Did Louisiana's maritime sales-tax exemption cover fuel, supplies, repairs, and services for drilling ships or barges working in Louisiana waters?

Plain-English summary

Purchases for drilling ships and drilling barges working in Louisiana waters did not qualify for Louisiana's foreign- or interstate-coastwise-commerce sales-tax exemption.

Act 34 expanded the kinds of watercraft named in the statute to include barges and drilling ships. But it did not remove the requirement that the ship, barge, or vessel operate exclusively in foreign or interstate coastwise commerce, and it did not redefine that commerce to include petroleum exploration, drilling, or production.

Accordingly, supplies, fuel, lubricants, repair materials, repair services, and laundry services used aboard mineral-exploration, drilling, or production vessels in Louisiana territorial waters remained taxable under the Department's ruling.

Why adding drilling ships did not decide the issue

The Louisiana Supreme Court's Mallard Bay Drilling decision had denied the exemption under the earlier statute in part because it referred to ships or vessels, not barges. The Legislature then added barges and drilling ships.

The ruling explained that vessel type was only one requirement. The activity still had to be exclusively foreign or interstate coastwise commerce. Drilling or producing minerals in Louisiana waters did not meet that requirement.

What qualified commerce meant

The amended statute covered specified transportation or movement of passengers or property across state boundaries, through an out-of-state point, or as part of an interstate or foreign stream of commerce. It also covered certain in-state services supporting vessels that themselves operated in qualifying commerce.

The Department distinguished those transportation activities from mineral exploration, drilling, or production performed in Louisiana waters.

Common questions

Q: Did Act 34 make every drilling-ship purchase exempt?

A: No. It added drilling ships and barges as potentially eligible watercraft but kept the exclusive-commerce requirement.

Q: Were fuel and supplies for Louisiana drilling operations exempt?

A: No, when used for mineral exploration, drilling, or production in Louisiana territorial waters.

Q: Did the same result apply to repair and laundry services?

A: Yes. The ruling listed repair services, repair materials, and laundry services among the purchases that did not qualify for those Louisiana-water operations.

Q: Could a river transportation barge qualify?

A: The ruling states that the amended exemption could apply to vessels, including river transportation barges, used in interstate coastwise commerce. Qualification still depended on the vessel's actual operation.

Citations and references

• La. R.S. 47:305.1(B), (C) — maritime exemption and definition of foreign or interstate coastwise commerce
• La. R.S. 47:305(E) — bona fide interstate commerce
• Act 34 of the 2006 First Extraordinary Session
• Mallard Bay Drilling, Inc. v. Kennedy, 2004-C-1089 (La. June 29, 2005), 914 So. 2d 533
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 06-015

Original ruling text

Revenue Ruling
No. 06-015
September 19, 2006
Sales and Use Tax
Taxability of Purchases for Maritime Transportation Vessels, Drilling Barges, and
Drilling Ships
The purpose of this Revenue Ruling is to discuss the sales tax exemptions on purchases made for
vessels operating in foreign and interstate coastwise commerce, particularly as this exemption
provided by La. Rev. Stat. Ann. § 47:305.1(B) applies to purchases for drilling ships and drilling
barges following the amendment of the statute by Act 34 of the 2006 first extraordinary session
of the Legislature and the decision of the Louisiana Supreme Court in Mallard Bay Drilling v.
Kennedy, 2004-C-1089 (La. Sup. Ct. 6/29/05), 914 So. 2d 533.
The department’s opinion is that the exemptions under the amended statute, for certain types of
purchases by owners or operators of ships, barges, or vessels that are operating exclusively in
foreign or interstate coastwise commerce, do not apply to purchases that are used for the
operation of mineral exploration, drilling, or production barges in Louisiana waters. The reason
that the exemption does not apply is that these types of barges, while working in Louisiana, are
not operating “exclusively in foreign or interstate coastwise commerce”.
The requirement that a ship, vessel, or barge be operated “exclusively in foreign or interstate
coastwise commerce” in order to be eligible for the exemptions under R.S. 47:305.1(B) was not
changed by Act 34. Neither did Act 34 expand the definition of the term “foreign or interstate
coastwise commerce” to include petroleum drilling or producing activities.
As amended by Act 34, R.S. 47:305.1(B) and (C) provide as follows. The language added to the
statute by Act 34 is in bold, and underlined.
B. The taxes imposed by taxing authorities shall not apply to materials and supplies
purchased by the owners or operators of ships, barges, or vessels, including drilling
ships, operating exclusively in foreign or interstate coastwise commerce, where such
materials and supplies are loaded upon any such ship, barge, or vessel for use or
consumption in the maintenance and operation thereof; nor to repair services performed
upon such ships, barges, or vessels operating exclusively in foreign or interstate
coastwise commerce; nor to the materials and supplies used in such repairs where such
materials and supplies enter into and become a component part of such ships, barges, or
vessels; nor to laundry services performed for the owners or operators of such ships,
barges, or vessels operating exclusively in foreign or interstate coastwise commerce,
where the laundered articles are to be used in the course of the operation of such ships,
barges, or vessels.
C. (1) For purposes of this Section, the term “foreign or interstate coastwise commerce”
shall mean and include trade, traffic, transportation, or movement of passengers or
property by, in, or on a ship, barge, or vessel, including a drilling ship:
(a) Between a point in one state and a point outside the territorial boundaries of such
state;

