The Louisiana Supreme Court has ruled that interstate airplanes and other interstate transportation equipment will be subject to Louisiana state and local use taxes if a taxable moment outside of use in interstate commerce is found. The Court overruled cases which had previously found that transportation equipment used in interstate commerce would not be subject to use tax unless the equipment was used for intrastate transportation.
In Word of Life Christian Center vs. Mark West, Administrator, Ascension Parish Sales and Use Tax Authority, 04-1484 (La. 4/17/2006), _____ So.2d______, the Louisiana Supreme Court reviewed the taxability of airplanes purchased by the Word of Life Christian Center.
One of the planes was purchased in 1997. Sale documents were executed in June, 1997 and Word of Life took possession of the plane in Oklahoma in August, 1997. The plane was flown by Word of Life from Oklahoma to Baton Rouge, Louisiana, where the plane was hangared and maintained for use in transporting Word of Life officials on interstate business trips. In February, 1998 the plane traveled to Miami, where it was destroyed by a hurricane. In April 1998, Word of Life replaced the destroyed airplane. The new plane was purchased in South Carolina and Word of Life took possession in Texas. Like the first airplane, the second airplane was hangared in Baton Rouge between flights. Word of Life had originally planned to hangar the planes at an airport in Ascension Parish close to its operations, but apparently that airport was inadequate for Word of Life’s needs.
Mark West, the Ascension Parish Tax Collector, demanded that Word of Life pay sales/use tax to Ascension Parish on both planes. The district court in Ascension Parish determined that the planes could not be taxed in Ascension Parish. The Louisiana First Circuit Court of Appeal followed its prior decisions in The Shaw Group, Inc. v. John H. Kennedy, Secretary, Dept. of Revenue, State of Louisiana, (La.App. 1 Cir. 2000), 767 So.2d 937 and Tigator Inc.v. West Baton Rouge Police Jury, 94-1771, 94-1772 (La. App. Cir. 5/5/95), 657 So.2d 221, writ denied, 95-2126 (La.11/17/95), 663 So.2d 712 and found that any contact with Ascension Parish was in connection with interstate commerce activities and Ascension Parish could not collect a use tax on those activities.
In Tigator, the Louisiana First Circuit Court of Appeal had determined that La. R.S. 47:305(E) precluded the imposition of a use tax on trailers engaged in interstate commerce unless the trailers dropped out of interstate commerce and were used for intrastate transportation. The Tigator court refused to find that the garaging and maintenance of the trailers in East Baton Rouge Parish was a taxable use of the trailers. In Shaw, the Louisiana First Circuit Court of Appeal found that an airplane purchased out of state and hangared in Louisiana for interstate trips was not subject to the Louisiana use tax because the ultimate use of the property was in interstate commerce which was non-taxable under La. R.S. 47:305(E).
In Word of Life, the Louisiana Supreme Court overruled Tigator and Shaw.
The Court determined that the concept of ultimate use was not supported by the Louisiana sales tax law and that any use not in interstate commerce, such as storage, cleaning, and repairing in Louisiana would be sufficient for the imposition of the state and local use taxes. The court did recognize that activities in interstate commerce could not be taxed under La. R.S. 47:305(E), but found taxable moments in between interstate activities.
Thus, under Word of Life, a commercial airplane that stops at the Baton Rouge airport to discharge and receive passengers would probably not be subject to use tax even if the plane is repaired and serviced in connection with its interstate flights. However, airplanes and other instrumentalities of interstate commerce would probably be subject to state and local use tax if the property is stored in Louisiana and is otherwise maintained in Louisiana between interstate trips.
Taxpayers should check for other exclusions or exemptions that may be applicable to their equipment before paying use taxes on interstate commerce equipment, such as La.R.S. 47:305.50(exemption for trucks and buses used more than 80% in interstate commerce and for certain rail rolling stock), La. R.S. 47:305.1(B)(exemption for materials and supplies for interstate commerce vessels), La. R.S. 47:301(10)(m)(sales/use tax exclusion for certain aircraft). The application of these exemptions may not be clear. Taxpayers should check with their tax advisors before paying use tax on interstate commerce equipment because the interplay between available exclusions and exemptions and commerce clause considerations may require a broader reading of the provisions. For example, the exclusion for aircraft manufactured in Louisiana found in La. R.S. 47:301(10)(m) may have to be construed to include aircraft manufactured outside Louisiana in order to prevent a violation of the Commerce Clause of the United States Constitution.