Cora-Texas Mfg. Co., Inc. v. Kimberly L. Robinson, Secretary, Department of Revenue, State of Louisiana ( 2021 )

STATE OF LOUISIANA
COURT OF APPEAL
FIRST CIRCUIT
w LL_,fr
NO. 2020 CA 0972
CORA-TEXAS MFG. CO., INC.
VERSUS
KIMBERLY L. ROBINSON, SECRETARY, DEPARTMENT OF
REVENUE, STATE OF LOUISIANA
Judgment Rendered.
APR 16 2021
Appealed from the Louisiana Board of Tax Appeals
State of Louisiana
Docket 411065
The Honorable Tony Graphia (ret.), Chairman, and Board Members Cade R.
Cole and Francis J. " Jay" Lobrano, Presiding
John B. Davis Counsel for Plaintiff/Appellant
Gregory E. Bodin Cora -Texas Mfg. Co., Inc.
Robert L. Blankenship
Baton Rouge, Louisiana
Adrienne D. Quillen Counsel for Defendant/Appellee
Antonio C. Ferachi Kimberly L. Robinson, Secretary
Aaron B. Long Department of Revenue, State of
Christopher Brault Louisiana
Baton Rouge, Louisiana
BEFORE: GUIDRY, McCLENDON, AND LANIER, JJ.
CUzyj0,n/
LANIER, J.
Cora -Texas Mfg. Co., Inc. (" Cora") appeals a judgment of the Louisiana
Board of Tax Appeals (" the Board") which refunded taxes paid by the appellant to
the appellee, the Louisiana Department of Revenue (" LDR"). For the following
reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
Cora is a sugar cane milling and sugar manufacturing company located in
White Castle, Louisiana. On December 27, 2017, Cora petitioned the Board to
review LDR' s demand for remittance of an alleged overpaid refund and denial of
Cora' s resubmission of a refund claim involving the manufacturing machinery and
equipment ( MM& E) tax exclusion.' In the tax year of 2013, Cora received a tax
refund in the amount of $ 115, 933. 74 pursuant to the MM& E exclusion, which
LDR later reduced by $ 19, 635. 16, due to what Cora alleged to be some " erroneous
disallowances." Cora filed a resubmit refund claim in the amount of $19, 635. 16.
After a review, LDR refunded $ 19, 538. 82 to Cora pursuant to the MM& E
exclusion. Cora still claimed that the withheld difference of $96. 34 was due to
certain " erroneous disallowances." Upon further review, LDR determined that
10, 887. 52 was refunded in error based on a misapplication of the MM& E
exclusion. Of that amount, LDR demanded a remittance of $ 10, 864. 55, plus
interest, for a total amount of $11, 042. 92.
Cora alleged in its petition that LDR was unfamiliar with the customary
business activities of a sugar mill and therefore did not properly apply the MM& E
exclusion to the sugar mill' s operations. Despite Cora' s invitations to LDR to visit
the mill and become familiar with the mill' s operations as they relate to the
MM& E exclusion LDR made no such visit. Cora claimed it was entitled to a
MM& E" is a collective term for various definitions of machinery and equipment that meet the
criteria of tax exclusion under La. R. S. 47: 301.
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refund of $ 19, 538. 82 for the tax year of 2013, but that it never received a notice of
the disallowance of its refund claim, which is required by La. R.S. 47: 1625. 2
Additionally, Cora claimed that for the tax years of 2014 to 2016, it was
issued a total tax refund in the amount of $700, 589. 34. For the period of January
2014 to March 2016, LDR issued a total refund of $ 238, 802. 12 ( including
interest), despite Cora making a refund claim of $433, 487. 94. Cora alleged the
reduced refund was largely due to " erroneous disallowances." For the period of
April 2016 to December 2016, Cora had made a refund claim of $267, 101. 38, but
LDR issued a total refund of $123, 314. 82 ( including interest). Again, Cora alleged
erroneous disallowances."
