Last month’s Stateline reported that Louisiana’s Board of Commerce and Industry (the “board”) granted property tax exemption status to merchant power plants.
On October 3, State Representative Melvin L. “Kip” Holden filed suit against the Board and Attorney General Richard P.
Leyoub in the 19th Judicial District Court to contest this decision. The suit requests the court to mandate that the Board cease practices that violate Louisiana statutes and the state Constitution, according to Rep. Holden, or show cause as to why they are not in violation. If the court agrees, Rep. Holden’s request means that the Board would be required to find that merchant plants are not eligible for property tax exemptions.
The Board’s decision to permit merchant power plants to receive property tax exemptions was based on the Board’s determination that merchant power plants fell under the definition of “manufacturing establishments,” which are allowed to receive tax exemptions under existing state law. The issue surrounds the definition of “manufacturing establishment” contained in the Louisiana Constitution.
The definition states: The terms “manufacturing establishment” and “addition” as used herein mean a new plant or establishment or an addition or additions to any existing plant or establishment which engages in the business of working raw materials into wares for use which gives new shapes, qualities or combinations to matter which already has gone through some artificial process.
La. Const. Art. VII, ’21 (F); Holden Writ at &5. The Board has authority to grant tax exemptions based on the criteria set forth in Section 21 quoted above. As reported in last month’s Stateline, in August the Board amended a rule to include merchant power plants in the definition of “manufacturing establishments.” Thus defined, merchant power plants were then allowed to receive credit for property taxes equal to 10% of their capital investment over the first 10 years of operation and to apply for such exemption prior to plant construction.
Rep. Holden claimed in his suit that the definition under the Louisiana Constitution had already been interpreted by a case previously brought by him in 1997, which made the same tax exemption challenge regarding the granting of an exemption to a hazardous waste plant. In that case, the facility combusted hazardous material and resulted in the production of hazardous ash which was landfilled. In that case Holden argued that because the incinerator ash was still a hazardous substance, it was not “suitable for use” as set forth in the Section 21 Constitutional definition. Thus, the specific issues in that case were whether the “suitable for use” requirement applied to raw materials made into consumer goods and whether establishments that change the shape or quality of material or the combination of material must also make the changed material “suitable for use” to meet the constitutional definition of “manufacturing establishment.” On December 28, 1998, the court issued an order in the first case brought by Rep. Holden and ruled that the facility did not meet the constitutional definition. In making its decision, the court looked to the source of the constitutional definition. The source of the definition was a case, decided in 1882 that defined manufacturer in relation to producing something for a consumer or dealer. The court reasoned that, although the facility did sell and profit from the incineration process, the facility did not create a product from the incinerated ash that could be sold for consumer use.
The court concluded that the facility did not fall within the constitutional definition of a manufacturing establishment.
In his current case, Rep. Holden claims that the prior court’s interpretation of “manufacturing establishment” applies to the determination of whether merchant power plants are manufacturing establishments. With regard to two recent recipients of tax exemptions, Entergy Thermal, LLC and Carey Salt Co., Rep. Holden claims that the Board has ignored the prior court’s “clear interpretation” of the state constitution when granting these tax exemptions. Further, Rep. Holden claims that the Board’s actions have, created an uneven playing field between companies that meet the constitutional definition and those who do not, and deprived local governments of millions of dollars for “police and fire departments, public works, schools, libraries, recreation, lighting districts and even courts.” Writ at & 14.
Rep. Holden’s suit does not address the Board’s actions in light of a resolution passed in both the Louisiana House and Senate “to urge and request” the Department of Economic Development, of which the Board is a part, to develop strategies and incentives to encourage merchant power development. The hearing for this case is scheduled for October 19, 2001.