The opinion
STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT
14-1253
NELSON INDUSTRIAL STEAM CO.
VERSUS
CALCASIEU PARISH SCHOOL SYSTEM SALES AND USE TAX DEPT.,
ET AL.
**********
APPEAL FROM THE
FOURTEENTH JUDICIAL DISTRICT COURT
PARISH OF CALCASIEU, NO. 2013-2661
HONORABLE RONALD F. WARE, DISTRICT JUDGE
**********
ULYSSES GENE THIBODEAUX
CHIEF JUDGE
**********
Court composed of Ulysses Gene Thibodeaux, Chief Judge, Billy Howard Ezell,
and John E. Conery, Judges.
CONERY, J., dissents and assigns reasons.
AFFIRMED.
H. Alan McCall
Stockwell, Sievert, Viccellio, Clements & Shaddock
Post Office Box 2900
Lake Charles, Louisiana 70602
Telephone: (337) 436-9491
COUNSEL FOR:
Defendant/Appellant - Nelson Industrial Steam Co.
Christopher J. Dicharry
Linda S. Akchin
Kean Miller LLP
400 Convention Street - Suite 700
Baton Rouge, Louisiana 70802
Telephone: (225) 387-0999
COUNSEL FOR:
Defendant/Appellant - Nelson Industrial Steam Co.
Russell J. Stutes, Jr.
Stutes & Lavergne, LLC
600 Broad Street
Lake Charles, Louisiana 70601
Telephone: (337) 433-0022
COUNSEL FOR:
Plaintiffs/Appellees - Cynthia Bridges, Sec., Dept. of Rev., State of
Louisiana; Calcasieu Parish School System Sales & Use Tax Dept., and
John Collins, Tax Administrator
Cheryl M. Kornick
Liskow & Lewis
One Shell Square
701 Poydras Street - Suite 5000
New Orleans, Louisiana 70139-5009
Telephone: (504) 581-7979
BRIEF OF AMICUS CURIAE – Louisiana Chemical Association
THIBODEAUX, Chief Judge.
For the reasons discussed in the consolidated case of Cynthia Bridges,
Sec., Dept. Of Rev., State Of Louisiana v. Nelson Industrial Steam Co., 14-1250
(La.App. 3 Cir. __/__/15), ___ So.3d ___, the judgment of the trial court is
affirmed. Costs of this appeal are assessed against NISCO.
AFFIRMED.
No. 14-1250, (c/w) No. 14-1251, (c/w) No. 14-1252, (c/w) No. 14-1253
COURT OF APPEAL, THIRD CIRCUIT
STATE OF LOUISIANA
No. 14-1250; Cynthia Bridges, Sec. Dept. of Rev., State of Louisiana v. Nelson
Industrial Steam Co.
(c/w)
No. 14-1251; Nelson Industrial Steam Co. v. Calcasieu Parish School System Sales
and Use Tax Dept., et al.
(c/w)
No. 14-1252; Cynthia Bridges, Sec. Dept. of Rev., State of Louisiana v. Nelson
Industrial Steam Co.
(c/w)
No. 14-1253; Nelson Industrial Steam Co. v. Calcasieu Parish School System Sales
and Use Tax Dept., et al.
CONERY, J., dissenting.
The central issue in these four consolidated cases is whether NISCO’s
purchase of limestone used in its manufacture of electricity, steam, and ash should
be excluded from sales tax pursuant to La.R.S. 47:301(10)(c)(i)(aa), expressly
referred to by the supreme court as the “further processing exclusion.” Int’l Paper
Inc. v. Bridges, 07-1151 (La. 1/16/08), 972 So.2d 1121, 1128. The statute at issue
providing for the exclusion states, “The term ‘sale at retail’ does not include sale
of materials for further processing into articles of tangible personal property
for sale at retail.” La.R.S. 47:301(10)(c)(i)(aa) (emphasis added). Because a tax
exclusion is at issue, the statute must be liberally construed in favor of the taxpayer
and against the State (LDR) and Parish (CPSS), herein collectively referred
textually as “Tax Collectors.” Harrah’s Bossier City Inv. Co., LLC v. Bridges, 09-
1916 (La.5/11/10), 41 So.3d 438. The trial court and majority incorrectly
interpreted the law as though the exclusion in question was a tax exemption and
construed the “exemption” narrowly in favor of the Tax Collectors. I submit their
decisions were wrong as a matter of law and respectfully dissent.
