11.01 establishes the procedure of paying under protest, but argues it is not the sole procedure to obtain relief from the Commission. It contends that §§ 10.02, 10.03 and 10.04 allow taxpayers to file claims for refund of taxes any time within three years of payment, without protest. It concedes that § 10.04 appears to limit this procedure to cases of "no question of fact or law," but urges this would lead to the "audacious position" that once the Commission decides to deny a refund request, the taxpayer is without remedy.

The taxpayer's remedy for grievances arising out of the tax ordinance is defined by C.O. § 11.01:

A right of action is hereby created to afford a remedy at law for any dealer aggrieved by the provisions of this ordinance; and in case of any such dealer resisting the payment of any amount found due, or the enforcement of any provisions of such laws in relation thereto, such dealer shall pay the amount found due by the Administrator and shall give the Administrator notice, at the time, of his intention to file suit for the recovery of the same; and upon receipt of such notice the amount so paid shall be segregated and held by the Administrator for a period of thirty (30) days; and if suit be filed within such time for recovery of such amount, such funds so segregated shall be further held, pending the outcome of such suit. If the dealer prevails, the Administrator shall refund the amount to the claimant, with interest at the rate of two percent (2%) per annum covering the period from the date the said funds were received by the Caddo-Shreveport Sales and Use Tax Commission to the date of refund.

This procedure, called "payment under protest," complies with due process requirements. Cat's Meow Inc. v. City of New Orleans, 98-0601 (La.10/20/98), 720 So.2d 1186; McKesson Corp. v. Division of Alcoholic Bev. & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990). Willis-Knighton plainly did not pay under protest from December 1992 through December 1996. Instead, it demanded a refund without protest. That procedure is defined by § 10.04:

Where no question of fact or law is involved, and it appears from the records of the Caddo-Shreveport Sales and Use Tax Commission that any monies have been erroneously or illegally collected from any dealer, or have been paid by any dealer under a mistake of fact or law, the Administrator may, at any time within three (3) years of payment, upon making a record in writing of his reasons therefor, certify that any dealer is entitled to such refund and thereupon the Administrator shall authorize the payment thereof from any appropriation available for such purposes.

In Kean's Partnership v. Parish of East Baton Rouge, supra, the taxpayer advanced exactly the same argument as that now raised by Willis-Knighton, based on East Baton Rouge city-parish ordinances that are the equivalent of C.O. §§ 10.04 and 11.01.² By a plain reading of § 10.04's analog, the supreme court found that "when no question of fact or law exists and the taxes...