Cynthia Bridges, Secretary of the Department of Revenue, State of Louisiana VS Amedisys, Inc.

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STATE OF LOUISIANA COURT OF APPEAL FIRST CIRCUIT NO 2009 CA 1971 CYNTHIA BRIDGES SECRETARY OF THE DEPARTMENT OF REVENUE STATE OF LOUISIANA VERSUS AMEDISYS INC Judgment rendered May 7 2010 I Appealed from the 19th Judicial District Court in and for the Parish of East Baton Rouge Louisiana Trial Court No 574 824 Honorable William A Morvant Judge ANTONIO CHARLES FERACHI ATTORNEY FOR BATON ROUGE LA PLAINTIFF APPELLANT CYNTHIA BRIDGES SECRETARY OF THE DEPARTMENT OF REVENUE STATE OF LOUISIANA PHYLLIS D SIMS ATTORNEY FOR BATON ROUGE LA DEFENDANT APPELLEE AMEDISYS INC BEFORE CARTER C GUIDRY AND PETTIGREW 77 7 PETTIGREW J In this matter a home health care provider sought a refund of use taxes paid to the Louisiana Department of Revenue the Department in connection with its purchase of computer billing software The Department denied the refund claim and the provider appealed to the Louisiana Board of Tax Appeals the Board The Board ruled in favor of the provider and the Department appealed the ruling to the trial court From a judgment upholding the ruling of the Board the Department has appealed FACTS Defendant appellee Amedisys Inc Amedisys is a leading provider of home l health care and hospice services Amedisys is headquartered in Baton Rouge Louisiana and has approximately 14 employees in 520 offices located in 37 states across the 500 nation During the mid1990s an employee of Amedisys developed a software program for Amedisys to use in house for its billing and collections Later in 1998 Amedisys executives elected to outsource its billing and collection services and turned these operations over to CareSouth Home Health Services Inc CareSouth Amedisys further sold CareSouth the billing software Amedisys had developed for approximately 00 000 11 Subsequently Amedisys became unhappy with the service provided to it by CareSouth and began negotiating to repurchase its billing software and bring its billing and collection operations back inhouse In October 2001 Amedisys and CareSouth entered into a software licensing agreement the Agreement that effectively returned to Amedisys its billing software in order that Amedisys might resume its inhouse billing and collection services Due to the alleged inability of Amedisys to tender an 00 000 000 8 lump sum payment to CareSouth the Agreement set forth a series of installment payments over a thirtyone month term The Agreement further provided that upon payment of all license fees and provided no default occurred Amedisys had the right to acquire the software license from CareSouth upon payment to CareSouth of 1 00 at the termination of the Agreement 2 Unaware of the exclusion from Louisiana salesuse taxes for isolated or occasional sales Amedisys paid taxes to the Department on a portion of the payments it made to CareSouth for the billing software In October 2002 Amedisys was advised by its accountants that a purchase of the software was a non taxable transaction Amedisys thereafter filed a refund application with the Department in the amount of 205 48 548 for the amount of taxes it paid in connection with the payments Amedisys made to CareSouth Amedisys asserted that the transaction was excluded from tax as an isolated or occasional sale Based upon its contention that the transaction at issue was a lease rather than a sale the Department denied the refund application submitted by Amedisys Upon the Department denial of its refund application Amedisys appealed the s denial of its application to the Louisiana Board of Tax Appeals the Board for resolution of this matter Following a hearing on November 12 2008 the Board ruled in favor of Amedisys granting the refund requested The Department filed a petition for judicial review with the Nineteenth Judicial District Court which entered judgment upholding the decision of the Board From this judgment the Department has appealed STANDARD OF REVIEW Pursuant to constitutional and statutory mandate we review this case as a second court of appellate review The Nineteenth Judicial District Court is vested with the power to review decisions of the Board La Const art V 16 La R 47 S 14341435 Thereafter the ruling of the district court is subject to appellate review by suspensive appeal to this court in the exercise of its appellate jurisdiction over civil matters Const art V La 10 La R 47 S 1435 Judicial review of a decision of the Board is rendered upon the record as made up before the Board and is limited to facts on the record and questions of law International Paper Inc v Bridges 071151 p 9 La 1 972 So 1121 08 16 2d 1127 uq oting St Pierre Fabrication and Welding Inc v McNamara 495 So s 2d 1295 La 1986 see La R 47 The Board findings of fact should be accepted S 1434 s where there is substantial evidence in the record to support them and should not be set 91 aside unless they are manifestly erroneous in view of the evidence on the entire record International Paper Inc 071151 at p 9 972 So at 11271128 Furthermore if 2d the Board has correctly applied the law and adhered to correct procedural standards its judgment should be affirmed International Paper Inc 071151 at pp 10 972 So 2d at 1128 With these legal precepts in mind we will examine whether the district court erred in affirming the Board determination that the Agreement between Amedisys and s CareSouth constituted a sale rather than a lease with an option to purchase which entitled Amedisys to a refund of taxes pursuant to La R 47 S 301 bb ii c 10 A tax is levied on the sale at retail of each item or article of tangible personal property La R 47 Sale means any transfer of title or possession or both of S 302 A tangible personal property for a consideration La R 47 Said statute further S 301 12 provides a transaction whereby the possession of property is transferred but the seller retains title as security for the payment of the price shall be deemed a sale Id In connection with its appeal in this matter the Department contends the Board incorrectly applied the law and found the Agreement to be a sale when the Department claims the Agreement was actually a lease with an option to purchase The Department further claims that as the isolated or occasional sale exclusion set forth in La R S bb ii c 10 301 47 does not include a reference to lease or license the exclusion does not apply and Amedisys is not entitled to a refund of the taxes paid Louisiana Revised Statute 47 defines in pertinent part I or a 7 301 ease rental as the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration without the transfer of the title of such property The Department further argues that the payment of license fees by Amedisys pursuant to the terms of the Agreement entitled Amedisys to continued use of the software but was insufficient to transfer