YESTERDAYS OF LAKE CHARLES, INC. v. CALCASIEU PARISH SALES AND USE TAX DEPARTMENT; Cowboy’s Nightlife, Inc. v. Calcasieu Parish Sales and Use Tax Department
190 So. 3d 710
La.2016Background
- Yesterdays of Lake Charles, Inc. and Cowboy’s Nightlife, Inc. (cash-heavy nightclubs) were audited for sales taxes for 2005–2008; clubs reported sales based on bank deposits and paid taxes, then paid additional assessed amounts under protest and sued.
- Clubs admitted they did not retain cash-register z‑tapes or records of cover charges, cash payouts to bands/security, comps, or counts of patrons; bank deposits reflected net deposits after undocumented cash expenditures.
- The Collector audited vendor purchase records (block sample: three months per year), applied mark‑ups and drink/cover-charge assumptions to estimate taxable sales, and issued assessments that were reduced after the clubs provided some additional information.
- Trial court found the ULSTC record‑keeping requirement ambiguous, held clubs’ bank records were “suitable,” deemed the Collector’s methodology arbitrary, ordered refunds and awarded attorney fees; court of appeal affirmed in part.
- Louisiana Supreme Court granted certiorari, reviewed de novo, reversed portions of the lower courts’ judgments, remanded for calculation of taxes due, and reversed award of attorney fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether La. Rev. Stat. 47:337.29’s requirement to "keep and preserve suitable records" is ambiguous and whether bank deposits alone were "suitable records" | Clubs: statute is ambiguous; Collector failed to define "suitable records"; long‑standing practice of using bank deposits was accepted and provided no notice of noncompliance | Collector: statute and regulation plainly require records of all sales (e.g., z‑tapes, invoices); bank deposits show net, not gross, sales and are insufficient | Statute is clear and unambiguous; clubs failed to keep "suitable records"; bank deposits alone were insufficient |
| Who bears burden to prove adequacy of records and correctness of assessment | Clubs: Collector must prove bank statements are unsuitable and that its audit methodology was proper | Collector: dealer/taxpayer must prove it kept suitable records; if not, Collector may estimate and assessment is prima facie correct | Burden is on dealer to show it kept suitable records; where dealer fails, Collector’s estimate is prima facie correct and dealer must prove noncompliance |
| Whether Collector’s sampling/mark‑up methodology was arbitrary or violated La. Rev. Stat. 47:337.35 (sampling rules/AICPA guidance) | Clubs: Collector’s method was arbitrary, initial to final assessment variance shows flawed methodology; Collector failed to notify or obtain written sampling agreement | Collector: complied with notice requirements (audit letter and Notice of Intent); used block sampling and mark‑up consistent with recognized guidance and adjusted assumptions as clubs supplied data | Collector complied with notice; methodology (block sampling + mark‑up on purchases) was permissible given lack of records; clubs failed to prove the sampling violated generally recognized techniques |
| Prescription for 2005–2006 taxes for Yesterdays (whether suspended/interrupted) | Yesterdays: taxes for 2005–2006 prescribed; purported waiver/suspension agreement was lost and Collector failed to prove its existence | Collector: asserted waiver existed or prescription was interrupted by filing false/fraudulent returns | Trial court ruling sustaining prescription for 2005–2006 affirmed; Collector failed to prove lost waiver’s contents or fraudulent intent to interrupt prescription |
Key Cases Cited
- Tarver v. E.I. Du Pont de Nemours and Co., 634 So.2d 356 (La. 1994) (tax statutes applied as written; ambiguities construed for taxpayer)
- Calcasieu Par. Sch. Bd. v. Parker, 827 So.2d 543 (La. App. 3 Cir. 2002) (dealer’s duty to keep records; lack of records permits reasonable estimation)
- Schwegmann Bros. Giant Super Mkts., Inc. v. Mouton, 309 So.2d 686 (La. App. 4 Cir. 1974) (where records are lacking, formula may be used to determine tax)
- Traina v. Sunshine Plaza, Inc., 861 So.2d 156 (La. 2003) (definition and effect of judicial confession)