Utelcom Inc. v. Bridges, 2010 CA 0654 Decision Appeal (La. App. Sept. 12, 2011)

8/4/2019 Utelcom Inc. v. Bridges, 2010 CA 0654 Decision Appeal (La. App. Sept. 12, 2011)

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STATE OF LOUISIANA

COURT OF APPEAL

go 211X1oZeltilUTELCOM INCAND UCOM INC

VERSUSnYNTHIA BRIDGES IN HER CAPACITY AS SECRETARY OFnvHE DEPARTMENT OF REVENUE STATE OF LOUISIANAOn Appeal from the 19th Judicial District CourtParish of East Baton Rouge LouisianaDocket No53507ivisionDHonorable JaniceGClark JudgePresidingWilliamMBackstromJr Attorneys forEdwardDWegmann Plaintiffs AppellantsAppelleesKathryn S Friel UTELCOM Inc andJonesWalkerWaechter Poitevent UCOM IncCarrere DenegreLNewOrleans LAand

ChristopherDMartinJonesWalkerWaechter PoiteventCarrere DenegreLBaton Rouge LA

JohnJWeilerChristian NWeilerWeiler ReesLNewOrleansLA

JGrant ColemanRobert JBurvantKing Krebs JurgensPLNewOrleans LA

Attorneys forDefendant AppelleeAppellantCynthiaBridgesSecretaryoftheDepartment of RevenueState ofLouisiana

AmicusCuriaePolychmInc

BEFORE PARRO GUIDRY AND HUGHES JJ

Judgment rendered S E P10 1 1


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PARRO JPlaintiffs UTELCOM Inc and UCOM Inc collectively the companies have

appealed a judgment of the trial court grant ing a motion fo r pa rtia l summary judgmentin favor of Cynthia Bridges in he r capacity as Secretary of the Louisiana Depar tmen t ofRevenue the Department finding that the companies were subject to the Louisianacorpora tion f ranch ise ta x fo r th e taxable periods end in g on December 31 2001December 31 2002 and December 31 2003 the re levant periods For the reasons

that follow we affirm in part reverse i n part and renderFACTUAL BACKGROUND AND PROCEDURAL HISTORY

UTELCOM and UCOM are foreign corporat ions o rg an ize d un de r the laws ofKansas and Missouri respectively The companies are part of an affiliated group ofcorporat ions w ho se pa re nt corporat ion was Sprint Corporation Neither UTELCOM norUCOM was registe re d or qualifie d to do business in Louisiana during the relevantperiods and each company maintained its only commercial domicile exclusively outsideof Louisiana The compan ie s own ed lim ite d pa rtn e rsh ip in te re sts in three Delawarelimited partnerships 1print Communications Company L P Sprint CommunicationsLP which i s a long distance telecommunications company 2print Enterprises L PEnterprises LP which handles wireless communications and 3printCom EquipmentCompany L P Equipment LP which owns telecommunications equipment that i s l e a s e dto other Sprint affiliates Sprint Communications L P was registered in Louisiana as afore ign l imited partnership and conducted business in Louisiana It i s owned by U C O Mand UTELCOM a s limited partners and by U S Telecom Inc US Te lecom as a general1 T h e commercial domicile of a c o r p o r a t i o n e x i s t s w h e r e t h e p r in c ip a l p l a c e of b u s i n e s s i s l o c a t e d a n df r o m w h ic h th e corporations c t iv i t ie s f u n c t io n a n d a r e m a n a g e d U n i t e d G a s C o r p o r a t i o n v Fonteno24 1 La 488 509 129 Sod48 756 19612 I t i s u n d i s p u t e d t h a t th e c o m p a n i e s w e re n o t r e g i s t e r ed o r q u a l i f i e d to d o b u s i n e s s i n L o u i s i a n ahowever th e Depa rtment contends that the companies actually d id conduct b u s i n e s s in L o u i s i a n at h r o u g h t h e a c tio n s of other entities A s f o r t h e i s s u e of c o m m e r c i a l domicile t h e c o m p a n i e s a l l e g e d int h e i r p e t i t i o n that t h e i r c o m m e r c i a l d o m i c i l e s w e r e l o c a t e d o u t s i d e of L o u i s i a n a a n d t h e D e p a r t m e n tadmitted the allegation in its answer3 E n t e r p r i s e s L P a n d E q u i p m e n t L P w e r e o w n e d b y U C O M a s t h e l im i te d partner a n d b y U S TelecomInc as the genera l partner Neither partnership w a s registered a s a foreign limited partnership inL o u i s i a n a n o r d id t h e y o w n a n y p r o p e r t y o r c o n d u c t a n y b u s i n e s s in L o u i s i a n a Therefore t h e y a re n o trelevant to the issues in thismatter

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partnerThe companies initially filed Louisiana Corporation IncomeFranchise Tax Returns

for each of the relevant periods and paid both income and franchise taxes for thoseperiods Thereafter the Department conducted an audit of the returns and issuednotices of proposed taxes due alleging that the companies owed additional franchisetaxes and interest for the relevant periods In response to these notices thecompanies paid under protest a total of2761840n additional franchise taxes andrelated interest to the Department pursuant to LSAR47576O n August 11 2005the companies fi led a petit ion for recovery of the f ranchise taxes and interest paidunder protest denying that they were subject to the f ranchise ta x and seeking a refundof th e entire amount paid under protest plus statutory interest In addtion toclaiming that th e Department had improperly applied th e Louisiana statutes pertainingto the imposit ion of the f ranchise ta x to them the companies further contended thatthe proposed assessment of the franchise tax by the Department violated the privilegesimmunities and protect ions af forded them by the Commerce Clause of the UnitedStates Constitution and the Due Process and Equal Protection Clauses of the UnitedStates and Louisiana Constitutions

