Was a permanently constructed cogeneration power plant on leased land an immovable, making later title transfers outside Louisiana sales tax?

Plain-English summary

The cogeneration plant was an immovable building even though it stood on leased land, so its completed transfer to the project company and later transfer to the manufacturer were not taxable sales of tangible personal property.

Immovable status covered the building and permanently attached plumbing, heating, cooling, electrical, and other installations that could not be removed without substantial damage.

Why the plant was a building

The plant was intended for permanent or long-term manufacturing use, used permanent building materials, and had substantial critical portions enclosed by walls and roofs. Those features satisfied the building concept applied under Civil Code article 464.

A building and its component parts could be immovable even when owned by someone other than the landowner.

Ownership transfers

The constructor initially owned the plant, then transferred it to Company A for nominal consideration plus assumption of plant debt. At the end of the 20-year operating arrangement and renewals, Company A would transfer it to the manufacturer.

Because the plant was immovable, neither title transfer was a taxable retail sale under the ruling.

Movable equipment remained separate

Equipment and other property inside the plant that did not qualify as components remained movable tangible personal property and did not share the plant's immovable treatment.

Common questions

Q: Did leased land prevent the plant from being immovable?

A: No.

Q: Did every item within the plant become immovable?

A: No. Noncomponent equipment remained movable.

Q: Were the two transfers of the completed plant taxable sales?

A: No, on the stated facts.

Citations and references

• La. R.S. 47:301(16)(a) — tangible personal property definition
• La. R.S. 47:302, 47:321, and 47:331 — sales and use tax provisions discussed in the ruling
• Louisiana Civil Code arts. 462-467 and 471 — immovable, component, attachment, and movable rules
• Exxon Corp. v. Traigle, 353 So. 2d 314 (La. App. 1st Cir. 1977)
• LAC 61:III.101.C — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 01-011

Original ruling text

STATE OF LOUISIANA

DEPARTMENT OF REVENUE
M. J. "MIKE" FOSTER, JR.

CYNTHIA BRIDGES

Governor

Secretary

Private Letter Ruling No. 01-011
Redacted Version
January 22, 2002
A Private Letter Ruling based upon the following scenario was requested:
A Louisiana manufacturer (“the manufacturer”) enters into an agreement with an out-ofstate limited liability company (“OSLLC”) engaged in the business of financing,
designing, constructing, upgrading, and owning and operating power generation and
cogeneration plant equipment.
OSLLC and the manufacturer have formed a project company, Company A, which is
qualified to transact business in Louisiana. Company A is owned 50.1% by OSLLC and
49.9% by the manufacturer.
OSLLC and Company A will enter into a ground lease for the real property located at the
manufacturer’s facilities in Louisiana. With the ground lease in place, OSLLC, or its
wholly owned subsidiary, Construction LLC (a Louisiana company) (hereafter
“Construction”) will design, construct, finance and own (until the date of commercial
operation) a cogeneration power plant on the leased premises of the manufacturer.
Upon completion and achievement of commercial operation, OSLLC or Construction
will transfer ownership of and title to the cogeneration power plant and the
interconnection facilities to Company A. Company A will then own, operate, and
maintain the cogeneration power plant pursuant to the terms of a Joint Operating
Agreement executed by the manufacturer, OSLLC, and Company A. All the rights and
obligations of OSLLC/Construction under the applicable ground lease will terminate
upon transfer of the plant. The ultimate lessee then under the ground lease will be the
owner of the cogeneration power plant and the interconnection facilities, that is,
Company A. Consideration for the transfer of each of the power plants will be nominal,
but will include an assumption of the debt relating to the plant.
The Joint Operating Agreement and the ground leases has a term of twenty years with up
to four five-year renewal periods. At the end of the term, or upon earlier termination as
permitted by the Agreement, the ownership and title of the cogeneration power plant and
interconnection facilities will be transferred to the manufacturer.
The cogeneration power plant is intended for permanent or long-term use. Substantial and
critical portions, but not the entirety of the cogeneration power plant will have walls and
roofs to house their contents. The cogeneration power plant will be constructed of
permanent building materials; further, substantial and critical portions, but not all, of the
cogeneration power plants permanent building materials cannot be removed without
damage to the plants.

Private Letter Ruling No. 01-011
Page 2 of 4

The department was asked to rule that:

