198 So. 3d 108
La.2016Background
- Coastal Drilling owned Rig 21, an inland marine drilling barge that suffered an extensive fire; it was towed to a Jefferson Parish shipyard and reconstructed at ~ $11 million.
- Coastal purchased materials, machinery, and equipment in Jefferson Parish and did not pay sales tax, claiming exemption under La. R.S. 47:305.1(A) as clarified by LAC 61:I:4403(A) and (B)(2).
- St. Mary Parish assessed use tax after an audit; Coastal paid under protest and sued for a refund. The Collector challenged applicability of the exemption and the regulation’s constitutionality.
- Trial court initially found the work were repairs (taxable); on remand the trial court declared the regulation unconstitutional; the First Circuit affirmed that decision.
- The Louisiana Supreme Court granted certiorari, upheld the Department of Revenue regulation as within delegated authority and consistent with statutory purpose, and ruled Coastal’s reconstruction met the regulation’s test, ordering refund with interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LAC 61:I:4403(A) and (B)(2) exceed the agency’s authority or the statute’s scope | Regulation merely applies "built in Louisiana" to catastrophic reconstruction and furthers legislative purpose of keeping shipbuilding work in-state | Regulation unlawfully expands statutory exemption beyond plain meaning of "built" to include reconstruction, violating separation of powers | Regulation is constitutional — Department had delegated authority and regulation aligns with statute’s purpose |
| Whether "reconstruction" after fire qualifies materials for exemption under La. R.S. 47:305.1(A) | Rig 21 was destroyed/unseaworthy by fire and reconstruction restored seaworthiness; materials thus exempt | Work was repairs (taxable); vessel was not "destroyed" and regulation’s terms are vague or inconsistent with statute | Reconstruction test satisfied: destruction by fire + restoration to seaworthiness met; materials exempt |
| Proper interpretation of "destruction" and "seaworthiness" in the regulation | Terms should be read reasonably; destruction means rendering unseaworthy, and seaworthy means fit for intended purpose | Terms vague or drawn from maritime tort law and inappropriate for tax context | Court adopts maritime-meaning: "unseaworthy" = not fit for intended purpose; "destruction" in context means extensively impaired by sinking/collision/fire |
| Whether prior cases limit exemption to original construction only | Regulation clarifies previously-unresolved situations like catastrophic reconstruction; prior cases did not foreclose reconstruction exemption | Precedent interpreting exemption as limited to original construction controls; regulation cannot expand exemption | Court distinguishes prior cases (which addressed repairs) and finds they do not bar reconstruction exemption under the regulation |
Key Cases Cited
- Traigle v. PPG Industries, Inc., 332 So.2d 777 (La. 1976) (administrative construction receives weight unless inconsistent with statute)
- McNamara v. Central Marine Service, Inc., 507 So.2d 207 (La. 1987) (distinguishing repairs from exempt component parts; did not resolve major-reconstruction issue)
- Krielow v. Louisiana Dep’t of Agriculture & Forestry, 125 So.3d 384 (La. 2013) (legislature may delegate fact-finding and rulemaking to agencies)
- State v. Alfonso, 753 So.2d 156 (La. 1999) (agency regulation unconstitutional if it exceeds delegated authority or statute’s scope)