Cora made a resubmit refund claim of $195, 974.92 for the period of January
2014 to March 2016, but LDR reduced that claim by $ 183, 452. 69. Cora alleged
that LDR misapplied the MM& E exclusion in reducing the refund claim. For the
period of April 2016 to December 2016, Cora made a resubmit refund claim of
144,495. 87, but LDR reduced that claim by $ 138, 417. 47. Again, Cora alleged
that LDR had misapplied the MM& E exclusion in reducing the refund claim. In
total, LDR refunded Cora $ 18, 569. 78 for the tax years of 2014 to 2016, although
Cora had claimed a total resubmit refund of $340, 470. 79. Cora alleged that LDR
had made a deficient refund due to its lack of knowledge of Cora' s business
operation and how the MM& E exclusion applied to them. Cora claimed that it was
entitled to the full resubmit refund of $340, 470. 79, and that LDR had failed to
comply with the written disallowance notice requirement of La. R.S. 47: 1625.
In summation, for the tax year of 2013, Cora claimed it was entitled to a
total refund of $ 19, 538. 82, and that LDR' s demand for remittance of an
2 Louisiana Revised Statutes, 47: 1625( B) states, in pertinent part: " A notice of disallowance, if
issued, shall inform the taxpayer that he has sixty days from the date of the certified or registered
mailing of that notice to appeal to the Board of Tax Appeals." LDR filed a peremptory exception
raising the objection of prescription, which the Board denied.
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overpayment of $ 11, 042. 92 should be dismissed. For the tax years of 2014 to
2016, Cora claimed it was entitled to the full resubmit refund of $340, 470. 79.
A hearing on the merits was held before the Board on May 14, 2019 and
August 13, 2019. The Board heard testimony from an auditor from LDR, an
employee of Cora, and an expert retained by Cora. Numerous invoices and data
itemizing Cora' s expenses during the relevant tax periods were also submitted to
the Board. On February 12, 2020, the Board issued judgment in favor of Cora in
the total amount of $14, 946.49. Unsatisfied with the award, Cora now appeals.
ASSIGNMENTS OF ERROR
Cora cites the following assignments of error:
1. The Board erred in finding the refund claims for trucks and trailers are
taxable and not eligible for the MM& E exclusion. The Board reached its
decision by ignoring the undisputed evidence that the manufacturing
process of sugar begins when the harvesters cut the cane in the field—
before the cut cane is deposited into the trailers.In doing so, the Board
erred in finding that the trucks and trailers are not used during the
manufacturing process that was already underway, despite recognizing
that the trucks and trailers are integral to the manufacturing process of
raw sugar.
2. The Board erred in finding certain items to be non -depreciable repairs
and thus not falling under the MM& E exclusion when these items are
restorations of the mill' s equipment that can be depreciated and meet all
of the requirements of the statute. As required by the MM& E statute,
these items are ( 1) equipment or a component part of equipment; ( 2) with
an expected useful life beyond one year; and ( 3) an integral part of Cora' s
manufacturing process. Therefore, these items fall under the MM& E
exemption and are excluded from sales tax.
STANDARD OF REVIEW
Judicial review of a decision of the Board is rendered upon the record as
made up of before the Board and is limited to facts on the record and questions of
law. The Board' s findings of fact should be accepted where there is substantial
evidence in the record to support them and should not be set aside unless they are
manifestly erroneous in view of the evidence of the entire record. International
Paper, Inc. v. Bridges, 2007- 1151 ( La. 1/ 16/ 08), 972 So. 2d 1121, 1127- 28. When
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the assignments of error reflect that the main issue involves a purely legal question
regarding proper interpretation of a statute, our review is de novo in the sense that
we give no deference to the factual findings or legal conclusions of the Board. We
are free to make our own determinations of the correct legal meaning of the
appropriate statutes and render judgment on the record. Barfield v. Bolotte, 2015-
0847 ( La. App. 1 Cir. 12/ 23/ 15), 185 So. 3d 781, 785, writ denied, 2016- 0307 ( La.
5/ 13/ 16), 191 So. 3d 1058.
DISCUSSION
In interpreting statutes, we begin with the well- settled premise that taxing
statutes must be strictly construed against the taxing authority, and where a tax
statute is susceptible of more than one reasonable interpretation, the construction
favorable to the taxpayer is adopted. Likewise, exemptions from taxation or tax
credits that relieve a tax burden are strictly construed and must be clearly,
unequivocally, and affirmatively established. Barfield, 185 So. 3d at 785.