The companies and the Department filed cross motions fo r summary judgmentconce rn ing the companies claim fo r recovery of th e monies paid under protest TheDepar tmentsotion sought a partial summary judgment in its favor finding that as amatter of la w the proposed franch ise tax assessment 1ully complied with theLouisiana f ranchise ta x laws and2as not in violation of the Commerce Clause ofthe United States Constitution or the D u e P r o c e s s or E q u a l Protection Clauses of theUnited States and Louisiana Constitutions The companies motion sought a summaryjudgment in their favor finding that 1o n e of the i n c i d e n t s of taxation s p e c i f i e d in4 Sprint Communications L P apparently h a d a n additional limited partner Sprint InternationalCommunicat ions Corp however this corporat ion is not involved in this matter

5 T h e p e t i t io n f ile d b y t h e c o m p a n ie s s o u g h t o n ly th e r e c o v e r y o f th e f r a n c h is e t a x a m o u n t s a n d r e l a t e di n t e r e s t p a i d u n d e r p r o t e s t A c c o r d i n g t o t h e b r i e f f i l ed b y th e c om p a n ie s i n t h i s c o u r t t h e c o m p a n i e si n t e n d t o f i l e a m e n d ed f r a n c h is e t a x r e t u r n s a nd s e e k r e f u n d s o f t h e f r a n c h is e t a x e s th e y h a d p a i d p r i o rto the audit by the Department Those taxes a re not at issue in this matter3


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LSAR7 601 were present during the relevant periods2AC61I01Dheregulation relied on by the Department to purportedly interpret LSAR4701wasinvalid as it was beyond the scope of the statute and3he Departmentsttempt toimpose the franchise tax on the companies violated the protections afforded them bythe Due Process and Commerce Clauses of the United States Constitution In supportof these respective motions the Department filed the affidavits of Mike Pearson andAnthony Caruso and th e companie s file d tw o affidavits from Mark Beshears

Thereafter the Department fi led a motion for attorney fees pursuant to LSAR47512and motions to strike the affidavits of Mark Beshears The companies alsofiled motions tostrike the affidavits ofAnthony Caruso and Mike Pearson

After a hearing the trial court rendered a judgment grant ing the Departmentsmotion for partial summary judgment finding that the companies owed the addi t ionalLouisiana corporate f ranchise tax and related interest fo r the re levant periods The trialcourt further found that th e proposed assessment of franchise tax fully complied withLouisianasranchise tax laws and did not violate the relevant Louisiana and UnitedStates constitutional provisions The motion for summary judgment fi led by thecompanies was denied The ju dgmen t fu rth e r ordered th e compan ie s to pay th eDepartmentst torney fees in th e amount of 10 of th e a dd itio na l co rpo ra tio nfranchise ta x and related interest awarded in accordance with th e provisions of L S AR47

512In addi t ion th e judgment ordered that th e affidavits of Anthony Caruso andMike Pearson which had been submitted by th e Depar tment be stricken in theirentirety Finally the judgment ordered that the or iginal affidavit of Mark B esh ea rsd a t e d O c t o b e r 2 2009 b e s t r i c k e n a s to p a r a g r a p h s 7 8 9 14 19 21 22 a n d 23and that th e aff idavit of Mark Beshea rs dated October 15 2009 be stricken as toparagraphs 5 6 7 8 9 10 11 12 and 13

6 T h e a f fid a v i t o f A n t h o n y C a r u s o w a s f i l ed b y th e D e p a r t m e n t i n o p p o s i t i o n t o th e c o m p a n i e s m o t i o n fo rsummary judgmentThe p a r tie s a ls o relied o n the pleadings a n d answers to interrogatories in the record

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It i s from this judgment that the companies have appea led The Departmenthas answered the appeal with regard to the trial courtsuling concerning the affidavitsof Anthony Caruso and Mike Pearson In its answer the Department has alsorequested that the companies be required to pay a ll costs of court in both the trial andappellate courts and that it be awarded additional attorney fees on appeal

SUMMARYJUDGMENT

An appellate courtseview of a summary judgment is a de novo review basedon the e v id e nc e p re se n te d to the trial court using the same criteria used by the trialcourt in decid ing whether a summary judgment should be granted BucksunEnterprises Inc vMapponsInc 99 3054 La App 1st Cir26108 Sod428 431 A motion for summary judgment should be granted only if a ll the pleadingsdepositions answers to interrogatories admissions and any affidavits submitted to thetrial court show that there is no genuine issue of material fact and that the mover isentitled to judgment as a matter of law LSACrt 9666f the issue before thecourt on th e motion fo r summary judgment is one on which th e party bring ing themotion will bear the burden of proof at trial the burden of showing that there is nogenuine issue of mater ial fact is on the party bringing the motion See LSACrt966C2

RELEVANTLAW

The Louisiana corporate franchise tax is imposed pursuant to L S AR4701which during the relevant periods provided

