Liskow attorneys Caroline Lafourcade and Cheryl Kornick secured a major win for Kellogg Brown & Root, LLC (KBR) at the Louisiana Board of Tax Appeals (BTA) earlier this year in a dispute with a local tax collector regarding the scope of the manufacturing machinery and equipment (MM&E) exclusion from sales tax on materials and equipment used to construct an ammonia manufacturing facility. The case is important as it is only the second time that a Louisiana court has opined on the scope of the MM&E exclusion in Louisiana.
KBR had challenged a $13.6 million parish-level use tax assessment on materials and equipment that it purchased as agent for its customer under an EPC contract.
After KBR prevailed in establishing that the Board of Tax Appeals is a court of original jurisdiction where taxpayers may introduce evidence to refute a local collector’s assessment without first paying the disputed tax under protest, and that a contractor could enjoy its manufacturer customer’s exclusion from local sales and use tax in parishes that adopted the MM&E exclusion which was optional at the local level, the substantive dispute went to trial before BTA Judge Cade Cole in October of 2024.
Construing the MM&E exclusion statute regarding the meaning of “used directly” in the manufacturing process in favor of the taxpayers, the Board held that the manufacturing process began once all three of the raw materials needed to produce ammonia interacted. As a result, some of the materials and equipment such as vessels, piping used to transport raw materials before and after the manufacturing process, water treatment and concrete supports did not qualify for the exclusion as they were found to be used outside of the manufacturing process.
The BTA ultimately found that almost 90% of the materials and equipment at issue qualified for the MM&E exclusion from sales and use tax.
Further underscoring the significance of this opinion for contractors, manufacturers, developers and owners of large industrial projects is the fact that as part of the tax reforms enacted by the Louisiana Legislature during its special session in November of 2024, effective January 1, 2025, the MM&E exclusion is now an exemption from sales and use tax.
Courts in Louisiana must interpret any legal ambiguity in an exclusion from tax in favor of the taxpayer; in contrast, tax exemptions are strictly construed in favor of the State and must be clearly and unequivocally and affirmatively established by the taxpayer. Proper classification of materials and equipment used to construct industrial manufacturing facilities is essential in order to minimize sales and use tax burdens.
A copy of the BTA’s Interim Order with Reasons can be found here.
KBR is a global leader in technology and engineering solutions, with a longstanding track record of innovation and excellence in LNG and across the energy sector.
For further questions regarding this case, contact Liskow attorneys Caroline Lafourcade or Cheryl Kornick, or click here to read about Liskow’s Tax litigation experience.