Mercury Cellular Telephone Company is a telecommunications service provider that operates retail outlets in Southwest Louisiana. At their sites in Calcasieu Parish, provider offers equipment, accessories and services to the general public. The company purchases its inventory of cellular telephones directly from the manufacturer and/or wholesalers to whom it presents a "resale certificate" indicating that it intends to resell the phones and collect sales taxes from the customer.
          Mercury regularly offered to sell phones at a discounted price, if the customer would contract for services for a specific period of time. For such customers, the provider would make phones available for free, or for a very nominal fee or for a discounted price that would be below their original purchase price.
          For those persons making purchases without a service contract, a full retail price was charged. The price of services remained the same with or without the provider’s equipment. Mercury collected applicable taxes on the sales price of the products. The Calcasieu Collector (School Board) conducted an audit for the period of 1993 - 1995. The audit indicated that Mercury furnished cellular telephones to its customers for free or a price less than their cost for the same equipment. Determining that the provider did not meet the requirements of the resale certificates, the collector assessed use taxes, penalties and interest on the phone transactions.
          Mercury paid the assessed amount under protest and filed suit for recovery. A hearing was held on the motions for summary judgment. The trial court determined that the provider used the phones to attract customers and found this susceptible to the use taxes assessed. The trial court denied the providers cross motion for summary judgement which brought about an appeal.
          Sale v use of telephones..... The appeals court first reviewed whether Mercury "sold" or "used" the phones. Mercury contended that it sold the phones as part of a "telecommunications package" that included both the cellular phone and access to its cellular telecommunication service. They billed its customers for the service package on a monthly basis and collected and remitted the taxes on the sale price of the package.
          The collector responded that Mercury "used" rather than "sold" the phones that it gave away for free or for a nominal amount. The collector sited the fact that no retailer could operate if they maintained a practice of selling merchandise at, or below, their cost. The collector argued that Mercury used the phones to procure cellular service contracts.
          The Calcasieu Ordinance defines the "sale" as being a transfer of title or possession or both, exchange, barter, conditional or otherwise, in any manner or by an means whatsoever of tangible personal property for a consideration. The Civil Code defines a sale as being a contract whereby a person transfers ownership of a thing to another for a price in money. The Ordinance define"use" as 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.
          The Ordinance also defines "sale at retail" as being a sale to a consumer or to any other person for any purpose other than for resale as tangible personal property.
          There are three issues to be reviewed: (1) those events in which the provider furnished telephones to its customers without a fee; (2) those in which only a nominal fee, such as $1.00 was charged; and (3) those which the provider charged its customers serious consideration but less than the actual price or value of the phones.
          Although not an issue in this case, the provider also sold telephones at full retail price to persons who did not enter into a cellular telecommunication service contract.
          The court’s analysis, relative to the sale of equipment involved in service, " one cannot sell an item that is provided free of charge." Remember, Mercury purports to have sold the phones as part of a telecommunication package. Mercury could not show that it charged any price for the phones provided its customers. Cellular customers were charged the same rates regardless of whether they received a telephone. There was no evidence presented that the customers paid any consideration for the phones as required for a "sale" as provided for by ordinance.
          After eliminating the sale option, the court next considered whether Mercury "used" the free cellular telephones. Mercury claims that cellular telephones are not used until the ultimate customer either initiates or receives a call. The definition of "use" in the local ordinance expressly includes the exercise of any right or power incident to ownership. Louisiana Civil Code identifies the incidents of "ownership": "Ownership is the right that confers on a person a direct, immediate, and exclusive authority over a thing. The owner of a thing may use, enjoy, and dispose of it within the limits and under the conditions established by law." Under the civilian theory of ownership, using an item to perform its intended junction is not the sole means of exercising ownership. Additionally, ownership rights include the right to dispose of that item. Applying these principles to the facts of this case, the court found that Mercury used the cellular telephones it provided to its customers gratuitously in that: 1) Mercury used the free phones to entice customers to enter telecommunications contracts, and 2) relinquishing property to another who acquires ownership is a "disposition" of that property only legally available to its owner.
          The court then reviewed nominal sales..Mercury included the nominal amount in the sale price of the cellular service contract and charged its customers sales taxes on these amounts. Sales at retail in the regular course of business are excluded from use taxes. It is implicit in conventional business practices that "sales at retail" made in the regular course of business will be for a profit, with items occasionally being sold at a discounted price.
          Sales for nominal consideration are the subject of LA Civil Code Article 2464 which provides, in pertinent part, "the price must not be out of all proportion with the value of the thing sold." "Thus, the sale of a plantation for a dollar is not a sale, though it may be a donation in disguise." The count found that regularly providing retail property to customers for a nominal fee is not a "sale at retail in the regular course of business." A sale for a nominal amount is more akin to a donation than a sale. Instead of selling these telephones, Mercury used them in the same manner in which it used those telephones it provided gratuitously.
          In the third category, telephones for which serious considerations, more than nominal but less than retail or cost to Mercury, the court found......the local ordinance defines a "sale" as the transfer of ownership for a consideration.
          While at first blush such a transaction may plausible be seen as a valid sale, the fact of the matter is that this transfer is an incentive invariably provided by Mercury as a conduit for marketing its cellular service. It is also not a "sale at retail in the regular course of business." Use taxes are, therefore, due on these transactions.
          Appropriate taxes... Having determined that the provider used cellular telephones that it furnished to its customers either gratuitously or for a nominal charge and also used those cellular telephones for which it charged serious consideration, the court sought to determine the appropriate taxes due.
          Being guided by the well established principle that taxing statutes are strictly construed against the taxing authority and courts will adopt the construction favorable to the taxpayer.
          At the time Mercury purchased the cellular telephones at issue here it presented a certificate of resale, certifying that the telephones were purchased for resale. The effect of presenting the certificate of exemption is that Mercury was not assessed sales tax on items it purchased for resale in order to avoid double taxation. However, Mercury failed to resell some of those telephones and, therefore failed to collect the appropriate taxes. The Court found that Mercury owed use taxes for those telephones.
          Mercury alleges that it sold the cellular telephones at issue here in a telecommunication package which included both the cellular telephone and access to cellular telecommunication services. Mercury contends that the collector is seeking to tax cellular telecommunication services which are exempt from taxes assessed by local political subdivision. The court found this argument to be completely without merit.
          Penalties and defenses... The collector assessed delinquency penalties for Mercury’s failure to pay the taxes timely. Mercury paid the taxes under protest and argued that delinquency penalties should not be assessed because it made a good faith effort to pay the taxes it believed it owed.
          Under local ordinance, delinquency penalties shall be collected when the amount of tax due by a dealer is not paid by the date due. The ordinance also permits the collector to assess negligence penalties when the circumstances indicate willful negligence or intentional disregard of rules and regulations but no intent to defraud.
          Louisiana courts have declined to assess delinquency penalties under very limited circumstances. The court found good faith not available as a defense to the penalties assessed here. Furthermore, even if it were, we (court) would find the defense of good faith inapplicable because Mercury regularly purchased cellular telephones upon presentation of a certificate of resale and then furnished those telephones gratuitously to its customers who entered telecommunication service contracts. This intentional misrepresentation which operated to preclude the local taxing authorities from collecting any taxes on these phones would render the good faith defense unavailable.
          Conclusion... The judgment of the trial court is affirmed regarding the assessment of use taxes for the cellular telephones Mercury furnished to its customers at a price less than the cost to Mercury. All cost, including delinquency penalties, interest and attorney fees were also affirmed.