A Every domestic corporation and every foreign corporation exercisingits charter or qualified to do business or actually doing business in thisstate or owning or using any part or all of its capital plant or any otherproperty in this state subject to compliance with a l l other provisions of

8 T h e o r i g i n a l j u d g m e n t s i g n e d b y t h e t r i a l c o u r t o n ly s ta te d t h a t t h e m o t i o n f o r p a rt ia l s u m m a r yjudgment of the Department h a d b e e n granted a n d that the motion for summary judgment of thecompanies h a d b e e n denied After this court i s s u e d a r u l e t o show c a u s e to the parties noting that thejudgment failed to ident ify the s p e c i f i c relief awarded the t ria l court s i g n e d a n amended judgment m o r eclearly setting forth the relief granted9 T h e D e p a r t m e n t o r i g i n a l l y f i l e d a m o t i o n fo r p a r t ia l s um m a ry j u d g m e n t b e l i e v i n g t h a t t h e i s s u e o f t h eamount of the taxes w a s s t i l l at issue however the companies d id no t challenge the amoun t of thetaxes The Department th en file d its motion for a tto rney fees stating that a ll issues were before thecourt Under these circumstances we conclude that all i s s u e s in this matter are rev iewable under thisappeal therefore t h e c o m p a n i e s a p p e a l of t h e d e n i a l of it s m o t i o n fo r s u m m a r y judgment is p r o p e r l ybefore this court

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law except as otherwise provided for in this Chapter shall pay an annualtax at the rate of30or each10000r major fraction thereof onthe amount of its capital stock surplus undivided profits and borrowedcapital determined as hereinafter provided the minimum tax shall not beless than100er year in any case The tax levied herein is due andpayable on any one or all of the following alternative incidents1he qualification to carry on or do business in this state or the actualdoing of business within this state in a corporate form The term doingbusiness as used herein shall mean and include each and every actpower right privilege or immunity exercised or enjoyed in this state asan incident to or by virtue of the powers and privileges acquired by thenature of such organizations as wel l as the buying selling or procuringof services or property2he exercising of a corporationshar ter or the cont inuance of itscharter within this state3h e ow ning or using any part or al l of its capital plant or otherproperty in this state in a corporate capacityB It is the purpose of this Section to require the payment of this ta x tothe state of Louisiana by domestic corporat ions for the right granted bythe laws of this state to exist as such an organization and by bothdomest ic and foreign corporat ions for the enjoyment under the protect ion

of the laws of this state of the powers rights privileges and immunit iesderived by reason of th e corporate form of existence and operat ion Thetax h ere by imposed shall be in addition to a l l other ta xe s le vie d by anyother statute

C1s used herein the term domestic corporation shall mean andinclude all corporations joint stock companies or associat ions or otherbusiness organizations organized under the laws of this state which haveprivileges powers rights or immunit ies not posse sse d by individuals orpartnerships2The term foreign corporation shall mean and include all suchbusiness organizations as hereinbefore described in this Paragraph whichare o rgan ized unde r th e laws of any other state territory or district orforeign countryD The increase in the ta x impo se d by this Section from one dollar andfifty cents to three dollars fo r each one thousand dollars or major fractionthereof of capital stock surplus undivided profits and borrowed capitalshall not be appl icable to the first three hundred thousand dollars of

capital stock surplus undivided profits and borrowed capital of eachcorporationTaxing statutes are to b e interpreted liberally in favor of the taxpaye r and

against the taxing authority S e e GoudchauxMaison Blanche Inc v Broussard 590Sod159 1161 La 1991 If the statute ca n reasonably be interpreted more thanone way the interpretation l e s s onerous to the taxpaye r is to b e adopted EntergyLouisiana Inc v Kenned 0 3 0166 La App 1 s t C ir72359 Sod4 79 writ6


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denied 03 2201 La114358Sod30 see also United Gas Corporation vFontenot 241 La 564 579 129 Sod76 78 1 1961

Furthermore words defining a thing to be taxed should not be extended beyondtheir clear import Cleco Evangeline L L C v Louisiana Tax Comn1 2162 La42813Sod51 355 Absent evidence to the contrary the language of the statute itselfmust c lear ly and unambiguously express the intent to apply to the property in questionUnless the words imposing the tax are expressly in the statute the tax cannot beimposed Id

DISCUSSION

O n appeal the companies contend that the trial court erred i n grant ing theDepartmentsotion for partial summary judgment finding that the companies weresubject to the f ranchise ta x for the re levant periods T he compa nie s n ote that LSAR4701Authorizes the imposition of th e fra nch ise ta xoln a corporation and gLlyif the corporation undertakes one or more of the enumerated incidents of taxation inLouisia na and does so in a corporate capacity The companies contend that they werenot subje ct to th e franchise ta x fo r th e re le van t periods because they were nonresident corporations whose only contacts with Louisiana were through their passiveownership interests as limited partners in Sprint Communications LP a limitedpartnership that owned property and conducted business in Louisiana The companiesinsist that this connect ion is insufficient to impose the f ranchise ta x on them as amatter of law

According to the statement of uncontested facts submitted by the companies insupport of their motion for summary judgment a s well a s the pleadings and answers tointerrogatories in th e record neither company was registered or qualified to dobusiness in Louisiana or engaged in any business activities in Louisiana during therelevant periods Furthermore during th e relevant periods neither company 1r e n d e r e d a n y s e r v i c e s t o o r for a n y affiliate o r t o o r for a n y other p a r t y in Louisiana2ad any employees independent contrac tors agents or other representatives in