Therefore, tax laws are to be interpreted liberally in favor of the taxpayer, and
words defining things to be taxed should not be extended beyond their clear
import. Uncertainty in the language of the statute must be resolved against the
taxing authority and in favor of the taxpayer. Id.Trucks and Trailers
Cora argued that the trucks and trailers used to transport cut cane to the
sugar mill are an integral part of the sugar manufacturing process and therefore
should not be taxed due to the MM& E exclusion. Through the testimony of its
witnesses, Cora attempted to explain that once the sugar cane stalk is cut into
approximately one foot -long segments called " billets," the internal sucrose, which
is later made into raw sugar, comes into contact with bacteria that changes the
sucrose into dextran. Dextran is an unusable byproduct that cannot be made into
raw sugar, and the longer it takes to transport the billets from the field to the mill,
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the more sucrose is changed into dextran. If the billets are not milled within 24
hours, enough sucrose is lost that the cane diminishes in value, and past 72 hours,
the billets are completely worthless. For this reason, Cora argues, the transport of
the billets from the field to the mill is an integral step in the manufacturing process.
Louisiana Revised Statutes 47: 301( 3)( i)(ii)(aa) states that " machinery and
equipment" means tangible personal property or other property that is eligible for
depreciation for federal income tax purposes and that is used as an integral part in
the manufacturing of tangible personal property for sale, or that is used as an
integral part of the production, processing, and storing of food and fiber or of
timber. Louisiana Revised Statutes 47: 301( 3)( i)(ii)(aa)( II)(ccc) expressly excludes
from the " machinery and equipment" definition "[ t] angible personal property used
to transport raw materials or manufactured goods prior to the beginning of the
manufacturing process or after the manufacturing process is complete."
According to the testimony of Tammy Hinds, an employee of LDR who
audited Cora, the manufacturing of raw sugar begins when " the raw material goes
to the first piece of machinery that changes its composition," the raw material
being the billets. According to Daniel Cuervo, a mechanical engineer employed by
Cora, Cora takes no part in the harvesting or cutting of the cane, other than telling
farmers how much cane needs to be cut on any given day. Cora' s trucks simply
transport the cut billets to the sugar mill for storage and processing. There is no
machinery or processes that act upon the billets while they are being transported
and stored in the trailers. According to the expert testimony of Dr. Kenneth
Gravois, a sugarcane extension specialist retained by Cora, the phase of harvesting
cane ends once the cane is cut, and the phase of manufacturing immediately begins
from that point. Physical processing occurs at the mill; physiological processing, or
the natural degradation of sucrose into dextran, occurs before the billets reach the
mill.
The record indicates harvesting is separate and apart from the manufacturing
phase. " Manufacturing," as defined by La. R.S. 47: 301( 3)( i)(cc), means:
p] utting raw materials through a series of steps that brings about a
change in their composition or physical nature in order to make a new
and different item of tangible personal property that will be sold to
another.
Manufacturing begins at the point at which raw materials
reach the first machine or piece of equipment involved in changing
the form of the material and ends at the point at which manufacturing
has altered the material to its completed form ... Manufacturing, for
purposes of this Subparagraph, does not include the following:
III) The storage of tangible personal property.
IV) The delivery of tangible personal property to or from the plant.
Emphasis added.)
We agree with Ms. Hinds' assessment of when the manufacturing process
begins. The trucks and trailers are used by Cora for the transport and/ or storage of
cane billets and play no part as machinery that changes the form of the billets.
Other than natural chemical processes to the billets that Cora cannot alter, no
physical changes are made to the billets while they are being transported and stored
in the trailers. Although Mr. Cuervo was knowledgeable in the process of
manufacturing raw sugar and Dr. Gravois was knowledgeable in the time -sensitive
nature of sucrose degrading into dextran, Ms. Hinds better understood the statutory
definitions of La. R.S. 47: 301, which would or would not exclude the items Cora
claimed were refundable.
As the trier of fact, the Board gave more weight to Ms. Hinds' s testimony,
given her qualifications as a tax auditor, in determining when the manufacturing
process began for taxation purposes. See Board of Sup' rs of Louisiana State
University and Agr. and Mechanical College v. 1732 Canal Street, L.L.C., 2012-
1370 ( La. App. 4 Cir. 6/ 19/ 13), 159 So. 3d 470, 472, writ denied, 2013- 2383 ( La.
1/ 10/ 14), 130 So. 3d 330. Cora' s trucks and trailers clearly do not fall under the
MM& E exclusions of La. R.S. 47: 301, and the Board correctly found that the
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vehicles themselves, as well as any parts used in their maintenance and repair,
were taxable.
