Par Jason DeCuir
On December 6, 2016, the Supreme Court of Louisiana issued a verdict relating to a St. Martin Parish case that ultimately changed a statute impacting a completely different parish, East Feliciana Parish. In Arrow Aviation Company, LLC v. St. Martin Parish School Board, the issue at dispute is the taxability of repair services performed in Louisiana and shipped to a customer’s location outside the state. Arrow Aviation performs repairs to its customers’ helicopters and then delivers the helicopters back to the customer located outside the state of Louisiana. For customers located outside the state, Arrow Aviation did not charge tax on the repair service. This non-tax treatment was identified by St. Martin Parish during a routine audit, and Arrow Aviation was ultimately assessed tax on these transactions.
Arrow Aviation relied on the optional exclusion provided in La. R.S. 47:301(14)(g)(i)(bb), which states:
For purposes of the sales and use tax levied by the state and by tax authorities in East Feliciana Parish, charges for the furnishing of repairs to tangible personal property shall be excluded from sales of services, as defined in this Subparagraph, when the repaired property is (1) delivered to a common carrier or to the United States Postal Service for transportation outside the state, or (2) delivered outside the state by use of the repair dealer's own vehicle or by use of an independent trucker. However, as to aircraft, delivery may be by the best available means. This exclusion shall not apply to sales and use taxes levied by any other parish, municipality or school board. However, any other parish, municipality or school board may apply the exclusion as defined in this Subparagraph to sales or use taxes levied by any such parish, municipality, or school board. Offshore areas shall not be considered another state for the purpose of this Subparagraph. [Emphasis added.]
The exclusion is optional for St. Martin Parish, and the parish did not opt into the exclusion during the audited period. Therefore, the Supreme Court ruled in favor of the parish and agreed that repair labor charges performed within the state for a customer outside the state is subject to tax within the parish. However, the Supreme Court didn’t stop there!
As stated above, the statute provides for an exclusion of sales tax for the state and East Feliciana Parish; however, the exclusion is optional for all other parishes. During the hearings, the Uniformity Clause under Louisiana Constitution, Article VI, Section 29(D) was used to determine if La. R.S. 47:301(14)(g)(i)(bb) was constitutional. Section 29(D) states that tax laws must be uniform across all local governments and not applicable to only a few. On the other hand, state tax laws do not have to be uniform with parish laws. Because the exclusion was mandated for East Feliciana Parish, but optional for all other parishes, the Supreme Court ruled that the statute is not uniform and therefore unconstitutional.
To correct the unconstitutionality of this statute, the Supreme Court decided to sever the East Feliciana Parish exclusion mandate, effectively making the exclusion mandatory for the state and optional for all parishes.
Therefore, a case in St. Martin Parish resulted in a law change that could impact East Feliciana Parish, if East Feliciana does not decide to opt into the exclusion, which is no longer mandated by statute.
There are other statutes that may have similar uniformity inconsistencies, so it is anticipated that some parishes may start combing through their statutes to determine if there are other unconstitutional mandatory exemptions or exclusions that need to be changed. The lesson from this case is that a lawsuit in one parish could have an impact beyond just that one jurisdiction, so taxpayers and their representatives should always carefully and fully analyze issues before taking an issue to court.
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