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US Telecom carr ied out its actions on behal f of all partners Thus it appears that theDepar tmen t is contend ing that US Telecom has acted as the agen t for the companiesThis argument has no basis in the law As the only general partner US Telecom hasthe authority to b i n d the partnership but it h a s n o authority to act as the agent forthe limited partners namely the companies See LSACrt 2843 Accordinglythe Departmentsrgument that US Telecomsctions can be attributed to thecompanies is withoutmerit

The Departmentsain argument in support of its position that th e compan ie sare subject to the f ranchise ta x is based primari ly on its own regulation LAC61I01Dhich providesThus the mere ownersh ip of property within this state or aninterest in property within this state including but not l imited to mineralinterests and oi l paymen ts dependen t upon production with in Louisianawhether owned d irectly o r by or th rough a partnersh ip or joint v en ture orotherwise renders the co rpo ra tion sub jec t to f ranchise ta x in Louisiana

since a portion of its capital is employed in this state Emphasis addedIt i s true that th e Secretary of th e Department has th e authority to prescribe

rules and regulat ions to carry out the purposes of Title 47 of the Louisiana RevisedStatutes and such rule s and regulat ions will have the full force and effect of law ifpromulgated pursuant to the Administrative Procedure Act See LSARS47511Howeve r it is wellse ttle d law in Louisiana that a ta x regulation cannot extend thetaxing jurisdiction of th e statute as taxes are imposed by th e legislature not theDepartment See Chicago Bride Iron Co v Cocreham 31 7 Sod05 61 2 La1975 cert denied 424 US53 9 6St 1427 47Ldd59 1976 P e n s a c o l a

1 1 T h e D e p a r t m e n t s u g g e s t s that b e c a u s e S p r in t C o m m u n ic a tio n s L P i s a D e l a w a r e p a r t n e r s h i pLouisiana partnership law is inapplicable to this matter However during the re levan t periods SprintC o m m u n i c a t i o n s L P w a s r e g i s t e r e d to d o b u s in e s s in L o u i s i a n a therefore it e n j o y e d t h e rightsp r i v i l e g e s a n d j u r i d i c a l s t a t u s of a L o u i s i a n a p a r t n e r s h i p in a c c o r d a n c e w i t h L S A RS9422A1Delaware la w applied o n l y to the organization internal affairs a n d l iabil ity of Sprint Communications LPSee LSAR9425Z L S A Cr t s 2 8 4 3 a n d 2 8 4 4 e sta b lis h th e l im i t s o f l i ab i l i t y a n d a u t h o r i t y o n th e l im i te d p a r t n e r spartners in commendam in l imited partnerships Such limited partners like the companies do notp a r t i c i p a t e in t h e c o n t r o l of t h e b u s in e s s a n d d o n o t h a v e t h e a u t h o r i t y to b i n d t h e partnershipFurthermore t h e S p r in t C o m m u n ic a tio n s L P p a r t n e r s h i p a g r e e m e n t s p e c if ic a l l y p r o v i d e s that t h ec o m p a n i e s s h a l l h a v e n o r i g h t o r p o w e r to t a k e p a r t in t h e m a n a g e m e n t o r c o n t r o l of t h e p a r t n e r s h i p o ri t s b u s in e s s a n d a ffa irs o r to a c t for or b i n d the partnership in any way

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Const C o v McNamara 558 Sod31 23334 La 1990 Dow Chemical Co vTraigle 336 Sod85 28 8 La App 1st Cir cert denied 339 Sod45 La 1976

In l ight of th e above it appears th e salient issue is whether th is regulation was areasonable interpretation of th e relevant statutory author ity setting forth th e bases fo rth e imposition of Louisianas orporate franchise tax or was a prohibited expansion ofthe scope of the statute See LSAR4701Ander the facts of this case therec a n b e n o dispute that the incidents of taxation specified in L S AR7601A1nd2were not present with respect to the companies during the relevant per iodsTherefore our analysis will focus on the incident of taxation set forth in LSAR4701A3

Under th e provisions of L S AR4701A3he franchise ta x is imposed onlyon a corporation owning or using any part or a ll of its capi ta l plant or other propertyin Louisiana in a corporate capacity No mention is made of the use of capitalthrough a partnership or in any other indirect capacity Indeed LSAR47016states that th e purpose of th e franchise ta x is to require th e payment of th e ta x by bothforeign and domestic corporat ions for th e en joyment unde r th e protection of th e lawsof this state of the powers rights privileges and immunities derived by reason of thecorporate form of existence and operation Emphasis added Furthermore ininterpreting LSAR4701he Louisiana Supreme Cour t has stated

The thrust of the statute is to tax not the interstate business donein Louisiana by a foreign corporation but the doing of business inLouisiana in a corporate form

Colonial Pipeline Co v A erton 28 9 Sod3 9 7 La 1974 affd21 US00 9 5St 1538 44Ldd1975 Yet the Depar tmentsegulation h a s ignored the clearwording of the s t a t u t e a n d the interpretation of the s u p r e m e court a n d s e e k s t o e x p a n dthe s c o p e of the s p e c i f i c incident of taxation a t issueiS AR4701A3