For many years prior to the audits at issue, the Tax Collectors treated
limestone used in NISCO’s manufacturing process to reduce sulfur emissions in
the production of electricity, steam, and ash as a raw material subject to the further
processing exclusion, thus excluding NISCO’s purchase of limestone from sales
tax. The CFB technology employed by NISCO in its manufacture of electricity,
steam, and ash required the use of limestone and was contemplated by NISCO
from the inception of its April 28, 1988 partnership agreement for production of
those products. NISCO’s facility was converted from natural gas to the CFB
technology it now uses in 1992, as originally planned. That technology
incorporates the use of petcoke as opposed to natural gas as fuel for the boilers
used in the process. As correctly noted by the majority, limestone is required to
reduce the emissions of sulfur from the petcoke burned in the boilers as fuel, and in
the process, the limestone is simultaneously processed into an ash. The ash is the
result of a combination of the carbon and oxygen from the limestone and the sulfur
from the petcoke, which results in a mixture of calcium oxide and calcium sulfate
ash. There is a ready market for the ash, one of the products to be sold as planned
from the beginning. Neither the CFB technology, nor the law applicable to the
further processing exclusion, La.R.S. 47:301(10)(c)(i)(aa), has changed since 1992.
What did change was the decision by the Tax Collectors in this case to tax the
limestone used in the manufacturing process beginning with audits dating back to
the tax year 2005.
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The trial court in its judgment, and cryptic reasons for ruling, affirmed by
the majority, found, “It is also undisputed that limestone in any form, or its
component parts, is not found in the steam and electricity produced” by NISCO.
The trial court further stated, “Just because the ash is an incidental byproduct of the
[CFB] process, its production, even in combination with the production of steam
and electricity, does not in and of itself permit NISCO to claim the benefit of the
further processing tax exclusion on its purchase of limestone.”
Respectfully, the trial court and majority misconstrued the law applicable to
a tax exclusion in this case. In affirming, the majority states, “Here, NISCO seeks
to be exempt from paying sales taxes on its $46 million purchase of sand and
limestone[.]” To the contrary, it is the Tax Collectors who are bringing this suit
and the Tax Collectors who must bear the burden of establishing that the raw
materials used in NISCO’s manufacturing process are not subject to the tax
exclusion provided by the legislative act in question. This case, essentially, is
about statutory construction.
The trial court and the majority have determined that since the ash, one of
the three products produced in the manufacturing process and sold by NISCO, is
not the primary product sold by NISCO, and is not as economically profitable as
electricity and steam, then the limestone purchased by NISCO and required to be
used in its process is not subject to the further processing exclusion and is subject
to sales tax. The undisputed record, however, supports NISCO’s argument that
NISCO always contemplated sale of the ash as one of the products produced for
resale, along with electricity and steam, and continued to develop its market for its
ash product. Since 1996 through today, NISCO has sold 100% of its ash output to
LA Ash. According to the record, it is estimated that NISCO sells approximately
3
600-800 pounds of ash daily and some 200,000 to 250,000 tons annually. Ash is
clearly more than just a “by product” of NISCO’s manufacturing process. It is
especially clear, and not subject to dispute, that ash is one of the products, plural,
produced for resale in the manufacturing process, though admittedly, not the
primary or most profitable product.
Statutory Interpretation
In McLane Southern, Inc., 11-1141, pp. 5-7 (La. 1/24/12), 84 So.3d 479, 483,
the Louisiana Supreme Court succinctly stated the requirements for the judicial
interpretation of statutes:
“It is a fundamental principle of statutory interpretation that
when a ‘law is clear and unambiguous and its application does not
lead to absurd consequences, the law shall be applied a written, and no
further interpretation may be made in search of the intent of the
legislature.’” Harrah’s Bossier City Inv. Co., LLC v. Bridges, 09-
1916 (La.5/11/10), 41 So.3d 438, 446-447 (citing La. C.C. art. 9).