title of the software to Amedisys It is the position of the Department that title to the software could only be transferred after the termination date of the Agreement through a second and completely discretionary phase J of the Agreement that set forth an option to acquire title to the software for the additional consideration of 1 00 In support of its contention that the Agreement was actually a lease with an option to purchase the Department cites and relies upon Bamma Leasing Company Inc v Secretary of Department of Revenue and Taxation 93 881 La App 5 Cir 94 14 9 646 So 917 writ denied 942505 La 12 648 So 380 Bamma 2d 94 9 2d was a Louisiana corporation that provided financing to purchasers of automobiles i e consumers through documents titled Leases that Bamma contended were financed leases or conditional sales not subject to additional lease taxes pursuant to La R S B 302 47 Under the facts presented in Bamma a consumer would select an automobile and arrange financing with the dealership through Bamma In accordance with La R S A 302 47 Bamma paid the initial sales taxes at the time of registration and acquisition of the automobile from the dealership Bamma then entered into a lease with the consumer with the title of the automobile remaining in Bamma name until the s provisions of the lease were fulfilled At the end of the lease term the lessee had the option to purchase the automobile for the consideration of 1 which was not always 00 demanded by Bamma If upon the fulfillment of the lease the lessee desired to transfer title to himself a second bill of sale was drawn up and the lessee now the purchaser was responsible for the payment of the tax previously paid by Bamma There was also testimony at trial to the effect that if upon a lessee default Bamma was forced to s repossess an automobile Bamma did not file suit against the lessee for the remaining lease payments In such instances the automobile was sold usually for a loss to a used car dealer It was this point the trial court noted in its oral reasons for judgment which distinguished the Bamma case from the facts presented in the case presently before us The trial court noted that unlike Bamma where a lessee in default was not held responsible for the remaining lease payments Amedisys under the terms of the k Agreement always remained obligated to make all of the payments listed in the Agreement even in the event of default or termination This finding is supported by our review of the Agreement which provides in pertinent part as follows VI TERM TERMINATION AND DEFAULT hereunder 2 6 The following shall constitute events of default 4 any failure by Licensee Amedisys to pay the License Fees when due 3 6 Licensor CareSouth may terminate this Agreement the License or both immediately and without further obligation to Licensee Amedisys upon the occurrence of an event of default Termination shall not relieve Licensee AmediW of its obligation to pay all amounts due and payable to Licensor CareSouth as of the date of termination including without limitation all amounts accelerated pursuant to Section 6 hereof 5 5 6 In addition to any other remedies Licensor CareSouth may have upon an event of default under this Agreement a the aggregate of the License Fees due and pavable to Licensor CareSouth for the entire remainder of the term of this Agreement together with any License Fees that may be oast due hereunder shall become immediately due and payable Underscoring supplied In addition Schedule C of the Agreement set forth the schedule of payments Amedisys was to make to CareSouth The payment schedule provided that five months into the thirtyone month agreement Amedisys had paid fortysix percent 46 of the total price specified to CareSouth Amedisys argues that the schedule of payments is further evidence that the parties intended for the transaction to be an owner financed sale with a front loading of payments within the first few months of the Agreement Amedisys argues and the trial court found that the facts presented are more analogous to a conditional sale rather than a lease with an option to purchase In reaching this determination the trial court relied upon Pastorek v Lanier Systems Company 249 So 224 La App 4 Cir 1971 In Pastorek the plaintiff an attorney 2d demanded recission of a sale of an automatic copier and refund of an installment payment The attorney had previously agreed to purchase the automatic copier on an installment plan and was told that upon payment of a stipulated number of rental 2 payments he could exercise an option to purchase the copier for an additional 1 As 00 the attorney was already leasing a competitive model the evidence showed the attorney wished to purchase the copier and at no time did he evince a desire to lease the machine Nevertheless the attorney thereafter signed a lease contract which referred to him as lessee the financing company as lessor and the copier manufacturer as the supplier of the equipment Pastorek 249 So at 226 2d The copier immediately began to give trouble The attorney became disenchanted with the machine and instructed his employees to discontinue using it After writing to the financing company and the manufacturer tendering the machine and demanding cancellation of the contract the attorney instituted suit The trial court found and the fourth circuit affirmed that although referred to as a lease with an option to purchase the agreement should more properly be described as a sale In reaching this determination the court in Pastorek opined The distinction between a valid lease with an option to purchase and a disguised conditional sale is that in the former there is an option to give additional consideration in order to purchase the leased item at the end of the contract term while in the latter there is an obligation to pay the full price regardless of whether the option is exercised or not The agreement here is a disguised conditional sale since upon completion of the lease term a payment of only 1 is required to exercise the option The 00 purpose was obviously to retain titre until payment of the purchase price Such a contract has been properly held to still constitute a sale Pastorek 249 So at4 227 La App 4 Cir 1971 omitted 2d Citations Based upon our review of the record before this court we cannot say the trial court erred in affirming the Board ruling which granted Amedisys a refund of sales s taxes paid based upon its determination the transaction at issue was a sale rather than a lease with an option to purchase Accordingly we hereby affirm CONCLUSION For the above and foregoing reasons the trial court decision upholding the s s Board ruling granting Amedisys a refund of sales taxes paid is hereby affirmed Costs in the amount of 1shall be assessed against the State of Louisiana Department of 23 321 Revenue AFFIRMED 7

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