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Louisiana Supreme Court Reverses Ruling on Local Interest/Penalty Maximum Rate Issue

Tax Development Nov 03, 2003

The original case involving the limiting of the interest/penalty rate for local jurisdiction was Elevating Boats, Inc. v. St. Bernard, et. al, Docket 00-E-3518, Supreme Court of Louisiana, 09-15-01.

The Parish had assessed 15% interest per annum on the tax deficiency. The Parish's own ordinance, under Section 9.03, set the interest rate for "underpaid tax" at 6% per annum. The taxpayer questioned the discrepancy, asserting that the parish ordinance should take precedence over state statutes allowance of 15% per annum interest on underpayments. The Parish would be prohibited from charging more than 15%, but the Parish should charge less than 15% if an ordinance was passed to that effect. The Louisiana Supreme Court looked to La. Rev. Stat. 33:2746 - Penalty for Nonpayment of Tax as the controlling statute on "interest penalties". The statute states: "Upon local taxes not paid and delinquent thirty days after the date upon which the tax is due, there shall be an interest penalty of one and one-quarter percent per month on the amount of the tax due, which shall be collected by the tax recipient body, together with and in the same manner as the tax."

The court used the literal reading of the statute to limit the total amount of interest and penalty liability on taxes owed to 15% per annum in the aggregate. The Court said: "We find that the Parish's combined interest, penalty, and attorney fees cannot exceed the 15% interest penalties permitted by La. Rev. Stat. 33:2476. Just as the Parish ordinance cannot be less beneficial to the taxpayer than a state statute regarding refunds, it similarly cannot be more burdensome regarding deficiencies…Therefore, Elevating Boats is responsible for no more that 15% interest penalty permitted by La. Rev. Stat. 33:2746."

The logic and interpretation of La. Rev. Stat. 33:2476 by the Louisiana Supreme Court seemed sound. However, in the aftermath of the decision, many local jurisdictions refused to follow the decision. It was only a matter of time before this issue would again be presented to the courts for their further consideration.

The time came in Anthony Crane Rental, L.P. v. Rufus Fruge, Jr., Director of Calcasieu Parish Sales and Use Tax Department, Docket 03-c-011j, Supreme Court of Louisiana, 10-21-03.

This time the Court looked at the legislative history surrounding La. Rev. Stat. 33:2476. The statute was amended in 1982 by the legislature. The only change was an increase in the interest penalty from 10% to 15%. The Court noted that the 1982 legislative history indicated that "The increase of this 'interest penalty' to its present amount of 15% was in response to the high interest lending institutions were paying at that time."

The Court concluded that because of the legislative history, the legislature believed that the "interest penalty" designation in La. Rev. Stat. 33:2746 applied to interest only.

For these reasons, the Louisiana Supreme Court reversed its ruling in Elevating Boats and ruled that the local jurisdictions could charge 15% interest, 25% penalty and 10% attorney fees, where applicable, on delinquent taxes.