All Other Claimed Items
The Board also reviewed various items that Cora characterized as necessary
and vital to the manufacturing process, either because they were component parts
of manufacturing machinery or were used in the repair or refurbishment of said
machinery. Louisiana Revised Statutes 47: 301 applies the MM& E exclusion to
machinery and equipment used by a manufacturer predominantly and directly in
the actual manufacturing process. Therefore, the Board reviewed various invoices
to determine whether the items included would be taxable or not. Also, the Board
relied heavily on the testimony of Mr. Cuervo, who had extensive knowledge of
the manufacturing process and the machinery involved.
Under the Louisiana Administrative Code, Title 61, Part 1, section 4301,
machinery or equipment that is a principal component of the manufacturing
process and has a substantially useful life beyond one tax year is eligible for
depreciation. Examples of eligible items are pumps, valves, and compressors.
Examples of ineligible items are nuts, bolts, gaskets, lubricants, filters, and fuel.
61 LAC Pt. I, § 4301( h)( iv). Repairs to manufacturing machinery and equipment
to keep the property in an ordinarily efficient working order are generally not
eligible for depreciation; however, any tangible property purchased for use in the
repair, so long as the property is a major component of the manufacturing process
and has a substantially useful life beyond the current tax period, will be eligible for
depreciation. 61 LAC Pt. I, § 4301( h)( vii).
After our review of the submitted invoices and the testimony in the record,
we cannot find any error in the Board' s conclusions. Any invoiced items that were
component parts of the sugar mill' s manufacturing machinery ( boilers, centrifuges,
turbines, etc.) were identified as having a useful life beyond one year and met the
MM& E exclusion. Any items that did not have a substantial useful life beyond a
year ( nuts, screws, gaskets, seals, grease, etc.) were deemed taxable. Any invoiced
labor was also correctly identified as taxable.
Cora also claimed a tax refund under the MM& E exclusion for alterations
made to the tin roof of one of the mill' s warehouses. Mr. Cuervo explained to the
Board that after a new conveyor belt was installed to transfer sugar into the
warehouse, the roof had to be modified so that the conveyor belt would be
completely housed and without the raw sugar exposed to outside moisture.
Again, La. R.S. 47: 301( 3)( i)( cc) expressly states that storage of tangible
personal property is not a part of manufacturing for MM& E exclusion purposes.
Furthermore, La. R. S. 47: 301( 3)( i)(aa)( II)(aaa) excludes from the definition of
machinery and equipment "[ a] building and its structural components, unless the
building or structural component is so closely related to the machinery and
equipment that it houses or supports that the building or structural component can
be expected to be replaced when the machinery or equipment are replaced."
Mr. Cuervo did not testify that the warehouse and the conveyor belt were
one and the same. Rather, he stated that a portion of the warehouse had to be cut
open so that the conveyor, belt could pass into it from another building. The
portion of the conveyor belt that was between the two buildings was what required
the roof extension. The new roof is therefore not part of either building or the
conveyor belt, but an additional roof built to encase the exposed portion of the
conveyor belt. Based on the statutory language, we find the Board was correct in
concluding the new roof did not fall under the MM& E exclusion.
Cora also claimed an MM& E exclusion refund for the sugar mill' s heavy
equipment. Mr. Cuervo testified that the mill uses front- end loaders, excavators,
dozers, and cranes to transport and store raw sugar and sugar cane. Transporting
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raw materials, as with the trucks and trailers, does not meet the criteria of the
MM& E exclusion. La. R. S. 47: 301( 3)( i)( ii)(aa)( II)(ccc).
CONCLUSION
The Board correctly interpreted the law that is applicable to the instant case.
While Cora' s witnesses could provide in- depth testimony of the sugar
manufacturing process, the Board was nevertheless required to apply the clear
language of La. R. S. 47: 301 to determine which claims fell under the MM& E
exclusion and which did not. After our review of all the exhibits in the record, we
conclude the Board did not commit any manifest error in its factual determinations
of which invoiced items were taxable and which were not taxable.
DECREE
The judgment of the Louisiana Board of Tax Appeals, which granted a
partial tax refund to the appellant, Cora -Texas Mfg. Co., Inc., is affirmed. All
costs of this appeal are assessed to the appellant.
AFFIRMED.
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