Dillard's, Inc. VS John N. Kennedy, Secretary Louisiana Department of Revenue and Taxation
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STATE OF LOUISIANA COURT OF APPEAL FIRST CIRCUIT NO 2009 CA 1423 SINC DILLARD VERSUS JOHN N KENNEDY SECRETARY LOUISIANA DEPARTMENT OF REVENUE TAXATION judgment rendered May 7 2010 Appealed from the 19th Judicial District Court in and for the Parish of East Baton Rouge Louisiana Trial Court No 445 702 Honorable Timothy E Kelley Judge ROBERT W NUZUM ATTORNEY FOR NEW ORLEANS LA PLAINTIFF APPELLANT S DILLARD INC R FREDERICK MULHEARN JR ATTORNEY FOR BATON ROUGE LA DEFENDANT APPELLEE SECRETARY LOUISIANA DEPARTMENT OF REVENUE TAXATION BEFORE CARTER C GUIDRY AND PETTIGREW 73 7 PEMGREW J This case arises as a result of the imposition by the Louisiana Department of Revenue the Department of a use tax on catalogs that Dillard Inc s s Dillard had printed out of state and had mailed to its customers in Louisiana as well as to Dillard s Louisiana department stores s Dillard paid the taxes under protest and thereafter instituted this litigation seeking to obtain a refund of the taxes and interest it paid Cross motions for summary judgment were subsequently filed by both parties and following a hearing the district court ruled in favor of the Department granted the s Department motion for summary judgment and denied Dillard motion for summary s judgment It is from this judgment that Dillard now appeals s FACTS Petitioner Dillard formerly Dillard Department Stores Inc is a Delaware s corporation that operates retail department stores in a number of states including Louisiana In 1995 and 1996 the Department audited Dillard books and records and in s a letter dated October 31 1997 asserted Dillard owed use taxes totaling 93 s 01 018 The Department imposed a 4 percent use tax on the price Dillard paid an out ofstate s printer to print and distribute catalogs free of charge to Dillard credit card holders in s Louisiana as well as to Dillard Louisiana department stores for the period from February s 1 1992 through January 31 1995 In addition the Department claimed Dillard owed s 00 852 58 in interest through November 20 1997 for a total of 151 01 870 attributable solely to the catalogs During the years in question Dillard sdirectly operated seven department stores within the State of Louisiana It is undisputed that the catalogs in question were distributed free of charge to Dillard credit card holders as well as walk s in customers and browsers who received the catalogs in Dillard stores s In a letter dated December 22 1997 Dillard remitted payment of 153 s 92 175 tax in the amount of 93 plus interest of 60 under protest pursuant to 01 018 91 157 La R 47 On December 23 1997 Dillard timely filed the instant case in the S 1576 s Nineteenth Judicial District seeking recovery of the amounts it paid under protest 2 ACTION OF THE TRIAL COURT On August 11 2008 the Department filed a motion for summary judgment seeking authorization to release to the skate treasury the taxes and interest remitted under protest by Dillard Dillard thereafter on January 12 2009 filed a crossmotion s s for summary judgment asserting the distribution and mailing of catalogs by outofstate printers directly to potential customers in Louisiana is excluded from Louisiana use tax pursuant to La R 47 Dillard further asserted the distribution of catalogs to S 302 s D potential customers by mail and to Dillard stores is not subject to Louisiana use tax as s the reasonable market value of the catalogs at the point of use was zero Following a hearing on February 9 2009 the trial court ruled in favor of the Department granted the Department motion for summary judgment and denied s s Dillard motion for summary judgment A judgment to this effect was signed by the trial court on March 6 2009 It is from this judgment that Dillard now appeals s ISSUES PRESENTED ON APPEAL In connection with its appeal in this matter Dillard presents the following issues s for consideration by this court 1 Whether the trial court erred as a matter of law in granting the smotion for summary judgment Department 2 Whether the trial court erred in failing to apply the exclusion from Louisiana sales and use tax in La R 47 S 302 D 3 Whether the trial court erred in failing to apply the holding of the First Circuit in Louisiana Health Services and Indemnity v Secretary Dept of Revenue State of Louisiana 19981971 La App 1 Cir 99 5 11 746 So 285 writ denied 20000263 La 3 758 2d 00 24 2d So 155 4 Whether the trial court erred in applying the reasonable market value test and considering Dillard to be the willing buyer s 5 Whether the trial court erred as a matter of law in denying Dillard s motion for summary judgment A motion for summary judgment is a procedural