 

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          Although this issue has been cussed and discussed many times, there still seems to be some that may not have gotten the word, or refuse to believe it. Bob R. did a wonderful job of covering this at the annual conference.
          Jointly, the Louisiana Municipal Association and East Baton Rouge Parish challenged the constitutionality of Act 1266 (1999) which exempted items purchased for subsequent lease from local sales taxes.
          The challenge was based on the fact that the exemption was enacted in an odd-numbered year.
          In December of 1999, the trial court found in favor of the LMA and East Baton Rouge declaring Act 1266 unconstitutional. The court’s findings was based on the constitutional prohibition against enacting tax exemptions in odd-numbered years.
          The State Supreme Court has upheld the passage of the 1999 Legislative Session that exempts items purchased for subsequent lease or rental from local sales taxes.
          The suit claimed that the law was unconstitutional because tax related issues cannot be acted upon during a regular legislative session in an odd-numbered year. The Constitution prohibits passage of tax measures during such years.
          The state argued that the prohibition only pertained to state taxes only and that it did not include local taxes.
          The high court analyzed the amendments of the 1993 Constitution, including the work of the committees, as the amendments worked their way through the legislative process.
          Relying on "legislative intent," the court found against a literal reading of the constitutional provision that would prohibit the state from enacting a local exemption.
          One should read the original bill on this issue, as the exemption is progressive in nature. There is a 25% four year phase-in provision for total exemption. This Act will amend La RS 47:301(10)(a)(iii) and La RS 47:301(18)(a)(iii).

