Was a nonprofit economic development corporation exempt from sales tax when it bought state-funded equipment and leased it to an exempt for-profit user for $1 a year?

Plain-English summary

Louisiana Revenue Ruling 09-001 held that a private nonprofit economic development corporation, or EDC, owed sales tax when it bought equipment with state-funded payments and leased the equipment to a for-profit end user for $1 per year.

The EDC was not a government “instrumentality” excluded from the definition of a taxable person. Louisiana law expressly treated this kind of EDC as a private nonprofit, prohibited it from functioning as a state or local agency, and prevented government from assigning it normal governmental powers.

The equipment purchase also did not qualify as property bought for an arm's-length re-lease. The Department found that the $1 annual lease was below market value and therefore not arm's-length. As a result, the seller's sale to the EDC was taxable even though the end user's activity and the EDC-to-user lease were assumed exempt in the ruling's hypothetical.

The economic development arrangement

The ruling considered an EDC used as a pass-through for state money under a cooperative endeavor agreement. A manufacturer or retailer sold equipment to the EDC. The state made monthly payments reflecting the equipment's actual value, while the EDC leased the equipment to a for-profit company for $1 per year.

The end user used the equipment only in an activity assumed to be exempt. At the lease's end, title and possession would revert to the state, which would grant the company an indefinite right to use the equipment.

The ruling separated the tax treatment of each step rather than allowing the exempt final use to control the whole chain.

Which transactions were exempt

Ordinary sales from a manufacturer to a seller or reseller remained sales for resale when the buyer would resell the equipment further down the chain.

The EDC's lease to the for-profit end user was also assumed exempt under La. R.S. 47:301(7)(c) because the equipment was used exclusively in the hypothetical exempt activity.

Those exemptions did not automatically exempt the EDC's own purchase from the seller.

The EDC was not a government instrumentality

La. R.S. 47:301(8)(c) excluded the state, political subdivisions, and their agencies, boards, commissions, and instrumentalities from “person” for payment of sales and use tax. The EDC argued that its local approval, public funding, and cooperative endeavor made it a parish instrumentality.

The Department rejected that position. It emphasized that La. R.S. 33:9024 described an economic development corporation as a private nonprofit, prohibited it from acting as a state or local agency, and barred assignment of normal governmental powers such as taxing, licensing, regulation, or purely public governmental functions.

The EDC was privately owned, could own property, could sue and be sued, did not follow public-bid or administrative-procedure requirements, exercised no regulatory authority, and principally channeled state money to private entities. Receiving public funds and pursuing a public-purpose economic development agreement did not transform it into government.

The ruling compared those facts with Louisiana cases examining an entity's creation, ownership, autonomy, powers, public functions, and relationship with government. It concluded that the EDC remained a taxable “person.”

The nominal lease was not arm's-length

La. R.S. 47:301(18)(a)(iii) excluded certain purchases of tangible personal property intended for lease or rental in an arm's-length transaction.

The EDC leased equipment whose actual value was reflected in the state's payments to the end user for only $1 per year. The Department treated that below-market lease as not arm's-length, so the re-lease exclusion did not protect the EDC's purchase.

Public funding did not create another exemption

The ruling rejected the argument that charging sales tax merely reduced funds appropriated for a public purpose and therefore should be avoided. It viewed an added exemption as an unauthorized increase in the public grant.

It also stated that participation in a cooperative endeavor agreement did not itself exclude a Louisiana nonprofit corporation from sales or lease tax. The parties could structure their contract as they chose, but the structure did not change the statutory tax result.

What this means for you

Economic development corporations

Nonprofit status, local approval, public money, and a cooperative endeavor agreement did not by themselves make the EDC a tax-exempt government instrumentality. The entity's legal powers, ownership, functions, and statutory classification mattered.

Public-private project planners

Analyze every transfer separately: manufacturer-to-reseller, seller-to-EDC, EDC-to-end-user lease, and later government use rights can have different answers. An exemption at the final-use stage does not necessarily flow backward.

Equipment vendors and accountants

The ruling placed sales tax on the seller-to-EDC transaction in this structure. A resale or re-lease claim required the facts and documentation to fit the statute, including an arm's-length lease where that exclusion was used.

Common questions

Q: Was the EDC exempt simply because it was a nonprofit?

A: No. The ruling treated it as a private nonprofit and a taxable person.

Q: Did the cooperative endeavor agreement make the EDC part of government?

A: No. The agreement channeled public funds toward a public purpose, but did not give the corporation governmental powers or change its private legal status.

Q: Why did the $1 lease matter?

A: The purchase-for-re-lease exclusion required an arm's-length lease. The Department found a $1 annual lease of equipment funded at its actual value was not arm's-length.

Q: Was the EDC-to-end-user lease itself taxable?

A: In the ruling's hypothetical, no. The end user was assumed to use the equipment exclusively in an activity covered by the lease exclusion. That did not exempt the EDC's earlier purchase.

Q: What transaction did the Department ultimately tax?

A: The sale of the equipment from the seller to the EDC.

