Spirit Airlines can't obtain a sales tax refund for fuel purchases made in Louisiana based on an alternative calculation because it isn’t registered with the state revenue department as an interstate carrier, the Louisiana Board of Tax Appeals (BTA) determined.
In Spirit Airlines Inc. v. Robinson, the BTA denied the airline's refund claim under a statutory provision allowing registered interstate carriers to calculate sales tax on a mileage formula. Because the carrier failed to register with the Louisiana Department of Revenue and the statute requires strict compliance with the DOR’s rules, the board granted the state’s motion for summary judgment. The judgment, dated December 8, 2022, was released the week of February 6.
Background
During the January 2017 through March 2018 tax periods, Spirit operated in Louisiana as an airline company providing air transportation services to commercial passengers, and all its flights originating from the New Orleans International Airport traveled to out-of-state destinations. Spirit purchased aviation jet fuel in the state for use in its planes for the outbound flights.
In September 2018 the airline filed a refund claim with the DOR for what it contended was overpayment of sales tax on the fuel purchases, which the department denied in January 2019. Spirit filed a petition to review the refund denial March 4, 2019. In its original petition, Spirit asserted that its purchases were exempt under La. Const. Art. VII, section 27(A) — constitutional claims the BTA dismissed in its July 2020 judgment.
But the BTA didn’t dismiss Spirit’s alternative and amended claims for partial refund under the formula in La. R.S. 47:306.1, which allows an interstate carrier to pay sales taxes on its purchases based on in-state miles over total miles operated by the carrier.
Judgment
Following an October 2022 hearing, Vice Chair Cade R. Cole rendered the BTA’s December 8, 2022, judgment. Denying Spirit’s motion for summary judgment, the BTA resolved the parties’ dispute over the proper legal interpretation of La. R.S. 47:306.1 in the DOR’s favor after finding no basis for a taxpayer that is not registered as an interstate carrier to obtain a sales tax refund.
The three-paragraph statute provides:
Persons, as defined in this Chapter, engaged in the business of transporting passengers or property for hire in interstate or foreign commerce, whether by . . . aircraft or other means, may, at their option under rules and regulations prescribed by the collector, register as dealers and pay the taxes imposed by R.S. 47:302 A on the basis of the formula hereinafter provided.
Such persons, when properly registered as dealers, may make purchases in this state . . . without payment of the sales or use taxes imposed by R.S. 47:302 A at the time of purchase . . . provided such purchases or importations are made in strict compliance with the rules and regulations of the collector. Thereafter, on or before the 20th day of the month following the purchase or importation, the dealer shall transmit to the collector, on forms secured by him, returns showing gross purchases and importations of tangible personal property, the cost price of which has not previously been included in a return to the state. The amount of such purchases and importations shall be multiplied by a fraction, the numerator of which is Louisiana mileage operated by the taxpayer and the denominator of which is the total mileage, to obtain the taxable amount of tax basis. This amount shall be multiplied by the tax rate to disclose the tax due.
Each such dealer, at the time of making the return required hereunder, shall remit to the collector the tax due for the preceding calendar month as shown on the return.
The department argued that Spirit can’t use the formula in paragraph 2 because the airline failed to properly register with the department as an interstate dealer as required in paragraph 1. Spirit argued that, when Louisiana issued the airline its sales tax registration certificate and assigned an account number, its registration as a dealer for sales tax collection purposes in March 2013 constituted implicit compliance with the statute.
But the BTA disagreed, emphasizing that the statute requires strict compliance, starting with the necessity for dealers to register “under rules and regulations prescribed by the collector.” Importantly, Cole wrote, the provision allows taxpayers to make purchases in Louisiana “without payment of the sales or use taxes imposed by R.S. 47:302 A at the time of purchase . . . provided such purchases or importations are made in strict compliance with the rules and regulations of the collector” (emphasis in judgment).
The BTA looked to the U.S. Supreme Court’s explanation of the degree of deference a reviewing court should afford a regulation promulgated by the administrative agency charged with its enforcement. Quoting Morton v. Ruiz, Cole wrote: “‘The power of an administrative agency to administer a . . . program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress.’”
“If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute,” the BTA said (emphasis in judgment).
Cole wrote that here, the Louisiana Legislature “explicitly granted to the collector (the Louisiana Department of Revenue) the authority to issue rules and regulations to govern the procedure by which a taxpayer properly classified as an interstate carrier can elect to pay sales tax on the basis of the mileage formula” — a grant the BTA deemed neither arbitrary nor manifestly contrary. “The Department was expressly directed to promulgate regulations and the alternative calculation requires ‘strict compliance’ with those regulations,” the judgment said.
The regulation requires dealers to register by applying for an interstate or foreign carrier dealer’s number and obtaining a for-hire carrier blanket exemption certificate. Cole said that Spirit did neither. Instead, the airline contended that the first paragraph of La. R.S. 47:306.1 provided its own option for a dealer to obtain a refund of tax based on the formula in the second paragraph — without having to collect and remit the tax itself or otherwise strictly comply with the collector’s rules and regulations.
But Cole explained that La. R.S. 47:306.1 doesn’t actually mention refunds and instead provides an alternative method to pay the tax. The decision continued its emphasis on holes in the airline’s argument, underscoring the statute’s composition as necessitating the cumulative construal of each paragraph in its application:
The first paragraph describes who may register to pay the tax under the formula. The first paragraph does not provide its own version of the formula, but refers to the second paragraph. Likewise, the second paragraph does not define who may use the formula, but refers to "such persons" described in the first paragraph. The formula itself incorporates the requirement that the taxpayer make the calculation on a return. The third paragraph expressly requires that the tax paid according to the formula be paid on a monthly return. The paragraphs interlink and operate in concert with each other. It would be irrational for the Board to split the different paragraphs of the statute into independent provisions.
Because Spirit failed to register as an interstate carrier as required under La. R.S. 47:306.1 and LAC 61:I.4353, it is precluded from obtaining a refund using the state’s mileage formula, the board determined.
In Spirit Airlines Inc. v. Robinson (Docket No. 11809D), Spirit Airlines was represented by Robert Waldow.