La. Supreme Court Protects Taxpayers From Creeping Rental Taxes
Breazeale, Sachse & Wilson successfully defended its client, Pot -O-Gold, from the imposition of taxes on services offered in conjunction with the rental of tangible personal property. Pot-O-Gold Rentals, LLC v. City of Baton Rouge, 2014-CA-2154, (La.1/16,/15).
Pot-O-Gold leases various waste collection equipment, in this case, portable toilets and holding tanks. Pot-O-Gold also offers waste removal and equipment cleaning services, which are entirely optional for its rental customers. For those options which are chosen, a separate charge for the service is made by Pot-O-Gold. Waste removal and cleaning services are not listed among the services subject to tax. La. R.S. 47:301(14).
Louisiana, and its parishes, levy sales tax upon the "gross proceeds" of rentals of tangible personal property. R.S. 47:302B. The tax laws do not define the phrase "gross proceeds." In this case the City of Baton Rouge interpreted it to include the amounts charged for the separately stated services and issued an assessment for additional taxes. Pot-O-Gold paid the taxes under protest and filed suit to recover the protested amounts.
The Firm filed a motion for summary judgment which was granted by the trial court. The court found that because the nontaxable services were independent and optional, they did not become part of the taxable "gross proceeds" simply because the services were rendered by the owner of the rental.
The City appealed and the First Circuit reversed with 2 judges dissenting. Pot-O-Gold Rentals, LLC v. City of Baton Rouge, 2013-1323 (La. App. 1 Cir. 9/17/14) (La. Ct. App. Sept. 17, 2014) writ granted, judgment rev'd sub nom. Pot-O-Gold Rentals, L.L.C. v. City of Baton Rouge, 2014-2154 (La. 1/16/15). The appellate court found that while the "true object" of the rental was the rental of the tangible personal property the "Money collected for ordinarily nontaxable cleaning and sanitation services became taxable gross proceeds of the lease by virtue of the inexorably intertwined relationship between the services and the leased property." The appellate court went on to state " It is of no import whether the services were optional for lessees, whether the services could be purchased from another party, whether the services could be rejected, or whether the services could be purchased independently from the plaintiff by others."
The Firm filed a writ application with the Supreme Court. The Court not only granted Pot-O-Gold's writ application, but also simultaneously reversed the appellate court's decision. In so doing, the Court adopted the dissenting judges' reasoning that "that to hold that providing cleaning services for portable toilets is not a taxable event if the toilet is owned by someone else, but is a taxable service if the toilet is owned by the lessor, creates an absurd result." The Court also found "that the "true object" of the transactions is, in the least, debatable, requiring the court to adopt the interpretation urged by the applicant as the least onerous to the taxpayer."
A rental company which collected taxes on separately stated, optional services may want to notify its customers as to possible refund opportunities. A rental company currently collecting taxes on such services may want to reconsider its policy.
If you have questions about your sales tax liabilities or duty to collect, do not hesitate to call a member of our SALT Team.