Citations and references

• La. R.S. 47:302 — sales and use tax imposition
• La. R.S. 47:301(10)(a)(i) — retail sale and sales for resale
• La. R.S. 47:301(7)(a) and (c) — leases and the assumed exempt-activity lease
• La. R.S. 47:301(8)(a) and (c) — taxable person and government-entity exclusion
• La. R.S. 47:301(18)(a)(iii) — arm's-length re-lease exclusion
• La. R.S. 33:9021 and 33:9024(B), (C), and (E) — economic development policy and private EDC status
• La. Const. art. VII, section 14 — public funds and cooperative endeavors
• Polk v. Edwards, 626 So. 2d 1128 (La. 1993) — government-instrumentality analysis
• Slowinski v. England Economic and Industrial Development District, 828 So. 2d 520 (La. 2002) — powers, functions, and relationship analysis
• Bankston v. Board of Ethics for Elected Officials, 715 So. 2d 1181 (La. 1998) — private nonprofit and public-funding analysis
• State v. Whitney National Bank of New Orleans, 179 So. 84 (La. 1938) — limits on instrumentality tax immunity
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 09-001

Original ruling text

RPage 1 of 12Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx
Transactions by Roustabouts, “Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 09- 001
September 15, 2009
Sales and Use Tax
Concerning the Taxability of Certain Transactions by Non-Profit Economic
Development Corporations for Use in Economic Development Projects
The purpose of this Revenue Ruling is to provide analysis of transactions for sale or lease and rental
taxes of certain property transacted to non-profit Economic Development Corporations (“EDC’s”) and
subsequently transferred to for-profit corporations under an economic development project. The issue
under review concerns whether or not the EDC is held for the consequential transaction taxes when
transactions are not taxed to ultimate user of the property, either due to a specific exemption attributed
to the product or an exemption attributed to an activity. This issue is also germane to transactions
wherein the property is acquired for the use of a public entity through an EDC. Economic
development corporations can be created to facilitate the public/private partnership for private
development, and as a private entity the EDC can transact outside of the public bidding process to
avoid the limitations imposed thereunder.
Illustrative Scenario
Louisiana Economic Development, a state agency, partners with business and industry providing funding
for development projects designed to stimulate growth of business and employment within Louisiana.
Economic Development Corporations are non-profit corporations which activities have been sanctioned by
the local government where the economic development project is located. A cooperative endeavor
agreement (“AGREEMENT”) is entered into between an EDC and another entity, either another non-profit,
public entity receiving funding through an EDC pass-through entity, or a for-profit entity. An EDC is
authorized to receive public funds through a cooperative endeavor agreement and through that agreement,
purchase tangible personal property and/or provide assets to private industry for economic development
purposes.
In this factual scenario, a non-profit economic development corporation (“EDC”) is structured as a passthrough entity to receive money from the State of Louisiana through a cooperative endeavor agreement to
purchase property and transact with the entity that will ultimately use the property. Manufacturer
(“SELLER”) sells product either directly to EDC or to a retailer (“SELLER”), which retailer then re-sells the
property to EDC. When EDC is not the END-USER, then both of the above sales transactions to EDC are
exempt because the property is for re-sale or lease to a subsequent END-USER. Under the instant scenario,
EDC leases the property to a for-profit end-user entity (“END USER”). For purposes of this discussion, the
transaction to END-USER is exempt from sales tax or lease tax. The result would be the same if the end-user
was a governmental entity being channeled funds through an EDC or a similarly situated non-profit entity
which transactions were exempt from taxation.

A Revenue Ruling is issued under the authority of LAC 61III.101 (C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued 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.

Revenue Ruling No. 09-001
Page 2 of 12

A Cooperative Endeavor Agreement is a public record and is subject to the Public Records Doctrine.1 For
purposes of this hypothetical project, the AGREEMENT asserts that the consideration for the lease of tangible
personal property by EDC is the sum of one dollar per year.
Summary of transactions between SELLER, NON-PROFIT EDC, and
The STATE OF LOUISIANA
1)

Manufacturer will sell the equipment to SELLER or to EDC.

2)

SELLER will sell its purchased equipment to EDC (nonprofit corporation in the Cooperative
Endeavor Agreement).

3)

The STATE will make monthly lease payments to EDC (the actual purchase price of the property or
contract). EDC will lease the equipment to FOR-PROFIT END-USER at the rate of $1 per year. FORPROFIT will use the equipment exclusively for EXEMPT ACTIVITY.

4)

At the end of the lease term between EDC and for-profit END-USER, title and possession of the
equipment will revert to the STATE. The STATE will grant, at the end of the lease term, a right of use
of the equipment to the for-profit END-USER for an indefinite period.