          During our recent Annual Conference, held in Shreveport, our Legislative Committee Members met with members of the Society of Louisiana Certified Public Accountants’ Tax Committee.
          The LCPA membership include both CPAs in public practice as well as CPAs in the business and industry field. The organization, formed in 1911, is much like our organization in as much as its purpose is also to investigate and inform its membership of current issues that may impact their profession.
          The topics of discussion included, in addition to others, the Uniform Tax Code, Streamlined Tax Project, Taxability of Lease and Rentals and current litigation.
          Just as this one, future meetings will be scheduled as part of our annual conference. The next scheduled gathering will be in Baton Rouge, December 2001.

          In specific circumstances, statute permits public utilities to pass on to its customers the cost of payments, which the utility pays to political subdivisions. Such payments may also including certain taxes. However, that statute cannot be interpreted as the authority for a fire protection district to levy and collect a tax from public utilities. Such provisions do not allow any additional levy against public utilities. 

(OAG No 327, 10, 2000)

          The 34^th Annual Conference was held at the Sheraton Hotel in Shreveport on December 6, 7 & 8, 2000.
          In addition to an interesting and informative meeting, elections were also held for calendar year 2001. Although most are ole hands, so to speak, there will be several new faces on the Board.
          Although not new as an officer, Steve Thomas with the City of Baton Rouge will succeed Jerry McWherter as President. J.C. Blank will be replacing Carl Meche as Second Vice President while Carl moves to First Vice President.
          Although Ron Carter, Morehouse Tax Commission, filled the unexpired term of Ella Vining during 2000, this will be his first full term. Earl Primeaux, Beauregard Parish Sheriff’s Office was also elected to the Board replacing J.C. Blank.

The Officers and Board Members for 2001 are as follows:

Officers -
	President		Steve Thomas
	1st Vice Pres		Carl Meche
	2nd Vice Pres		J.C. Blank, Jr.
Board of Directors -
	1st District		Ron Carter
	2nd District		Barry Dufrene
	3rd District		Michael Veillon
	4th District		Earl Primeaux
	5th District		Donna Andries
	6th District		Chris Robinette
	7th District		Michael Curtis
	8th District		Gene Barham
	LDR		Raymond Tangney
	LMA		Clarence Hawkins

 

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          Louisiana imposes a tax on tangible personal property when the item is not sold, but is used, consumed, distributed, or stored for use or consumption in the state.
          The taxpayer asserted that they purchased the aircraft for the purpose of transporting its employees from Louisiana to locations outside the state.
          The Department’s action was based on a use tax being assessed when the aircraft was delivered to a point in the state.
          The Department basically found that although interstate commerce action may ultimately happen, any such action would not commence prior to the delivery, and therefore the exclusion was inapplicable.
          The court found that there was sufficient evidence that the craft was intended as a method of transportation for employees from a point in Louisiana, to a point outside of Louisiana.
          Therefore, with the ultimate use of the property being used in interstate commerce, the transaction is not subject to use tax even if imported to, stored, and occasionally used in Louisiana.

(Shaw Group v Kennedy, 1^st Cir, #99-CA-1871)

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          PricewaterhouseCoopers and the LATA is currently reviewing the possibility of a joint venture, based on the work of the Jurisprudence Committee, as headed up by Donna Andries, and the Legislative Committee, as chaired by George Marretta and Thaddeus Marcell.
          If reached, the venture would include a web publication and a consulting service for a subscription fee.

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          A group of four persons representing a class of concerned citizens were "not" barred from litigating their claim that Bossier City contracted away its authority to impose casino (boat) boarding fees.
          The court agreed that these individuals’ interest had not been adequately represented in a prior lawsuit involving the local school board against the city and the gaming entities.
          In that matter the school board did challenged the validity of similar fee contracts, however, the were later stipulated to be valid.
          After which there appeared to be a lost of interest as they failed to even appear at other proceedings.

(Hudson v Bossier City, 2^nd Cir, Dkt 33,620-CA)

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          A municipality can levy an occupancy tax, unless the tax has been implemented by the legislature, or approved by the voters.
          The power to taxation rests with the legislature, although the Constitution authorizes municipalities to levy and collect a general local sales tax on all taxable transactions, including hotel rooms.

(OAG 00-258, 2000)

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In the Great supermarket of life,

may the wheels on your grocery

cart all move in the same direction.