This principle applies to tax statutes. Cleco Evangeline, LLC v.
Louisiana Tax Com’n, 01-2162 (La.4/3/02), 813 So.2d 351, 354;
Tarver v. E.I. Du Pont De Nemours and Co., 93-1005 (La.3/24/94),
634 So.2d 356, 358. When the law is not clear and unambiguous or
its application leads to absurd consequences, we must rely on the
secondary rules of statutory interpretation to discern the meaning of
the statutes at issue. Id. The fundamental question in all cases of
statutory interpretation is legislative intent and the ascertainment of
the reason or reasons that prompted the Legislature to enact the law.
Pumphrey v. City of New Orleans, 05-0979 (La.4/4/06), 925 So.2d
1202, 1210 (citing In re Succession of Boyter, 99-0761 (La.1/7/00),
756 So.2d 1122, 1128). The rules of statutory construction are
designed to ascertain and enforce the intent of the Legislature. Id.;
Stogner v. Stogner, 98-3044 (La.7/7/99), 739 So.2d 762, 766.
The meaning and intent of a law is determined by considering
the law in its entirety and all other laws on the same subject matter
and placing a construction on the provision in question that is
consistent with the express terms of the law and with the obvious
intent of the Legislature in enacting it. Pumphrey, supra at 1210
(citing Boyter, supra at 1129; Stogner, supra at 766). The statute
must, therefore, be applied and interpreted in a manner, which is
consistent with logic and the presumed fair purpose and intention of
the Legislature in passing it. Id. (Citing Boyter, supra at 1129.) This
is because the rules of statutory construction require that the general
4
intent and purpose of the Legislature in enacting the law must, if
possible, be given effect. Id. Courts should give effect to all parts of a
statute and should not give a statute an interpretation that makes any
part superfluous or meaningless, if that result can be avoided. Id. It is
likewise presumed that the intention of the legislative branch is to
achieve a consistent body of law. Id. (Citing Stogner, supra at 766).
Tax exclusions are to be liberally construed in favor of the taxpayer and
strictly construed against the taxing authority. In Harrah’s, the supreme court
explained the difference between a tax exemption and a tax exclusion as follows:
According to the leading Louisiana sales tax treatise, a “tax exemption
is a provision that exempts from tax a transaction that would, in the
absence of the exemption, otherwise be subject to tax. That is, there
has been a statutory decision not to tax a certain transaction that is
clearly within the ambit and authority of the taxing statutes to tax.”
Bruce J. Oreck, Louisiana Sales & Use Taxation (2d ed.1996), § 3.1.
An exclusion, on the other hand, “relates to a transaction that is not
taxable because it falls outside the scope of the statute giving rise to
the tax, ab initio. Transactions excluded from the tax are those which,
by the language of the statutes, are defined as beyond the reach of the
tax.” Id. Oreck’s definitions have been widely adopted by Louisiana
courts.
Harrah’s, 41 So.3d at 446 (footnote omitted).
Our courts have continued to apply the principle of statutory construction
that, “Taxing statutes must be strictly construed against the taxing authority; where
a tax statute is susceptible of more than one reasonable interpretation, the
construction favorable to the taxpayer is to be adopted.” Cleco Evangeline, LLC, v.
La. Tax Com’n, 01-2162, p. 8 (La. 4/3/02), 813 So. 2d 351, 356.
Therefore, the task of the trial court was to apply the law as stated by the
legislature and enlightened by the jurisprudence interpreting Louisiana’s taxation
of goods sold at retail.
5
Applicable Law
Louisiana Revised Statutes 47:302(A) states in pertinent part, “There is
hereby levied a tax upon the sale at retail, the use, the consumption, the
distribution, and the storage for use or consumption in this state, of each item or
article of tangible personal property, as defined herein.” (Emphasis added.)
The definition for “sale at retail” is found in La.R.S. 47:301(10)(a)(i), which
provides, in pertinent part, “Solely for the purposes of the imposition of the state
sales and use tax, “retail sale” or “sale at retail” means a sale to a consumer or to
any other person for any purpose other than for resale as tangible personal
property. (Emphasis added.)