I n s t e a d of a corporation b e i n g subject to the franchise t a x simply for o w n in g o ru s i n g a n y part o r a l l of i t s capital plant o r other property in this s t a t e in a c o r p o r a t ecapacity a s p r o v i d e d in L S AR4701A3 he a b o v e regulation attempts t os u b j e c t a f o r e i g n c o r p o r a t i o n to t h e f r a n c h is e ta x fo r t h e additional incident o f o w n i n g10


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or using a part of its capital in this state not in a corporate capacity but indirectlythrough a l imited partnership 13 This is clearly an impermissible expans ion of thestatutory language

It is undisputed that the companies as l imited partners made var ious capitalcontributions to Sprin t Commun ications LP as required by th e partnership agreementSe e also LSACrt 2840 However once those contributions were made the capitalbelonged to Sprin t Commun ica tio ns L P and not to th e companies because SprintCommunications LP as a partnership is a separate juridical person distinct from itspartners See L S ACrt 2801 Therefore th e capital that had been owned by th ecompanies was now owned and being used by Sprint Communications LP in LouisianaThe companies as limited partners maintained a n ownersh ip in te rest in SprintCommunications LP14 but th e capital itself was no longer owned or used by them thusth e incident of taxation se t forth in L S ARS4701A3as not applicable Underthe plain wording of the statute there was no statutory inc ident of taxat ion on which toimpose the franchise tax and any attempt by th e Department to administrativelye xpand th e scope of th e statute beyond its clear meaning is not permissible 15 SeeCleco Evangeline LLC 8 13 Sodt 355 Accordingly th e trial court erred in grantingpartial summary judgment in favor of the Department and that portion of the judgmenti s reversed Moreover we grant summary judgment in favor of the companies

The companies have a lso challenged that portion of the trial courtsudgmentthat found that the assessment of fr anch ise taxes on them was not in violation of theCommerce Clause of the United States Constitution or the E q u a l Protection or D u e

1 3 In e ss en ce th e r o l e o f a l im i t ed p a r t n e r i s t h a t o f a p a s s i v e c o n t r i b u t o r w h os e p ow e rs a re g e n e r a l l yrestricted to the pro tec tion o f his in terest See L S ACrt 2 843 Revision Comment 1980 Itwouldseem illog ical to impose a franchise ta x on a fo re ign co rpora tio n whose sole contact with Louisiana ist h r o u g h t h e p a s s i v e ownership a s a l im i te d partner of a n i n t e r e s t in a partnership w h i c h o w n s p r o p e r t yand does business in Louisiana when the partnership itself is no t subject to a franchise tax1 4 See LS ACrt 4731 5 T h e D e p a r tm e n t h a s c o n t e n d e d t h a t th e c o m p a n i e s h a v e i m p r o p e r l y c h a l l e n g e d th e re g u la t io n b y n o tb r in g in g th e c h a l l e n g e in a n a c tio n f o r d e c l a r a t o r y judgment p u r s u a n t to L S A RS4963Ao w e v e rthat statute merely states that the va lid ity or applicability of a r u l e may b e determined in a n action ford e c l a r a t o r y j u d g m e n t i n t h e d i s t r i c t c o u r t o f t h e p a r i s h i n w h ic h th e a g e n c y i s l o c a t e d A s p r o v i d e d b yL S AR13he word may is permissive not mandatory

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Process Clauses of the United States and Louisiana Constitutions16 Courts should notpass on the constitutionality of legislation unless it is essential to the decision of thecase or controversy Moreover courts should avoid constitu tiona l ru lings when the casecan be decided on the basis of nonconstitutional issues Blanchard v State ThroughParks a nd Recreat ion Comn60053 La51673 Sod000 1002 Becausewe have already determined that assessment of the franchise tax on the companies i simprope r unde r th e language of th e s ta tu te itself th e question of constitutionality is notessential to th e determination of th e issues before this court Accordingly th e issues ofconstitutionality are pretermitted

Nevertheless we will briefly address th re e ca se s which th e Department hascontended are dispositive of the constitutional issues in this matter The three casesare Bridges v Autozone Properties Inc 04 0814 La34500 Sod8 4Secretary Dept of Revenue State of La v G A P Apparelnc40263 La App 1stCir6548 6 Sod59 and Bridges Secretary of Dept of Revenue State v

Geoffrey Inc 07 1063 La App 1 s t C ir2884 Sod15 writ denied 08 0547La45878Sod70

In Autozone the issue was whether Louisiana had taxing jurisdiction over thedividend i n c o m e of a nonresident beneficiary b a s e d o n i t s investment in a c o m p a n ythat d id business in Louisiana and received the benefits opportunities and protectionsthat arose as a result thereof Autozone 900Sodt 800 The supreme courtultimately determined that L o u i s i a n a h a d jurisdiction t o t a x the dividend incomehowever the court d id not d i s c u s s the i s s u e of jurisdiction with r e s p e c t t o the franchisetax Therefore the case is inappl icable to the matter before this court

The same is true of this courtsecision in Geoff rey While the trial courtaddressed the issue of the franchise tax finding tha t the Department had establishedit s e n t i t l e m e n t t o t h e f r a n c h is e tax t h e ta x p a y e r d id n o t a s s i g n t h a t r u l i n g a s e r r o r o r1 6 T h e c o m p a n i e s p r o p e r l y c h a l l e n g e d t h e cons t i t u t i on a l i t y o f L S A R4701 i n t h e i r p e t i t i o n H o w e v e rb e c a u s e t h e y d id n o t s e e k d e c l a r a t o r y r e l i e f s e r v i c e o f t h e a t t o r n e y g e n e r a l w a s n o t r e q u i r e d S e e L S ACPrt 1880 V a l l o v G a y l e O il Co Inc 9 4 1238 La11044 6 Sod 8 59 864

