Bridges v. OFFSHORE DRILLING CO.
69 So. 3d 738
La. Ct. App.2011Background
- TODCO (formerly R & B Falcon) was audited for sales and use tax on a Shallow Water Offshore Operations division for 1997–1999, resulting in a large assessed amount and interest, with credits and penalties specified.
- TODCO sought exemptions under La. R.S. 47:305.1(B), 47:305.10, and related provisions, asserting meals, materials, repairs, and offshore use were exempt in various scenarios involving foreign or interstate coastwise commerce.
- The Board of Tax Appeals partially favored TODCO on several exceptions (e.g., some repairs, some materials for offshore use, and certain shipping/services) and against TODCO on others, with a final judgment in 2008 reflecting those outcomes.
- The DOR petitioned for judicial review, arguing, among others, that meals (Exception 11) were taxable and that several exemptions were misapplied, while TODCO maintained exemptions for offshore use and foreign or interstate commerce.
- The trial court affirmed the Board’s decision, and on appeal the Louisiana First Circuit vacated and remanded the judgment to the Board to address issues in light of subsequent case law and statutory interpretation, including 47:305.1, 47:305.10, and 47:305(E), as well as penalties.
- The court remanded to determine (i) whether extra meals are taxable in light of R&B Falcon holdings, (ii) the applicability of 47:305.1(B) to rigs, (iii) the scope of 47:305.10 exemptions including offshore use, and (iv) penalties under 47:1602 and related interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Taxability of meals (Exception 11) | DOR: meals to non-contract personnel taxable as catering business. | TODCO: meals on rigs are supplies for operation and exempt under 47:305.1(B) and related provisions; meals for workers on drilling vessels are non-taxable. | Remand to Board to resolve whether extra meals are taxable under current law in light of R&B Falcon decision. |
| Exemption 47:305.1(B) ships/vessels | DOR: exemption limited and not applicable to TODCO rigs; transactions are taxable. | TODCO: rigs qualify as ships or vessels; purchases for first use in such vessels are exempt. | Remand to determine whether TODCO's jack-up and submersible rigs constitute ships or vessels for 305.1(B) purposes. |
| Exemption 47:305.10 (Exs 1(c), 2(a)(iii), 2(b), 7(b)) | DOR: offshore first-use exemptions apply only if conditions are met and properly documented; some transactions are taxable. | TODCO: multiple offshore exemptions apply for first use outside Louisiana or in international waters. | Remand to Board to make determinations under 305.10 and interpret offshore registration and fungible goods rules, with guidance from Word of Life and prior R&B Falcon rulings. |
| La. R.S. 47:305(E) (Exs 2(a)(iii) and 7(b)) | DOR: Board failed to analyze whether exemptions unduly burden interstate/foreign commerce and resting in Louisiana. | TODCO: exemptions protect interstate/foreign commerce and avoid undue tax burden. | Remand to Board to determine 305(E) applicability and to consider taxable moment doctrine. |
| Board findings on issues not in audit | DOR: Board issued rulings beyond the audit scope, needing clarification. | TODCO: Board findings should be clarified but essentially align with audit issues. | Remanded for clarification; issue resolved as lack of manifest error but need explicit addressing. |
| Penalties | DOR: penalties and interest should be addressed under 47:1601 and 1602. | TODCO: penalties were not properly addressed; interest for taxable portions should be determined. | Remand to Board to address penalties and interest for taxable transactions. |
Key Cases Cited
- R & B Falcon Drilling USA, Inc. v. Secretary, Department of Revenue, 31 So.3d 1085 (La. 2010) (Board and tax exemptions; factual standards; reliance for meals exemption dispute)
- Mallard Bay Drilling, Inc. v. Kennedy, 914 So.2d 533 (La. 2005) (ship/vessel exemption scope; prospective amendments)
- R & B Falcon v. Terrebonne Parish School Board, 996 So.2d 701 (La.App. 1st Cir. 2008) (rigs as barges; ships/vessels distinction)
- Word of Life Christian Center v. West, 936 So.2d 1226 (La. 2006) (taxable moment doctrine)