Cynthia Bridges, Secretary, Department of Revenue VS The Higbee Company T/A Dillard's
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NOT DESIGNATED FOR PUBLICATION STATE OF LOUISIANA COURT OF APPEAL FIRST CIRCUIT 2009 CA 1634 CYNTHIA BRIDGES SECRETARY DEPARTMENT OF REVENUE STATE OF LOUISIANA VERSUS THE HIGBEE COMPANY T DILLARD AS n K On Y Appeal from the 19th Judicial District Court Parish of East Baton Rouge Louisiana Docket No 515 Division 0 Section 8 172 Honorable Wilson E Fields Judge Presiding R Frederick Mulhearn Attorneys for Monica Doss Washington Plaintiff Appellee Cynthia Bridges Secretary Shone T Pierre David Hansen Department of Revenue Donald Bowman State of Louisiana Miranda Conner Antonio Ferachi Baton Rouge LA Robert W Nuzum Baker Donelson Bearman Caldwell Berkowitz PC Attorney for Defendant Appellant The Higbee Company New Orleans LA BEFORE PARRO KUHN AND McDONALD JJ Judgment rendered JUN 2 8 2 010 PARRO J The Higbee Company Higbee appeals a judgment in favor of Cynthia Bridges Secretary of the Louisiana Department of Revenue the Department granting the Department motion for summary judgment and ordering Higbee s to pay 61 representing use tax for the period of February 1998 34 774 through July 2001 plus interest calculated 1601 47 and all court costs in accordance with LSAR S For the following reasons we reverse the judgment in part vacate in part and remand this case to the district court for further proceedings FACTUAL AND PROCEDURAL BACKGROUND The Department filed a petition on December 18 2003 alleging that during the tax period January 1 1998 through July 31 2001 Higbee had failed to accrue and remit sales and use taxes on the printing costs associated with catalogs and other printed material sent into the State of Louisiana to Dillard s department stores and customers Higbee filed a general denial to the spetition and further averred that advertising materials printed out Department of state and shipped into Louisiana by an unrelated third party printer were not subject to Louisiana sales or use tax citing LSAR 47 It also stated S 302 D that if such advertising materials were subject to use tax the tax would be the lower of either 4 of the cost price or 4 of the fair market value and that the advertising materials have a fair market value of zero to the Dillard s customers who get them free It also alleged that the Department erred in assessing Louisiana sales and use taxes on thirdparty freight charges which are not taxable under Louisiana law and in computing the interest amounts allegedly due without first subtracting amounts already paid by Higbee against the sales and use tax assessment for that period Finally Higbee claimed that The record shows that Dillard Inc acquired Higbee in 1988 and changed its stores names s to Dillard stores Higbee a Delaware corporation is a wholly owned subsidiary of Dillard s s that operates Dillard department stores in Louisiana and other states Therefore the issue s involves Louisiana use tax on Dillard scatalogs that were ordered and paid for by Higbee 2 the Department erred by claiming in its petition that the taxes due related to a tax period beginning January 1 1998 when the notice of proposed tax due sent to Higbee by the Department stated that the tax liability was for a tax period beginning February 1 1998 The Department then filed a motion for summary judgment and a motion to have requests for admission deemed admitted due to Higbee failure s to respond to those requests The motions were set for hearing on May 11 2009 On May 7 2009 Higbee filed a cross motion for summary judgment the court set the hearing on Higbee motion for September 28 2009 s Because Higbee sopposition to the Department smotions had been filed late the court did not allow counsel for Higbee to argue at the May 11 2009 hearing At that hearing the court granted the Department motion to have s requests for admission deemed admitted The affidavit of Mike Blalock the sRevenue Tax Audit Supervisor stated that the Department Department saudit of Higbee showed there was a tax balance of 61 of which 50 34 744 428 represented use taxes on catalogs circulars and other promotional materials printed out of state and distributed in Louisiana to Dillard stores and to its s credit card customers According to Blalock affidavit the remaining 11 s 316 related to flat fees charged to Dillard customers when merchandise was s shipped to them 2 Based on Higbee admissions and the affidavits and s memoranda submitted by the parties the court concluded that there was no genuine issue of material fact and that the Department was entitled to judgment as a matter of law and granted the Department motion s The judgment which was signed on June 17 2009 ordered Higbee to pay the Department 61 representing sales and use tax for the period of 34 774 February 1998 through July 2001 plus interest calculated in accordance with z We note that there is an obvious mathematical