Judge Best dismisses St. Gabriel tax suit; city could appeal

DEIDRE CRUSE, Governmental Reporter

District Judge James J. Best ruled last week that the Iberville Parish Council could continue to collect a two-thirds cent parish sales tax in the City of St. Gabriel.

In a hearing in 18th Judicial District Court, Best agreed with the parish's contention that the City of St. Gabriel had no right of action to proceed with a lawsuit to stop the collection of the parish tax. The tax yields around $480,000 a year.

Unless the city wins an appeal, the only tax relief St. Gabriel taxpayers – significantly, its industries – could get would be from the their city council, which could reduce a city sales tax that pushed the city's sales tax burden to five and two-thirds cents on the dollar.

Judge Best described the situation as a “legal quagmire” brought on in part by a decision last summer by the First Circuit Court of Appeal that allowed St. Gabriel to raise its citywide sales tax to a full penny.

St. Gabriel voters approved a one-cent sales tax in 1996. Its industries sued successfully to stop the tax on grounds it would push the sales tax above what was then a four percent limit parishwide. Under a 10-year agreement with the industries, the city reduced collection of the city tax to one-third cent.

In the meantime, the legislature raised the limit on parish and school board taxes to five percent, and Iberville Parish voters in 2006 approved a new one-cent sales tax, phased in over three years. The parish imposed only two-thirds cents of that tax in St. Gabriel to keep collections under the five percent limit, although the full cent is collected in the rest of the parish.

The parish tax was in full effect last summer when the First Circuit, sitting as a whole, reversed its earlier decision and said St. Gabriel had the right to impose the full one-cent sales tax. Although the Legislature limits parishes and school boards to five percent in sales taxes, it allows cities to levy up to two-thirds cents in municipal taxes, the First Circuit ruled.

St. Gabriel officials, their 10-year agreement with local industries expired, increased the tax to the full penny in October, pushing sales taxes within its corporate limits to five and two-thirds cent, and sued the parish government to stop collection of the newest parishwide sales tax.

Russell Stutes, representing the parish, filed the exception to the suit claiming St. Gabriel had no right of action because it had not contested the tax within 60 days of the tax election, as required by law. The law is designed to protect those who buy local bonds backed by sales taxes, he said.

“If you're going to argue that a tax is illegal, you have to do it within 60 days,” Stutes said, noting the tax is worth around $40,000 a month in St. Gabriel. “If you don't collect it, some bond holder doesn't get paid.”

“The first Circuit has made it clear that the city has the right to impose a tax within the city limits,” argued St. Gabriel's attorney, Dallon Bush. If the court reduced the parish tax, bondholders would have to be notified. “Somebody needs to reduce the two-thirds cent tax.”

Stutes said he had argued before the First Circuit against allowing municipalities to levy sales taxes above the five percent parishwide limit, but that that was what the First Circuit had done.

In this case, Judge Best said, “The City of St. Gabriel just got caught by that [First Circuit] decision...That is the law.”

Bush said the city is considering an appeal of Best's ruling.