1. The cogeneration power plant to be built, and to be situated during its construction
   and operation stages on leased land, will be considered immovable property for
   purposes of Louisiana sales and use tax law.
2. The transfer of title and ownership of the completed cogeneration power plant from
   OSLLC/Construction to Company A will not be a sale for Louisiana sales and use tax
   purposes since it will involve the transfer of immovable property.
3. The eventual transfer of ownership and possession of the cogeneration power plant at
   the termination of the Joint Operating Agreement from Company A to the
   manufacturer will not be a sale subject to the Louisiana sales and use tax law since it
   would be the transfer of immovable property.
   The department answered as follows:
   Louisiana Revised Statutes Title 47, Sections 302(A) and (B), 321(A) and (B), 331(A)
   and (B), and the sales tax ordinance of the Louisiana Tourism Promotion District levy a
   tax at the total rate of four percent upon the sale at retail, the use the consumption, the
   distribution, the storage for use or consumption, the lease, and the rental in this state of
   each item or article of tangible personal property.
   La. R.S. 47:301(16)(a) defines tangible personal property as personal property that can be
   seen, weighed, measured, felt, touched, or is perceptible to the senses. A First Circuit
   Court of Appeal decision, Exxon Corp. v. Traigle [353 So.2d 314 (La. App. 1st Cir.
   1977)], has held that tangible personal property is equivalent to corporeal movable
   property as defined in Article 471 of the Louisiana Civil Code.
   The Louisiana Civil Code describes corporeal movable property (tangible personal
   property) as things that exist physically and normally move or can be moved from one
   place to another.
   Examples of tangible personal property include but are not limited to:
   • durable goods such as appliances, vehicles, and furniture;
   • consumable goods such as food products, cleaning supplies, and medicines;
   • utilities such as electricity, water, and natural gas; and
   • computer software.
   Items that are not tangible personal property include but are not limited to:
   • incorporeal property that exists only by an understanding of the mind such as
   patents, copyrights, rights of inheritance, servitudes, and legal rights or obligations;
   and
   • immovable property, which is defined by the Louisiana Civil Code to include:
   • tracts of land (La. Civil Code Article 462);
   • component parts of a tract of land when they belong to the owner of the land (La.
   Civil Code Article 463);

Private Letter Ruling No. 01-011
Page 3 of 4

•
•
•

•

buildings and standing timber even when owned by someone other than the owner
of the land (La. Civil Code Article 464);
things, such as building materials, incorporated into a tract of land or incorporated
into a building or other construction that belongs to the owner of the land, so as to
become integral parts of the immovable (La. Civil Code Article 465);
things permanently affixed to a building or other construction, such as plumbing,
heating, cooling, electrical or other installations, so that they cannot be removed
without substantially damaging them or the immovable to which they are attached
(La. Civil Code Article 466); and
machinery, appliances, and equipment that have been declared immovable by the
owner in the parish conveyance records (La. Civil Code Article 467) except when
being repaired as defined by R.S. 47:301(14)(g).

In order for the cogeneration power plant ruling to be considered immovable for sales
purposes when located on leased land, the power plant will have to be classifiable as
“buildings”, under Article 464 of the Louisiana Civil Code. Neither the Louisiana sales
tax statutes nor the Louisiana Civil Code provides a definition of the term “building”.
Black’s Law Dictionary (6th edition, 1990, page 194) defines a building as a “structure
designed for habitation, shelter, storage, trade, manufacture, religion, business, education,
and the like” or as a “structure or edifice inclosing a space within its walls, and usually,
but not necessarily, covered with a roof.” Because it is to be used for manufacturing, has
a roof and walls, and has the degree of permanency indicated in the request for ruling, the
cogeneration power plant, as described in the request for ruling, is considered a
“building” for state sales tax purposes. The things that are permanently attached to plant,
including plumbing, heating, cooling, electrical, and other installations that cannot be
removed without substantial damage to themselves or the cogeneration power plant, will
be considered component parts of the plants. Under Articles 462, 463 and 464 of the
Louisiana Civil Code, buildings and their component parts will be considered immovable
whether they belong to the owner of the ground on which they are situated or to another
person.
Ruling

1. The cogeneration power plant to be built, and to be situated during its construction and
   operation stages on leased land will be considered immovable property for purposes of
   Louisiana sales and use tax law. Immovable property status will extend to the building
   structure of the plant and to things that are permanently attached to the plant, including
   plumbing, heating, cooling, electrical, and other installations that cannot be removed without
   substantial damage to themselves or the cogeneration power plant.

Private Letter Ruling No. 01-011
Page 4 of 4

2. The transfer of title and ownership of the completed cogeneration power plant from OSLLC
   /Construction to Company A will not be a taxable sale for Louisiana sales and use tax
   purposes since it will involve the transfer of immovable property. Likewise, the eventual
   transfer of ownership and possession of the cogeneration power plant at the termination of
   the Joint Operating Agreement from Company A to the manufacturer will not be a taxable
   sale subject to the Louisiana sales and use tax law since it would also be the transfer of
   immovable property.
   Equipment and other property within the plant that does not constitute components of the
   plant will be considered movable property for sales tax purposes.
   If additional information is needed, please contact the Policy Services Division at (225) 2192780.
   Sincerely,
   Cynthia Bridges
   Secretary
   By:

Raymond E. Tangney
Senior Policy Consultant
Policy Services Division
(225) 219-2780

A Private Letter Ruling (PLR) is issued under the authority of LAC 61:III.101( C ). A PLR provides guidance to a specific
taxpayer at the taxpayer’s request. It is a written statement issued to apply principles of law to a specific set of facts or a
particular tax situation and is limited to the matters specifically addressed. A PLR does not have the force and effect of law and
may not be used or cited as precedent. A PLR is binding on the Department only as to the taxpayer making the request and only
if the facts provided with the request were truthful and complete and the transaction was carried out as proposed. The
Department’s position concerning the particular tax situation addressed remains in effect for the requesting taxpayer until a
subsequent declaratory ruling, rule, court case, or statute supersedes it.