City of New Orleans v. Baumer Foods, Inc.

Supreme Court of Louisiana
532 So.2d 1381, 1988 La. LEXIS 1809, 1988 WL 115965 (1988)

ELI5:

Rule of Law:

For equipment to be classified as immovable property by declaration under Louisiana Civil Code article 467, it must be actually placed into service and improvement of the real property, not merely intended for such use. A use tax attaches to property at the moment it comes to rest within the taxing jurisdiction, and its character as movable or immovable is determined at that specific point in time.

Facts:

Between November 1, 1984, and September 30, 1985, Baumer Foods, Inc. purchased equipment from out-of-state sources.
The equipment was shipped to and delivered at Baumer's plant located in the City of New Orleans.
Baumer owned both the plant (the immovable property) and the newly delivered equipment (the movable property).
On May 7, 1985, Baumer filed a "Declaration of Immovables" in the public records of Orleans Parish to classify the equipment as part of the real property under Civil Code Art. 467.
Upon delivery, the equipment required substantial preparation before it could be used, including being moved into place, leveled, and having wiring, plumbing, and conveyors attached.

Procedural Posture:

The City of New Orleans filed a rule against Baumer Foods, Inc. in the trial court to show cause why it should not pay use taxes.
The trial court found that the equipment was not subject to the city use tax and dismissed the rule.
The City of New Orleans, as appellant, appealed to the Louisiana Fourth Circuit Court of Appeal.
The court of appeal affirmed the trial court's judgment in favor of Baumer Foods, Inc., the appellee.
The City of New Orleans applied for and was granted a writ of certiorari by the Supreme Court of Louisiana to review the decision.

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Issue:

Does equipment purchased from out-of-state become immovable property under Louisiana Civil Code article 467 at the moment of its delivery, thereby exempting it from a city's use tax on tangible personal property, if it has not yet been installed or put into service?

Opinions:

Majority - Marcus, J.

No. The equipment did not become immovable property at the moment of delivery and is therefore subject to the city's use tax. For property to become immovable by declaration under La. Civ. Code art. 467, all conditions must be satisfied, including that the equipment is 'placed on the immovable for its service and improvement.' The court interprets this language to require that the equipment must actually be used for the service and improvement of the property, not merely intended for that purpose. The city's use tax attaches at the moment the property comes to rest in the city. At the time of delivery, Baumer's equipment was not yet installed or in service; consequently, it remained tangible personal property (corporeal movable property) and the tax properly attached. Any subsequent immobilization is irrelevant to the tax liability which was fixed at the moment of delivery.

Dissenting - Dixon, C.J.

The opinion text does not provide the reasoning for the dissent.

Analysis:

This decision establishes a critical temporal bright-line rule for both tax and property law concerning 'immovables by declaration.' It clarifies that the classification of property as movable or immovable for tax purposes is determined at the precise moment the tax liability attaches, which is upon delivery. By rejecting an 'intent-based' standard in favor of an 'actual use' standard for the 'service and improvement' requirement of Art. 467, the court prevents taxpayers from using a legal declaration to retroactively shield property from a use tax. This holding narrows a potential tax avoidance strategy and reinforces a strict construction of the conditions for converting movable property into immovable property.

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