The Louisiana Board of Tax Appeals has granted summary judgment to Hunting Energy Services Inc, holding that items used in production by Hunting Energy Services Inc are exempt from local sales and use tax due to the items being used in manufacturing. Jefferson Parish had argued that since 95% of Hunting Energy’s sales were to related entities with the same corporate parent, Hunting Energy could not show the sales of manufactured goods which are required to qualify for the manufacturing exemption. However, Hunting Energy was able to prove they handled transactions between related entities the same way as transactions with unrelated entities. Though related entity clients had provided raw material, so had unrelated customers, and there was no evidence of any markup that unrelated entities were subjected to that was not imposed on related entities. Since Hunting Energy used the raw materials in ways the Tax Board found to be “Sophisticated” and closely guarded, this was enough to constitute “fabrication” under Louisiana law.
Taxpayers who are doing business with related entities are more common, which may complicate their tax situation. This case highlights how record keeping can simplify the decision-making process, since Hunting Energy was able to conclusively prove that they did not have any different treatment for related entities. Also, they were able to claim sales as required by the tax code despite a high amount of sales to related entities. Taxpayers who are situated in a related entity situation should be aware of how sales are treated within their entity and what exemptions may apply and what documentation would be required to claim them. (Judgment Rendered 8 December 2022, Cole, Cade R, Local Tax Judge, Hunting Energy Services Inc. vs. Joseph P. Lopinto III, Sheriff and Ex-Officio Tax Collector, Jefferson Parish, case number L01064 in the Louisiana Board of Tax Appeals, Local Tax Division.)