device used to avoid a full scale trial when there is no genuine issue of material fact Johnson v Evan Hall Sugar Co op Inc 2001 2956 p 3 La App 1 Cir 12 836 So 484 486 Summary 02 30 2d judgment is properly granted if the pleadings depositions answers to interrogatories and admissions on file together with affidavits if any show that there is no genuine issue of 3 material fact and that mover is entitled to judgment as a matter of law La Code Civ P art 966 Summary judgment is favored and is designed to secure the just speedy B and inexpensive determination of every action La Code Civ P art 966 Thomas 2 A v Fina Oil and Chemical Co 20020338 pp 4 La App 1 Cir 2845 So 5 03 14 2d 498 501 502 On a motion for summary judgment the burden of proof is on the mover If however the mover will not bear the burden of proof at trial on the matter that is before the court on the motion for summary judgment the mover burden on the motion does s not require that all essential elements of the adverse party claim action or defense be s negated Instead the mover must point out to the court that there is an absence of factual support for one or more elements essential to the adverse party claim action or s defense Thereafter the adverse party must produce factual evidence sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial If the adverse party fails to meet this burden there is no genuine issue of material fact and the mover is entitled to summary judgment La Code Civ P art 966 Robles v 2 C ExxonMobile 20020854 p 4 La App 1 Cir 3844 So 339 341 03 28 2d In determining whether summary judgment is appropriate appellate courts review evidence de novo under the same criteria that govern the trial court determination of s whether summary judgment is appropriate Allen v State ex rel Ernest N Morial New Orleans Exhibition Hall Authority 20021072 p 5 La 4 842 So 373 03 9 2d 377 Because it is the applicable substantive law that determines materiality whether a particular fact in dispute is material can be seen only in light of the substantive law applicable to this case Foreman v Danos and Curole Marine Contractors Inc 19972038 p 7 La App 1 Cir 9 722 So 1 4 writ denied 19982703 La 98 25 2d 98 18 12 734 So 637 2d In granting the Department motion for summary judgment the trial court held s that the Dillard catalogs were subject to Louisiana use tax imposed pursuant to La R s S 2 302A 47 Louisiana R 47 S 302A 2imposes a 2 percent use tax on the cost price of each item or article of tangible personal property when the same is not sold but is used 0 consumed distributed or stored for use or consumption in this state The cost price of an item is defined in La R 47 as the lesser of 1 the actual cost of the S 301 a 3 tangible personal property or 2 the reasonable market value of the tangible personal property at the time it becomes susceptible to the use tax Title 61 Part I Section C 4301 of the Louisiana Administrative Code defines reasonable market value as follows Mhe reasonable market value of tangible personal property is the amount a willing seller would receive from a willing buyer in an arms length exchange of similar property at or near the location of the property being valued At the hearing on their cross motions for summary judgment both parties put forth arguments in support of their respective positions Dillard asserted the reasonable s market value of the catalogs at the point they became subject to Louisiana use tax e i when said catalogs were distributed free of charge to Dillard credit card customers in s Louisiana or patrons at Dillard department stores in Louisiana s was zero as a buyer would presumably be unwilling to pay anything to acquire said catalogs Conversely the Department maintained that the value of a single catalog distributed free of charge to a s Dillard customer was the price that Dillard paid the outofstate printer to print its s The trial court in transcribed oral reasons for judgment held THE COURT As far as I concerned the reasonable value is from m of the services And since the the perspective of the buyer and seller consumer of those services the buyer of those services is Dillard what s is it worth to Dillard for that to be distributed to its clientele or potential s clientele in the state not what it is worth to the clientele itself who could care less whether a Dillard brochure is in there or not s ut s B Dillard sure wants to see that catalogs are delivered to their customers Their perspective is the one for the willing buyer and seller from this court s opinion anyway We agree with the trial court analysis on the value In connection with its appeal s in this matter Dillard respectfully submits that the district court legally erred in failing to s apply the sales and use tax exclusion set forth in La R 