• Louisiana Supreme Court Rejects Estoppel/Detrimental Reliance Against Tax Collector
  • August 13, 2003 | Authors: Christopher J. Dicharry; Phyllis D. Sims
  • Law Firm: Kean Miller Hawthorne D'Armond McCowan & Jarman, L.L.P. - Baton Rouge Office
  • The Louisiana Supreme Court has handed down a decision undermining the common practice of relying upon statements by tax collectors. See Showboat Star Partnership v. Slaughter, 2000-1227 (La. 4/3/01), 2001 WL 315716. In the Showboat Star case, the taxpayer relied upon assertions by high ranking representatives of the Department of Revenue that certain gaming equipment installed on gaming vessels would be considered component parts of the vessels and therefore exempt from sales tax under La. R.S. 47:305.1(A). The assertions by the department representatives were made at a meeting called specifically to discuss tax issues associated with the construction of Showboat's gaming vessel. At the meeting, high ranking officials of the department provided Showboat with exemption certificates to be used in connection with the acquisition of the gaming equipment to be installed upon the vessel.

    Two years after advising Showboat that the gaming equipment would be exempt and after the completion of the construction of the vessel and installation of the gaming equipment, Showboat received a proposed assessment wherein the department advised that it had changed its policy concerning the non-taxability of vessel gaming equipment. Showboat paid the demanded taxes under protest and filed suit for the refund of the protested taxes. Both the District Court and the Court of Appeal determined that the gaming equipment was not a component part of the gaming vessel within the meaning of a sales tax exemption for component parts of a vessel; however, both courts determined that the taxpayer met the substantial burden of establishing the standards for detrimental reliance or equitable estoppel against a governmental agency.

    The Louisiana Supreme Court agreed with the lower courts that the gaming equipment was not a component part of the vessel; however, contrary to the decisions of the lower courts, the Court found that Showboat had not proven all elements of the heightened standard for determining the applicability of equitable estoppel in cases involving a governmental entity. The Louisiana Supreme Court applied the heightened four-prong test as adopted by the Court of Appeal and recognized that this heightened standard, referred to as judicial estoppel by the Court, could apply against a tax collector if the taxpayer could show the following elements: (1) unequivocal advice from an unusually authoritative source; (2) reasonable reliance on that advice by an individual; (3) extreme harm resulting from that reliance; and (4) gross injustice occurring in the absence of judicial estoppel. Ultimately, the Court rejected the applicability of judicial estoppel under the Showboat Star facts stating:

    We disagree that extreme harm resulted from the reliance in the present case and that gross injustice will occur in the absence of the application of judicial estoppel. Detriment resulting from reliance simply has not been proved. The only harm to plaintiffs, as the lower courts correctly concluded, was payment of the interest incurred when they failed to pay timely under protest [because of the lack of knowledge that the department had changed its position]. . . .

    Moreover, although plaintiffs may have had a good reason for not paying the taxes timely, the effect of the non-payment was that plaintiffs either (1) retained the money they should have paid as taxes and used that money in their business operations or earned interest on it, or (2) were not required to borrow money (at interest) to pay the taxes when due. In either event, the incurring of interest because of untimely payment of the debt was not shown by this record to be a detriment.

    While the Louisiana Supreme Court did not fully reject the concept of judicial estoppel in favor of a taxpayer concerning representations made by a tax collector, the Court's decision makes it very clear that it will be difficult to establish the extreme harm and injustice elements of that doctrine.

    Reliance upon assertions made by the Louisiana Department of Revenue and the local tax collectors clearly is not adequate to protect taxpayers from potential exposure for underpaid taxes plus interest. Taxpayers contemplating significant transactions must still seek the advice and opinions of knowledgeable counsel in order to plan for adverse tax consequences and to take steps to minimize the tax and interest costs of those adverse consequences.