CALCASIEU TAX REVIEW
Volume 13, Issue 1 January 2001

Are Calling Cards Taxable?
Occasionally, dealers call the office for an opinion on whether calling cards are taxable or not. Well, the simple answer is "NO, they are not taxable". A basic explanation is that a service is being purchased and not an article of tangible personal property. In addition, telephone calling cards fall under the umbrella of the telecommunication industry.

Unlike the Louisiana Department of Revenue, local sales taxes are not due on the services provided by this industry. As a measure of caution, since the industry is one of the rapidly growing arenas, dealers are advised to call the Louisiana Department of Revenue office periodically for confirmation of the tax status of services performed or sold in the telecommunication industry.

Erroneous Tax Payments
Unfortunately, a common event in the collection and remittance process is erroneous collections and payments to an inappropriate taxing jurisdiction. While the reasons for the occurrence is uncertain, our office is convinced that the dealers involved are not being negligent in the process, but instead, are acting in good faith. Regardless, the remedy for reversing an erroneous payment generally requires the filing of a refund claim with the jurisdiction paid in error and, of course, making payment to the appropriate jurisdiction. Although taking this corrective approach may not be as simple as it sounds, dealers are encouraged to collect and remit to the correct jurisdictions.

In consideration of a dealer's good faith effort, the department will not attempt to invoke penalties and interest on taxes paid erroneously to another jurisdiction, unless there is sufficient reason to believe that the erroneous payments were an act of negligence or intentional on the part of the dealer collecting and remitting the taxes. Now, in the instance of a dispute between taxing jurisdictions over which authority deserves the tax, the jurisdictions in dispute will have to resolve the matter among themselves, as necessary.

"Use" Taxable or Not
This article may sound like an echo to some dealers, but the truth is "use tax" on the "use" of property is probably the least familiar tax incidence imposed by the Ordinance. Moreover, use tax deficiencies probably account for over 60% of the revenues collected through audits. Therefore, its importance should not be taken lightly.

The general concept of "use" as it relates to the imposition of "use tax" is commonly associated with the consumption, the distribution, or the storage of tangible personal property for us or consumption or the exercise of the right of power over tangible personal property.

While there are indisputable activities that constitute events of "use", it is not the intention of this taxing authority to tax property purchased for the eventual sale at retail. Further, "use" does not apply to material or property purchased for further processing or for combining property with other materials for the purpose of producing an article of tangible personal property that would subsequently be sold at retail as a finished product. At the time of the retail sale, the materials combined to form the article of tangible personal property will be taxed.

As a general rule, materials must become an identifiable or significant part of the finished product in order to be recognized as a material that was combined with other materials or further processed. On the other hand, any material or property consumed or expended in the process of forming an article of tangible personal property is subject to "use tax" under the basic concept of "use".

Examples of common articles of property that are subject to use tax because dealers exercise their power of use over them are office equipment, office supplies, business furniture, shop tools and equipment, and promotional products. Of course, dealers are always advised to make inquiries any time a question of taxation arises.

Non-Profit Admissions
Under the definition of sales of services, normally the sale of admissions to places of amusement, or athletic entertainment is taxable, provided they are not sponsored by schools, colleges or universities. Also held to be taxable are recreational events, and the furnishing for dues, fees, or other consideration of the privilege to access clubs, or the privilege of having access to or use of amusement, entertainment, athletic, or recreational facilities.

More importantly, the term "sales of service" shall not be taxable when non-profit civic organizations charge membership fees or dues. Further, illustration of organizations who collect membership dues, but who are not included under the term "sales of service" are the Young Men's Christian Association, the Catholic Youth Organization, and the Young Women's Christian Association.

Although we sometimes think of museums as places of amusement, for tax purposes, they are not included under the taxable class of "places of amusement" because they are public or private non-profit institutions organized on a permanent basis for educational or aesthetic purposes, which use professional staff to perform specific tasks. Other non-taxable "places of amusement" are camp and retreat facilities owned and operated for religious purposes by non-profit religious organization, which includes recognized domestic non-profit corporations organized for religious purposes, provided that the net revenue derived from the organization's property is devoted wholly to religious purposes.

Lease/rental property subject to phase-in exclusion
As previously reported in earlier issues of the "Calcasieu Tax Review", Act 1266 of 1999 was enacted and challenged as to its constitutionality. We have been advised that the Louisiana Supreme Court has overruled a lower court's ruling and held that the law was constitutional. Consequently, all forms of tangible personal property purchased for subsequent lease or rental in an arms length transaction is subject to a 25% per year phase-in exclusion.

July 1, 1999 - June 30, 2000 = 25%
July 1, 2000 - June 30, 2001 = 50%
July 1, 2001 - June 30, 2002 = 75%
July 1, 2002 = 100% Exclusion

Vendors who sell to lease/rental dealers are advised to report the amount excluded under the "other deductions" section of your local sales/use tax report and identified by the term "Act 1266". Failure to properly identify the exclusion will result in its disallowance and a debit memo will be produced.

Dealers who purchase tangible personal property for subsequent lease or rental purposes where no local taxes have been paid are instructed to report the appropriate taxable amount under Line 14 (Purchases subject to use tax) enter only the taxable amount remaining after applying the proper percentage excluded from tax. The phase in exclusion only applies to lease/rental property and not other forms of tangible personal property subject to use tax. (Example: office equipment, supplies, etc.)

Dealers who perform repairs to their own lease or rental property cannot purchase repair parts under the phase-in exclusion. These purchases will be considered taxable since they clearly fall under the definition of "sale at retail" or "retail sale", i.e. "a sale to a consumer or to any other person for any purpose other than resale as tangible personal property". Although the Louisiana Department of Revenue permits similar purchases by lease or rental dealers who hold valid LGST-61 Exemption Certificates to come under the tax exemption, we have not been provided with a statutory basis to support this action.

Repairs to rental or leasing property performed by repair shops or other similar dealers are fully taxable when the repairs are performed in Calcasieu Parish. Equipment or machinery repaired outside the parish upon which no sales tax has been charged by the vendor will subject any parts added to our local tax, labor excluded when separately charged on the invoice. In the absence of any separation of parts and labor, the entire transaction will be subject to our tax. Questions concerning Act 1266 should be directed to Field Auditors or the office of the Director. Exemption certificates are available through the Sales Tax Department for dealers who are engaged in leasing or renting of tangible personal property.

Dealers Required To Keep Records
It shall be the duty of every dealer required to make a report and pay any tax under this Ordinance, to keep and preserve suitable records of the sale or purchases or sales of services, as the case may be, taxable under the Ordinance, and such other books of account as may be necessary to determine the amount of tax due hereunder, and other information as may be required by the Collector. Each dealer shall secure, maintain and keep, until the taxes to which they relate have prescribed, a complete record of sales of services and tangible personal property received, used, sold at retail, distributed, or stored, leased or rented within this Parish by said dealer together with invoices, bills of lading, and other pertinent records and papers as may be required by the Collector for the reasonable administration of the Ordinance.
 

****PLEASE NOTE****

The Sales Tax Department will be closed for the following holidays:

M. L. King, Jr. Day January 15, 2001
Mardi Gras February 26 & 27, 2001
Easter April 13 - 17, 2001

RETURN DUE DATES
(Also applicable to Hotel/Motel Occupancy Tax)

January return due by February 20th
February return due by March 20th
March return due by April 20th
April return due by May 21st
May return due by June 20th
June return due by July 20th