As previously indicated, La.R.S. 47:301(10)(c)(i)(aa), expressly referred to
as the “further processing exclusion,” further clarifies, “The term ‘sale at retail’
does not include sale of materials for further processing into articles of
tangible personal property for sale at retail.” (Emphasis added.) Int’l Paper
Inc., 972 So.2d at 1128.
Under either statute, the ash in this case is clearly a product manufactured
for resale as tangible personal property.
The regulations adopted by the Department of Revenue also require that the
Tax Collectors give a broad or liberal interpretation in favor of the taxpayer.
Louisiana Administrative Code, Title 61, Part I, § 4301 entitled, “Uniform State
and Local Sales Tax Definitions,” provides under section 4301(A) in pertinent part:
A. General. Words and phrases shall be read with their context and the
specific section of law to which they are applicable. They shall be
construed according to the common usage of the language. Technical
words and phrases, and such others as may have acquired a
peculiar meaning in the field of taxation shall be construed
according to such peculiar meaning.
6
(Emphasis added.)
Louisiana Administrative Code, Title 61, Part I, § 4301(C) further provides
under the definition of “Retail Sale or Sale at Retail” the following:
d. Sales of materials for further processing into articles of tangible
personal property for subsequent sale at retail do not constitute
retail sales. This exemption does not cover materials which are used
in any process by which tangible personal property is produced, but
only those materials which themselves are further processed into
tangible personal property. Whether materials are further processed
or simply used in the processing activity will depend entirely upon an
analysis of the end product. Although any particular materials may be
fully used, consumed, absorbed, dissipated, or otherwise completely
disappear during processing, if it does not become a recognizable and
identifiable component which is of some benefit to the end product, it
is not exempt under this provision. The fact that a material remained
as a recognizable component of an end product by accident because
the cost of removal from the end product was prohibitive or for any
other reason, if it does not benefit the property by its presence, it was
not material for further processing and the sale is not exempt under
this provision.
(Emphasis added.)
Clearly, the ash produced in this case also meets the definition contained in
the regulation, tangible personal property for subsequent sale at retail. See La.R.S.
47:301(10)(c)(i)(aa). There is no “primary purpose test” or “economic benefit
test” in either the statute or regulation. The controlling supreme court
jurisprudence requires a liberal interpretation in favor of the taxpayer and
specifically rejects the “primary purpose” test espoused by appellees. See Int’l
Paper, 972 So.1121; Harrah’s, 41 So.3d at 438.
In International Paper, the supreme court stated that, “‘Sale at retail’ under
La.R.S. 47:301(10)(a)(i) can take on different meanings, depending upon the
taxing authority involved and/or the product(s) being sold.” Int’l Paper, 972 So.2d
at 1128. The supreme court then conducted an exhaustive review of the history of
7
the “further processing exclusion.” See La.R.S. 47:301(10)(c)(i)(aa). The issue in
International Paper involved a process called “short sequence bleaching,” in
which chemicals or raw materials were used to bleach the brown color from pulp
in order to produce a lighter color suitable for certain paper production. The
chemicals or “Raw Materials” used in the bleaching process were sodium chlorate,
hydrogen peroxide, and elemental oxygen. See Int’l Paper, 972 So.2d 1121. The
Board of Tax Appeals found in favor of International Paper and excluded all of the
“Raw Materials” from taxation based on the further processing exclusion, as those
“Raw Materials” were used in the eventual production of the lighter colored paper
products it sold. The second circuit reversed on appeal, finding that a further test,
the “primary purpose test” had to be applied. See Int’l Paper, 972 So.2d at 1126-
27.
The supreme court then reversed the appellate court and held:
We find that the appellate court correctly determined that the
“further processing exclusion” applies to those raw materials
becoming recognizable and integral parts of the end products, while at
the same time, the raw materials subject to the tax exclusion must be
beneficial to the end products. However, our review of the applicable
law and jurisprudence does not suggest that the raw materials
themselves i.e., the exact chemical/physical compositions of the raw
materials) must appear in the end products, nor does the law suggest
that the primary purpose for the purchase of these raw materials
must be their incorporation into the end products.
Id. at 1133 (emphasis added).