1 7 T h e i s s u e o f c o n s t i t u t i o n a l i t y a ls o w a s n o t e s sen t i a l to th e t r i a l courtsu l i n g t h e r e f o r e th e t r i a l c o u r tshould not have addressed the issue12


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attack the validity of the statute Therefore this courtsec is ion addressed only thei s s u e s surrounding the assessment of the corporate income tax and it provides n oguidance as to the applicabil i ty of the f ranchise ta x in this matter Geoffrey 98 4 Sodat 119n

Finally in Gap A are this court addressed a corporate structure in wh ich T heGap Inc had created developed and registered various trademarks trade names andservice marks the marks that were u s e d in its various retail stores throughout theUnited States including those in Louisiana At some point through varioustransactions The G a p transferred these marks to G a p Apparel which was a whollyowned subsidiary of one of The Gapsther subsidiaries Gap Apparel 886 Sodt461

After the marks were transferred G a p Apparel and The G a p ente red in to a nagreement whereby G a p Apparel granted a license to The G a p authorizing The G a pand its affiliates the l icensees to u s e the marks in connection with the manufactureadvertising marketing distribution a n d s a l e of their p r o d u c t s in the U n i t e d States it sstates territories a n dor possessions F o r the u s e of the marks the l i c e n s e e s p a i d G a pAppare l a r o y a l t y b a s e d o n the net s a l e s of the l i c e n s e d p r o d u c t s throughout the a r e ain which they were used The Department contended that Gap Apparel receivedapproximately 119illion from the licensees durin g th e re le vant ta x periods asroyalties for the u s e of the marks c a l c u l a t e d a s a p e r c e n t a g e of s a l e s in Louisiana G o aApparel 886Sodt 46162

T h i s court ult imately determined that the m a r k s l i c e n s e d b y G a p Apparel h a db e e n u s e d in L o u i s i a n a in s u c h a w a y a s t o b e c o m e a n i n t e g r a l part of the l i c e n s e e sbusinesses in this state such that the marks had acquired a business situs in th is stateThus the court concluded that they were subject to taxation in Louisiana GaA arel 886Sodt 462

1 8 T h i s fa c tu a l p a t te rn i s s i m i l a r to t h a t f o u n d i n G e o f f r e y h o w e ve r b e c a u s e t h i s c o u r t d i d n o t a d d r e s sthe fr anch ise ta x in any capac ity in Geoffrey th ose fa cts a re n ot se t fo rth h e re13


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These fa cts a re distinguishable from those of th e matter currently before thiscourt however In Gap Apparel th e marks continued to be owned by Gap Appareleven though they had been l icensed for use by others Gap Apparel retainedownership of the marks and received income fo r their u s e by others for which it soughtto avoid paying taxes Furthermore Gap Apparel itself owned property that wasbeing used in the state See LSAR4701A3n the instant case thecompanies are paying income taxes on the income they derive from Sprint

Communications LPsusiness in this state however unlike G a p Apparel the propertythat Sprint Communications L P is using in this state belongs to it alone not to th ecompanies In conclusion these three cases would not be relevant to the matterbefore the court if the question of constitutionality were at issue

The companies h a v e a ls o challenged that part of the trial courtsudgmentfinding that they are required to p a y the Departmentsttorney fees pursuant to L S AR47512However as we have determined that the companies were not requiredto pay franchise taxes under a clear reading of th e statute it fol lows that th ecompanie s a re not re quire d to pa y attorney fe es unde r th e penal provis ions of L S AR47 1512 Therefore that portion of the judgment of the trial court is reversed

In their final assignment of error the companies contend that the trial courte r r e d in striking certain p a r a g r a p h s of the o r i g i n a l affidavit of M a r k B e s h e a r s d a t e dOctober 2 2009 Mr Beshears was the Senior Counsel State and Local Tax of SprintNextel Corporation and he had served as the Vice President State and Local Tax ofth e compa nie s during th e re le va nt periods As such he was familiar with th e businessactivit ies of the companies

T h e t r i a l court first ordered that p a r a g r a p h 7 of the o r i g i n a l affidavit w h i c hp r o v i d e d t h a tdring t h e R e l e v a n t P e r i o d s e a c h P e t i t i o n e r m a i n t a i n e d it s o n l ycommercial domic ile exclusive ly outs ide of Louisiana be stricken Although the trialcourt d id not p r o v i d e a r e a s o n for striking this paragraph it is p r e s u m e d that i t w a ss tr ic k e n b e c a u s e t h e t r ia l c o u r t f o u n d it t o b e a l e g a l c o n c l u s i o n H o w e v e r t h e i s s u e o fc o m m e rc ia l d o m i c ile w a s s e t t l e d a s a r e s u l t o f t h e p l e a d i n g s w h e n t h e c o m p a n i e s14


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alleged in their petition that they had each maintained their only commercial domicileoutside the state of Louisiana and the Departm en t a dmitte d the allegation in itsanswer The Department never amended its answer therefore the issue ofcommercial dom ic ile was considered resolved by judicial admission 19 and Mr Beshearsstatement was no l onger a legal conclusion but a statement of fact Thus paragraph 7of the affidavit should not have been stricken