error in the amounts provided in the affidavit as 50 428 316 11 34 744 61 s The judgment contains another error in that Blalock affidavit stated the total due was s 34 744 61 whereas the judgment awarded 61 34 774 3 LSAR 47 and all costs Higbee timely filed a suspensive appeal to this S 1601 court Higbee assigned as error the court failure to apply the exclusion from s such taxes found in LSAR 47 citing this court decision in Louisiana S 302 D s Health Services Indem v Secretary Dea of Revenue State of Louisiana t 98 1971 La App 1st Cir 11 746 So 285 writ denied 00 0263 La 99 5 2d 00 24 3 758 So 155 It also assigned as error the court application of the 2d s reasonable market value test by considering Higbee to be the willing buyer when in fact the willing buyers in this case were the Dillard customers who s received the catalogs free of charge Therefore the reasonable market value of the catalogs at the time they became subject to Louisiana use tax was zero ANALYSIS There is no dispute concerning the facts of this matter the only issue before us involves the interpretation and application of Louisiana statutes and jurisprudence Higbee contends that the distribution of Dillard catalogs by s mail directly to Dillard customers or to its Louisiana stores is excluded from s Louisiana sales or use taxes pursuant to LSAR 47 S 302 D amendment by 2003 La Acts No 73 Prior to its 1 that statute provided in pertinent part Notwithstanding any other provision of law to the contrary shall be levied on any advertising service no sales or use tax 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 transfer of mass produced advertising items by an advertising business which manufactures the items itself to a client for the client use s 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 Emphasis added Based on this court decision in Louisiana Health Services 746 So 285 and s 2d the very recent decision by another panel of this court in Dillard Inc v John s M N Kennedy Secretary Louisiana Dep of Rev t 1st Cir 5 10 7 3d So Taxation 09 1423 La App we conclude that Higbee is correct None of the catalogs were transferred to Higbee the client for its use Some were sent to Dillard sdepartment stores in Louisiana and others were sent to Dillard s credit card customers As this court stated in the Louisiana Health Services case actual transfer of the items by the advertising firm to the client for use by the client was a pre requisite for a taxable basis Louisiana Health Services 746 So at 287 Therefore none of the catalogs distributed by the 2d out ofstate printing companies were subject to Louisiana use tax and the court legally erred in concluding that Higbee owed such taxes to the Department 4 That portion of the judgment must be reversed Other than Blalock affidavit the record does not include any evidence s related to the 11 assessed on flat fees or handling charges that Dillard 316 s charged to its customers when merchandise was shipped to them Higbee contends the court erred in concluding this tax was owed because the spetition made no allegations concerning such taxes and because Department according to the Department Revenue Ruling No 01 007 October 10 2001 s freight charges associated with sales of tangible personal property are not subject to Louisiana sales or use tax The judgment of the district court did not specifically address these taxes but merely included them in the total amount it found was owed by Higbee to the Department Therefore we will vacate that portion of the judgment and remand this matter to the district court for consideration of whether such taxes are owed 4 We note that the Department cited the case of D Holmes Co Ltd v McNamara 486 U H S 24 108 S 100 L 21 1988 in support of its position That case held that the 1619 Ct 2d Ed Commerce Clause of the United States Constitution was not violated by the assessment and collection of Louisiana use tax on catalogs ordered and printed by outofstate vendors for distribution in Louisiana to customers and potential customers of D H Holmes However the D H Holmes case was decided on the basis of the version of LSA R 47 in effect at the S 302 time the company was audited in 1979 1981 The exclusion of advertising services from such taxes was enacted by 1987 La Acts No 869 2 and applied to services rendered on or after January 1 1982 Therefore the exclusion underlying this court opinion in this case was not in s effect when the D H Holmes case was decided 5 CONCLUSION For the above reasons the district court grant of summary judgment in s favor of the Department is reversed in part and vacated in part This matter is remanded for further proceedings solely on the issue of whether a tax is due on flat fees or handling charges and if so in what amount All costs of this appeal in the amount of 1are assessed against the Department 76 035 REVERSED IN PART VACATED IN PART AND REMANDED N
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