47 to the facts of this S 302 D As Dillard noted in its brief to this court La R 47 provides s S 302 D 5 D Notwithstanding any other provision of law to the contrary no sales or use tax of any taxing authority shall be levied on any advertising service rendered by an advertising business including but not limited to advertising agencies design firms and print and broadcast media or any member agent or employee thereof to any client whether or not such service also involves a transfer to the client of tangible personal property However a nsfer of mass advertising items by an advertising produced business which manufactures the items itselfto a client for the dients use which transfer involves the furnishing of minimal services other than manufacturing services by the advertising business shall be a taxable sale or use of tangible personal property provided that in no event shall tax be levied on charges for creative services which are separately invoiced Italics and underscoring supplied s Dillard asserts that the distribution of its catalogs by mail directly from an outof state printer to potential Dillard scustomers in Louisiana is excluded from Louisiana sales or use taxes pursuant to La R 47 In support of this proposition Dillard cites S 302 D s Louisiana Health Services and Indemnity v Secretary Department of Revenue State of Louisiana 19981971 pp 2 3 La App 1 Cir 11 746 So 285 286 99 5 2d writ denied 20000263 La 3758 So 155 00 24 2d In Louisiana Health Services Blue Cross and Blue Shield of Louisiana Cross Blue contracted with an outofstate advertising firm to print and distribute advertising brochures to possible Louisiana customers The outofstate advertising firm thereafter mailed the advertising brochures directly to Louisiana residents The Department appealed to this court contending the advertising brochures were taxable pursuant to La S R 47 302 Blue Cross also relying on La R 47 argued that the free D S 302 D brochures mailed directly to Louisiana residents by an outofstate advertising firm did not involve a transfer of items to Blue Cross as required by La R 47 The S 302 D Department responded with the contention that the transfer to Blue Cross took place when Blue Cross paid the advertising firm for the brochures In its decision in Louisiana Health Services this court agreed with Blue Cross and held that there had been no tangible transfer of items to Blue Cross that would subject Blue Cross to liability for sales or use tax pursuant to La R 47 S 302 D Louisiana Health Services 1998 1971 at pp 3 746 So at 286 287 In reaching 4 2d its decision this court analyzed the provisions of La R 47 and held S 302 D G The first section of the paragraph of La R 47 excludes S 302 D advertising services from taxation with or without a transfer of tangible property Only items fitting within the strict category outlined by the last sentence can be taxed if a transfer is made La R 47 Thus S 302 D the last sentence creates an exception to the general rule of no taxation for advertising services The Louisiana Legislature did not define transfer in the section on sales tax However the transfer of items must be one made to a client for the client use Id A reading of the entire paragraph that comprises s section D makes it plain that the transfer contemplated is not the virtual reality or intangible transfer of ownership utilized in Civil Code article 2456 but a possessory or tangible transfer of the items to the client for use at the client discretion This interpretation is bolstered by the minutes of the s Revenue and Fiscal Affairs Committee from June 25 1987 where the future provisions of La R 47 D were discussed According to the minutes S 302 as they appear in the record s client use If the advertising something for the client then language envisions something advertising firm the transfer of the items must be for the firm was using the items themselves to do that situation would not be taxable The more than payment by the client to the Thus actual transfer of the items by the advertising firm to Blue Cross for use by Blue Cross was a pre requisite for a taxable basis In this case the parties stipulated that the brochures were not sent nor was possession transferred to Blue Cross Direct mailing by the advertising firm of free brochures to consumers as a part of a marketing plan for the benefit of its client did not constitute a transfer of the items to Blue Cross Without all the necessary elements the brochures cannot fit within the exception to the general rule of La R 47 D For these reasons we S 302 agree with the district court that the Board of Tax Appeals judgment was correct on the issues before it Louisiana Health Services 19981971 at pp 3 746 So at 286287 4 2d s Dillard asserts that pursuant to this court