The companie s also chal lenge the trial courtsu lin g regard in g pa rag raphs 9 14and 1 9 of Mr Beshears original affidavit In th ese paragraphs Mr B e s h e a r s assertsthat the companies1id not own or use any part of their capital plant or otherproperty in Louisiana during the re levant periods2id not exercise or cont inue theirrespective charters in Louisiana durin g th e re le vant periods and 3id not purposelydirect any of their activities toward o r in to Louisiana d urin g th e re le va nt per iods Thetrial court struck these paragraphs apparent ly finding that they were impermissiblelegal conclusions However in h is capacity as Vice President State and Local Tax ofthe companies during the re levant periods Mr Beshears was certainly competen t totestify from h is personal knowledge of the companies activities See LSACPrt967 Clear ly as someone involved in th e daily operation of th e companies MrBeshears would have personal knowledge of whether the companies directed any of theabove activities toward Louisiana during th e re le va nt periods Furthermore the merefact that Mr Beshears assertions in the affidavit track the incidents of taxat ion listed i nL S AR4701Aoes not render them impermissible l e g a l conclusions a s theDepartment contends rather th e statements a re simply fa ctua l statements based onMr B e s h e a r s p e r s o n a l k n o w l e d g e a n d experience Therefore the t r i a l court i m p r o p e r l ystruck paragraphs9 14 and 19 from the affidavit

The companies contend that th e filing of th e second Beshea rs affidavit hasr e n d e r e d the argument in favor of striking p a r a g r a p h s 2 2 a n d 2 3 of the o r i g i n a l19 SeeLSACrt 185320 A l t h o u g h t h e c o m p a n i e s c h a l l e n g e th e courtsu l in g r eg a rd in g p a r a g r a p h 24 th e a c t u a l j u d g m e n tm a k e s n o r e f e r e n c e to t h i s p a r a g r a p h A c c o r d in g ly w e w i l l n o t a d d r e s s t h is p a r a g r a p h

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Beshears affidavit moot Those parag raphs p rov ided information conce rn in g th econtents of th e Sprint Communications L P partnership agreement and were stricken a shearsay because th e a ctua l partnership agreement was not attached However in thesecond affidavit the p artn e rsh ip a gre eme n t was attached and the partnershipagreement itself was admitted in to th e record Therefore the compan ies contend thatthere is no longer any need to exclude these pa rag raphs

In fact th e Department had challenged paragraphs 22 and 23 even after th e

attachment of the partnersh ip agreement to the s e c o n d affidavit on the ground that thepa rtn e rs h ip ag reemen t itself was the best e v id e nc e of its contents The trial courtagreed and we find no error in this conclusion

T h e t r i a l court a l s o ordered that the two a f fid a v i t s f i l e d b y the Department b estricken from the record The Department h a s answered the appeal to challenge therulings on these aff idavits The first affidavit was that of Michael Pearson and was fi ledby the Department in support of its partial motion fo r summary judgment A t th e timeh e signed the a ffidav it M r P e a r s o n was the d irector of the policy services division ofthe Department H e h a d h e l d that position fo r almost two years after being the seniorpolicy consultant fo r income and franchise taxes in the policy services division fo r thep r e v i o u s s e v e n years in w h i c h there h a d b e e n n o director A c c o r d i n g t o Mr Pearsonsaffidavit h e w a s very k n o w l e d g e a b l e o n the i s s u e of the L o u i s i a n a c o r p o r a t i o n franchisetax and he had testified over th e years in th e Nineteenth Judicial District Court and th eL o u i s i a n a S t a t e B o a r d of T a x A p p e a ls o n the i s s u e of the L o u i s i a n a c o r p o r a t e i n c o m ea n d f r a n c h i s e taxes H e d o e s not however m a k e a n y a l le g a t io n s t h a t h e i s a l a w y e r i nthe affidavit T h e remainder of h is affidavit p r o v i d e s a m y r i a d of l e g a l c o n c l u s i o n sa l l e g e d l y b a s e d o n L o u is ia n a s t a t u t o r y la w a n d j u r i s p r u d e n c e a s w e l l a s D e p a r t m e n tpolicy w h i c h l e g a l c o n c l u s i o n s s u p p o r t t h e Departments r e m i s e t h a t t h e c o m p a n i e saresubject to the franchise tax

Mr P earsonsffidavit d o e s not qualify h im a s a n expert a n d the t r i a l court2 T h e c o m p a n i e s h a v e n o t c h a l l e n g e d a n y p o r t i o n o f t h e t r i a l c o u r tsu d g m e n t s t r i k i n g v a r i o u sparagraphs in the second B e s h e a r s affidavit Therefore we d o no t address that affidavit16


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certainly did not accept him as one Nothing in h is affidavit demonstrates that he isqualified to render a legal opinion Furthermore as a la y witness Mr Pearson is notqualif ied to offer an opinion of the kind he attempted to offer in his affidavit Se e LSACFrt701

It is also well settled in Louisiana that witnesses may not provide opinionsregarding domestic law The testimony of an exper t with th e a tte ndant righ t toexpress opinions and conclusions is proper fo r th e purpose of assisting th e court onlyin those fields in which the court l a c k s sufficient knowledge to enable i t to come to aproper conclusion without such assistance Wilson v W ilson 54 2 Sod68 573 LaApp 1 s t C ir 1989 Clesi Inc v Quaglino 1 3 7 Sod00 503 La App 4th C ir1962 The domestic la w testimony of a n expert i s not proper as distinguished fromforeign law testimony on the theory that the court itself i s the expert o n domestic lawWilson 542Sodt 573