Revenue Ruling No. 06-015
Page 2 of 3

(b) Between points in the same state where the trade, traffic, transportation, or movement
of passengers or property traverses through a point outside of the territorial boundaries of
such state;
(c) At a point in or between points in the same state as part of or in connection with the
business of providing or delivering materials, equipment, fuel, supplies, crew, repair
services, laundry services, dredging waterways services, stevedoring services, other
loading or unloading services, or ship, barge, or vessel movement services to or for
ships, barges, or vessels, including drilling ships, that are operating in foreign or
interstate coastwise commerce as defined in this Subsection; or
(d) At a point in or between points in the same state when such trade, traffic,
transportation, or movement of passengers or property is part of or consists of one or
more segments of trade, traffic, transportation, or movement of passengers or property
that either (i) follows movement of passengers or property into or within the state from a
point beyond the territorial boundaries of such state, (ii) precedes movement of the
passengers or property from within the state to a point outside the territorial boundaries of
such state, or (iii) is part of a stream of trade, traffic, transportation, or movement of
passengers or property originating or terminating outside the territorial boundaries of
such state or otherwise in foreign or interstate coastwise commerce, as defined in this
Subsection.
In Mallard Bay Drilling the Louisiana Supreme Court considered the eligibility of purchases for
drilling barges operating in Louisiana waters for the sales tax exemptions provided by La. Rev.
Stat. Ann. § 47:305.1(B), as the statute was worded before its amendment by Act 34 . The court
determined that the purchases were not eligible for exemption for two reasons:
•

Prior to its amendment by Act 34, La. Rev. Stat. Ann. § 47:305.1(B) applied only to
purchases for “ships or vessels”. The wording of La. Rev. Stat. Ann. § 47:305.1(B), the
Court pointed out, was clearly different from the wording of the exemption provided by
La. Rev. Stat. Ann. § 47:305.1(A), which applied another maritime-related sales tax
exemption more broadly to “ships, vessels, or barges”. Since a drilling barge was not a
ship or vessel, the court reasoned, the exemption under La. Rev. Stat. Ann. § 47:305.1(B)
would not apply to purchases for drilling barges.

•

The Supreme Court cited the determination of the Louisiana Board of Tax Appeals that
the diesel fuel for Mallard Bay’s drilling barges was delivered in Louisiana, was
consumed in Louisiana, and was a Louisiana sale. Additionally, the Court found that the
sale of the diesel fuel, the delivery, and the consumption in Louisiana do not constitute
"bona fide interstate commerce" as that phrase is used in La. R.S. 47:305(E), the statute
that bars the taxation of “bona fide interstate commerce”. The Court determined that the
levy of a sales tax on its diesel fuel purchases that are sold, delivered, and consumed in
Louisiana does not constitute a tax on "bona fide interstate commerce."

In response to the decision in Mallard Bay, the Legislature enacted Act 34 to expand the types of
watercraft eligible for exemption under La. Rev. Stat. Ann. § 47:305.1(B) to include barges and
drilling ships, but only those that are operating “exclusively in foreign or interstate coastwise

Revenue Ruling No. 06-015
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commerce”. As amended by Act 34, the exemptions under R.S. 47:305.1(B) apply only to
vessels, including river transportation barges, used in interstate coastwise commerce, but not to
supplies, fuel or lubricants, repair materials, laundry services, or repair services purchased for
use in Louisiana territorial waters aboard vessels used for such non-interstate commerce
activities as mineral exploration, drilling, or production. A drilling ship or mineral exploration,
drilling, or production barge, while operating in Louisiana, is not operating in foreign or
interstate coastwise commerce so as to be eligible for the sales tax exemption provided by R.S.
47:305.1(B).
For more information regarding this topic, please call the Policy Services Division at
225.219.2780.
Cynthia Bridges
Secretary
By:

Raymond E. Tangney
Senior Policy Consultant
Policy Services Division

A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is
issued under LAC 61:III.101.C to apply principles of law to a specific set of facts. A Revenue Ruling does not
have the force and effect of law and is not binding on the public. It is a statement of the Department's
position and is binding on the department until superseded or modified by a subsequent change in statute,
regulation, declaratory ruling, or court decision.