In International Paper, the supreme court then concluded that the inclusion
of a primary purpose analysis applied by the appellate court was an improper
expansion of its prior rulings in Traigle v. P.P.G. Ind. Inc., 332 So.2d 777 (La.
1976) and Vulcan Foundry, Inc. v. McNamara, 414 So.2d 1193 (La. 1982):
To be excluded from the sales and use tax provisions, we also
agree that the raw materials must be purchased with the purpose of
8
incorporating said materials into the end products (i.e., the raw
materials are “material for further processing”); however, in the
instant case, the appellate court found that, to be excluded from taxes,
the raw materials must have been purchased for the primary purpose
of incorporation into the end products.
....
The appellate court appears to have expanded upon our
holdings in the aforementioned cases, as neither the Traigle Court, nor
the Vulcan Court, suggested that a “primary purpose” test was
required. Rather, both the Traigle and Vulcan Courts recognized the
necessity of a “purpose” test.
....
Accordingly, to be excluded from sales and use tax, we find
that the raw materials must have been purchased for the purpose of
incorporation within the end products, as the raw materials must be
material for the further processing of the final products produced.
Int’l Paper, 972 So.2d at 1135 (footnotes omitted) (emphasis in original).
In International Paper, the supreme court specifically found that the
application of the further processing exclusion does not require that “the exact
chemical/physical compositions of the raw materials[] must appear in the end
products, nor does the law suggest that the primary purpose for the purchase of
these raw materials must be their incorporation into the end products.” Int’l Paper,
972 So.2d at 1133. The supreme court in International Paper reaffirmed the three-
part test from its prior rulings, and specifically rejected the primary purpose test
utilized by the appellate court in that case in its ruling. See Int’l Paper, 972 So.2d
1121.
Notably, the supreme court in International Paper specifically used the word
“products,” plural, in discussing the “further processing exclusion,” and stated,
“Accordingly, to be excluded from sales and use tax, that the raw materials must
have been purchased for the purpose of incorporation within the end products, as
the raw materials must be material for the further processing of the final
9
products produced.” Int’l Paper, 972 So.2d at 1135 (second emphasis added).
NISCO’s manufacturing process produces three products, electricity, steam, and
ash, and buys and uses limestone as a necessary component to produce those final
three products.
The supreme court in Tin, Inc. v. Washington Parish Sheriff’s Office, 12-
2056 (La. 3/19/13), 112 So.3d 197, n. 2 (citations omitted), again applied the three
part test adopted in International Paper in connection with the further processing
exclusion referenced in La.R.S. 47: 301(10)(c)(i)(aa), and stated:
This Court has held that raw materials further processed into end
products are excluded from this sales and use tax provision if: (1) the
raw materials become recognizable and identifiable components of the
end products; (2) the raw materials are beneficial to the end
products; and (3) the raw materials are material for further processing,
and as such, are purchased with the purpose of inclusion in the end
products. See International Paper, Inc. v. Bridges, 07-1151
(La.1/16/08), 972 So.2d 1121, 1136.
(Emphasis added.)
Again, the supreme court used the word products, plural. It is clear from
the supreme court’s decisions in International Paper and Tin, Inc., that products
purchased for sale at retail are deemed to be an exclusion from the imposition of
sales taxes. Further, a tax exclusion such as this one at issue is to be “construed
liberally in favor of the taxpayers and against the taxing authority” as found in
Harrah’s, 41 So.3d at 446. A tax exemption, on the other hand, is “strictly
construed in favor of the State and ‘must be clearly and unequivocally and
affirmatively established’ by the taxpayer.” Id. at 446. In this case, we are by
supreme court definition dealing with a tax exclusion.
The Tax Collectors also argue that NISCO’s cost for the purchase of the
limestone far outweighs the sale of the end product, the ash, on the retail market,
10
the “economic benefits argument.” Therefore, the further processing exclusion, for
economic reasons, should not apply to NISCO’s purchase of limestone. Though an
excellent point, such policy arguments should be presented to the legislature so that
the tax exclusion provided for by the statute may be narrowed and further defined
by that body. In International Paper, 972 So.2d at n. 13, the supreme court
recognized that the legislative intent was made clear:
It is interesting to note that during the Legislature’s 2007 Regular
Session, a Senate Concurrent Resolution was adopted, which
resolution addressed the proper interpretation of the “further
processing exclusion.” Senate Concurrent Resolution No. 136 states,
in pertinent part:
WHEREAS, many states do not tax any chemicals or other property
required for the manufacturing of property for resale; and
WHEREAS, deviations from the three prong test make the taxability
of property required for manufacturing in Louisiana uncertain and
undermine the efforts of Louisiana to attract additional investment
dollars to the state.