decision in Louisiana Health s Services the Department cannot impose any tax sales or use arising from the distribution of Dillard catalogs by the outofstate printer to Louisiana residents by mail s Conversely the Department urges application of 3 B Publishing Company v Department of Revenue 34 La App 2d Cir 12 775 S0 1148 a 105 00 15 2d Second Circuit case decided more than a year following but does not reference this s court decision in Louisiana Health Services In 3 imposed a use tax upon J B Publishing the Department B Publishing an independent Louisiana telephone directory publisher for the printing and binding services provided to J state printer B Publishing by an out of The Texas printer thereafter shipped the completed directories to J s Publishing warehouse in Monroe Louisiana from which J 7 B B Publishing distributed the directories free of charge to the public The Second Circuit rejected J B Publishing s argument that the printing and binding of telephone directories was an integral part of the advertising service J B Publishing provided to its customers and is therefore an advertising service The Second Circuit ruled the services provided by the Texas printer were not sales of advertising services i the sale of advertising space and creative e services but rather printing and binding services which it sold to J B Publishing 7 B Publishing Company 34 at p 5 775 So at 1152 105 2d The factual scenario presented in 3 B Publishing differs from facts found in Louisiana Health Services and those present in the instant case Unlike telephone directories that possess an inherent utility aside from mere advertisement catalogs and brochures are useful only to advertise and apprise the consumer of the goods and services offered by a merchant or firm Additionally the telephone directories were delivered directly to the taxpayer i 3 e B Publishing for distribution As this court noted in Louisiana Health Services the actual transfer of the items by the advertising firm to Blue Cross for use by Blue Cross was a pre requisite for a taxable basis Louisiana Health Services 19981971 at p 3 746 So at 287 For these reasons 2d we find the facts and holding of 3 B Publishing to be inapposite to the facts presented by the instant case This court held in Louisiana Health Services that the direct mailing by an out ofstate advertising firm of free brochures to potential customers in Louisiana as part of a marketing plan did not constitute a transfer of these items to Blue Cross Louisiana Health Services 19981971 at pp 3 746 So at 287 Applying the same rationale 4 2d we find that the distribution of free catalogs by mail directly from an outofstate printer to Dillard credit card customers in Louisiana did not constitute a transfer of these items s to Dillard Thus like Blue Cross we conclude that with respect to those catalogs mailed s free of charge directly to Dillard credit card customers in Louisiana Dillard falls within s s the exception to the general rule of La R 47 and is exempt from liability for S 302 D Louisiana use tax pursuant to La R 47 S 302 D 8 This court has previously held in Louisiana Health Services and now in the instant case that the prerequisite for a taxable basis pursuant to La R 47 is S 302 D the actual transfer of items by the advertising firm to its client for use by its client For this reason we decline to apply the exception to the general rule of La R 47 S 302 Dto those catalogs forwarded by mail from the outofstate printer directly to Dillard s Louisiana stores for distribution free of charge to walkin customers and browsers who received the catalogs in Dillard stores s Accordingly we hereby reverse the trial court grant of summary judgment in s favor of the Department We now remand this matter to the trial court for its determination as to the amount of refund owed to Dillard swith respect to those catalogs mailed free of charge directly to Dillard credit card customers in Louisiana We further s direct that the trial court determine the amount of taxes owed by Dillard with respect to s those catalogs forwarded by mail from the outofstate printer directly to Dillard s Louisiana stores CONCLUSION For the above and foregoing reasons the trial court grant of summary judgment s in favor of the Department is reversed We hereby remand this matter to the trial court for further proceedings consistent with this opinion Costs in the amount of 1 22 358 shall be assessed against the State Of Louisiana Department of Revenue REVERSED AND REMANDED There is no evidence in the record before this court to establish the quantity or percentage of costs attributable to those catalogs shipped by mail from the out ofstate printer directly to Dillard Louisiana s stores Z
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