Furthermore nothing in Mr Pearsonsffidavit appears to b e b a s e d on personalk n o w l e d g e a s r e q u i r e d b y LSACrt 967An d the affidavit a p p e a r s to c o n t a i nnothing other than his opinions re la ting to issues of ultimate fact and conclusions oflaw which are reserved for the trial courtsetermination Accordingly we find thatth e trial court was correct in str ik ing th is affidavit

T h e f i n a l a f f i d a v i t i s t h a t o f A n th o n y C a r u s o w h o a t t h e t i m e h e s i g n e d h isaffidavit w a s e m p l o y e d b y the Department a s a s e n i o r r e v e n u e agent The affidavith a d b e e n submitted b y the Department in o p p o s i t i o n to the companies m o t i o n f o rsummary judgment Mr Caruso cla ims that th e statements in his affidavit are based ont h e p e r s o n a l k n o w l e d g e h e o b t a i n e d a f t e r c o n d u c t i n g a n a u d i t o f t h e c o m p a n i e s

In p a r a g r a p h 3 of the affidavit Mr C a r u s o s t a t e d that the c o m p a n i e s w e r er e q u i r e d to file L o u i s i a n a c o r p o r a t e franchise t a x returns for the r e l e v a n t periods Inp a r a g r a p h 14 Mr C a r u s o s t a t e d that the companies th rough their contributions ofc a p i t a l to S p r in t C o m m u n ic a tio n s L P w h ic h c l e a r l y c o n d u c t e d b u s i n e s s i n L o u i s i a n ah a v e e n g a g e d i n b u s i n e s s e x e r c i s e d t h e i r r e s p e c t i v e c h a r t e r s a n d e m p l o y e d c a p i t a l i nLouisiana

I n p a r a g r a p h 1 5 o f t h e affidavit Mr C a r u s o s t a t e d t h a t t h e c o m p a n i e s a r e17


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subject to the franchise tax Obviously these statements relate to issues of ultimatefact and conclusions of law which are reserved fo r th e trial courtsetermination andthe trial court was correct in s trik ing pa rag raphs 3 14 and 15 of the affidavit Theremainder of the affidavit contains factual statements such as the amounts of capitalcontributions the companies made to Sprin t Communica tions LP and other informat ionthat Mr Caruso could have obtained in performing his audit This information wasbased on h is personal knowledge and was p rope rly con ta in ed in the affidavit

Therefore paragraphs 1 2 4 5 6 7 8 9 10 11 12 and 13 should not have beenstr icken and th e trial court erred in this regard

Finally in its answer to the appeal the Department h a s also requested that i t b eawarded additional attorney fees on appeal Howeve r as we have determined that th ecompanies were not required to p a y a f ranchise tax under the facts of this case noattorney f e e s s h o u ld h a v e b e e n a s s e s s e d a g a in s t t h e m p u r s u a n t to L S AR47512and no additional attorney fees are owed on appeal

CONCLUSION

F o r the foregoing reasons w e r e v e r s e that p o r t i o n of the t r i a l court judgmentthat granted the p a r t i a l summary judgment in favor of C y n t h i a Bridges S e c r e t a r y of theLouisiana Department of Revenue and re nd er summa ry judgment in favor ofUTELCOM Inc and UCOM Inc fin ding that they are not sub ject to the Louisianacorporation franchise t a x for the t a x a b l e p e r io d s e n d in g D e c e m b e r 31 2001 D e c e m b e r31 2002 and December 31 2003 UTELCOM Inc and UCOM Inc are further entitledt o a refund of the amount p a i d u n d e r protest2761840lu s statutory interest W ef u r t h e r r e v e r s e t h a t p o r t i o n o f t h e j u d g m e n t o r d e r i n g U T E L C O M Inc a n d U C O M Inc t opay attorney fees pursuant to LSAR71512 W e affirm that portion of thejudgment striking p a r a g r a p h s 2 2 a n d 2 3 of the o r i g i n a l affidavit of M a r k B e s h e a r sH o w e v e r w e r e v e r s e t h a t p o r t i o n o f t h e t r ia l courtsu d g m e n t s t r i k i n g p a r a g r a p h s 7 914 a n d 1 9 o f t h e o r ig in a l a f f i d a v i t o f M a r k B e s h e a r s W e f u r t h e r a f f i rm t h a t p o r t i o n o fthe trial courtsudgment str ik ing the affidavit of M a r k P e a r s o n in its entirety Finallyw e a f f i r m t h a t p o r t i o n o f t h e t r ia l courtsu d g m e n t s t r i k i n g p a r a g r a p h s 3 14 a n d 1 5 o f18


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the affidavit of Anthony Caruso however we reverse that portion of the judgmentstriking paragraphs 1 2 4 5 6 7 8 9 10 11 12 and 13 In all other respects thejudgment of the trial court is affirmed A ll costs of this appeal in the amount of22982re assessed to Cynthia Bridges in her capacity as Secretary of th eLouisiana Department of Revenue

AFFIRMED IN PART REVERSED IN PART AND RENDERED

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Documents

Utelcom Inc. v. Bridges, 2010 CA 0654 Decision Appeal (La. App. Sept. 12, 2011)