THEREFORE, BE IT RESOLVED that the Legislature of Louisiana
does hereby urge and request the secretary of revenue to:
(1) Recognize the interpretation of R.S. 47:301(10)(c) that has been
long recognized by Louisiana courts and embrace the three prong test
for the non-taxability of further processing materials, to wit: materials
are nontaxable materials for further processing if (i) the material or its
components become an identifiable component of the product, (ii) the
material or its components are beneficial to the end product, and (iii)
the presence of the material in the end product is not incidental.
(2) Adopt regulations consistent with such interpretations.
(3) File pleadings consistent with such interpretations in court
proceedings concerning the interpretation of R.S. 47:301(10)(c)(i)(aa).
Since the legislative resolution and the supreme court decision in 2008, the
legislature has met eight times, including this year, when the legislature was
especially active in seeking additional revenue sources. The legislature has not
chosen to amend La.R.S. 47:301(10)(c)(i)(aa) to add the primary purpose test or
11
an “economic benefit test,” or otherwise narrow the further processing tax
exclusion in any way. We must apply the further processing exclusion broadly in
favor of the taxpayer and against the taxing authorities. The trial court and the
majority failed to do so and, in my view, committed legal error as to a matter of
statutory interpretation. This court must interpret the statute in accordance with
legislative intent and long standing court precedent, recognizing that tax exclusions
must be “construed liberally in favor of the taxpayers and against the taxing
authority,” Harrah’s, 41 So.3d at 446. A careful reading of La.R.S.
47:301(10)(c)(i)(aa) and La.Admin.Code tit. 61, pt. I, § 4301 reveals that neither
the statute nor the Secretary’s regulation contain any such restrictions espoused by
appellees and approved by the trial court and the majority.
I dissent from the majority’s decision to judicially interpret the controlling
statute and regulation in such a narrow and restrictive manner contrary to
legislative intent and settled supreme court precedent.
CONCLUSION
I would reverse the June 2, 2014 judgments of the trial court in favor of
Cynthia Bridges, Secretary of the Department of Revenue for the State of
Louisiana, against Nelson Industrial Steam Company in Docket Nos. 14-1250 and
14-1252.
I would also reverse the trial court’s June 2, 2014 judgments in favor of the
Calcasieu Parish School System Sales and Use Tax Department, in Docket Nos.
14-1251 and 14-1253 and order the Calcasieu Parish School System Sales and Use
Tax Department, as Central Collector of Sales/Use Tax for the Parish of Calcasieu,
and Rufus Fruge in his capacity as Administrator of the Calcasieu Parish School
12
System Sales and Use Tax Department, to refund the taxes, penalties, and interest
paid under protest by Nelson Industrial Steam Company in the following amounts:
District court no. 2010-3564: $911,683.79 tax; $227,921.01 penalty;
and $271,162.18 interest through July 12, 2010 (the date of payment
under protest), plus accrued legal interest thereon until the date of
refund, pursuant to La. R.S. 47:337.63(A)(3).
District court no. 2013-2661: $1,076,032.73 tax; $269,008.29 penalty
and $275,788.58 interest through May 13, 2013 (the date of payment
under protest), plus accrued legal interest thereon until the date of
refund, pursuant to La. R.S. 47:337.63(A)(3).
Costs on appeal should be assessed to the Calcasieu Parish School System
Sales and Use Tax Department, as Central Collector of Sales/Use Tax for the
Parish of Calcasieu, and Rufus Fruge in his capacity as Administrator of the
Calcasieu Parish School System Sales and Use Tax Department pursuant to La.R.S.
13:5112. Costs on appeal should not be assessed against the Louisiana Department
of Revenue in accordance with La.R.S.13:4521.
.
13