Legal Analysis
Pursuant to La. R.S. 47:302, the sales tax is imposed on the “sale at retail, the use, the consumption, the
distribution, and the storage for use or consumption. . .” in Louisiana of tangible personal property. La.
R.S. 47:301(10)(a)(i) provides that “[f]or purposes of the imposition of the state sales and use tax, “retail
sale” or “sale at retail” means a sale to a customer or to any other person for any purpose other than for
resale as tangible personal property. . . .” (emphasis added). Therefore, a sale for resale does not fall within
the definition of “retail sale” or “sale at retail”; however, other sales do.
Exemptions applicable to the transactions between MANUFACTURER/SELLER, NON-PROFIT EDC, and
the STATE OF LOUISIANA
1)
Manufacturer will sell the equipment to SELLER or to RE-SELLER; SELLER or RE-SELLER will sell
the equipment or other tangible personal property to EDC.
The transactions of sale from manufacturer(s) to SELLER and/or RE-SELLER are sales for resale; thus, the
transactions are excluded from sales tax under La. R.S. 47:301(10)(a):
(i) Solely for the purposes of the imposition of the state sales and use tax, "retail sale" or
"sale at retail" means a sale to a consumer or to any other person for any purpose other
than for resale as tangible personal property, or for the lease of automobiles in an arm's
length transaction, and shall mean and include all such transactions as the secretary,
upon investigation, finds to be in lieu of sales; provided that sales for resale or for lease
of automobiles in an arm's length transaction must be made in strict compliance with the
rules and regulations. Any dealer making a sale for resale or for the lease of automobiles,
which is not in strict compliance with the rules and regulations, shall himself be liable
for and pay the tax.
1

Records pertaining to an Economic Development proposal may remain confidential during the phase of “active
negotiation,” subject to approval of the Secretary of Economic Development and conditioned upon all requirements being
met pursuant to R.S. 44:22 of the Public Records Act. The period of confidentiality during active negotiation may remain
open for a period of twelve months, and with additional requisites met, be extended an additional twelve months, but in no
case shall exceed twenty-four months. R.S. 44:22B. Active negotiation terminates upon the person deciding to no longer
pursue the proposal, the Economic Development Department deciding to no longer pursue the proposal, or when the
negotiation is submitted to a public body for public review. R.S. 44:22C.

Revenue Ruling No. 09-001
Page 3 of 12

The transactions of sale from SELLER to RE-SELLER are sales for resale (to EDC); thus, the transactions are
excluded from sales tax under La. R.S. 47:301(10)(a), as set forth above.
2)

SELLER will sell its purchased equipment to EDC (non-profit corporation in the Cooperative
Endeavor Agreement).

The transaction(s) from SELLER to EDC are not sale(s) for resale; thus, La. R.S. 47:301(10)(a) will not
apply. If the property is being sold by EDC to END-USER for market value, then the transaction falls within
the re-sale exemption of La. R.S. 47:301(10)(a) and tax would not be collectible on the transaction from
SELLER to EDC.
The Legislature eliminated the requirement previously existing under Louisiana Revised Statute
47:306(B)(1)(a), and there is no longer a duty imposed upon dealers to collect an advance Sales tax on “. .
. every manufacturer, wholesaler, jobber, or supplier who sells to anyone for sale at retail any article of
tangible personal property, the retail sale of which is taxable under this Chapter. . . .” 2
3)

EDC purchased the tangible personal property and will lease the property to END-USER, for
consideration of $1 per year. However, EDC will be paid monthly a capitalized value of the grant
from the State, which will reflect the actual value of the purchased property. END-USER will use
the tangible personal property exclusively for EXEMPT ACTIVITY.

Louisiana Revised Statute 47:301(7) defines ‘lease’ as follows:
(7)(a) “Lease or rental” means the leasing or renting of tangible personal property and
the possession or use thereof by the lessee or renter, for a consideration, without transfer
of the title of such property.
Louisiana Revised Statute 47:301(7)(c) sets forth an exemption within the definition of lease:
(c) The term “lease or rental”, as herein defined shall not mean or include a lease or
rental of property to be used in (exempt activity). . .
The lease of the equipment by EDC to END-USER is a lease to a company engaged in EXEMPT ACTIVITY,
thus the lease of the equipment from EDC to END-USER is exempt from lease taxes under La. R.S.
47:301(7)(c).
5)
At the end of the lease term between EDC and END-USER, title and possession of the equipment
will revert to the STATE. The STATE will grant END USER right of use of the equipment for an indefinite
period.
In summary, the transactions subject to inquiry in Request Nos. 1, 2, and 4 are exempt from payment of
sales tax, and the inquiry returns to whether the transaction of purchase of the equipment by EDC from
SELLER (Transaction No. 3) is subject to sales or lease tax or exempt under other statutory analysis.
EDC’s Purchase of the Transaction Equipment from SELLER
Is EDC an “instrumentality” of PARISH and thereby excluded from the definition of
“person” under La. R.S. 47:301(8)(c)? If EDC is not an instrumentality of PARISH, will
it be required to pay any sales tax on any of its purchases or uses of tangible personal
property or procurement of taxable services, including its purchases of the Transaction
Equipment from SELLER?
2

As provided in Act No. 393 of the 2007 Regular Session of the Louisiana Legislature (“Act No. 393”), for tax periods
beginning on or after January 1, 2008, any Manufacturer that has annual sales of tangible personal property that average in
excess of $500,000 will not be required to collect or remit any advance sales tax provided that the Manufacturer otherwise
satisfies the requirements set forth in Act No. 393. For all transactions that take place on or after January 1, 2009, no
advance sales tax collection or remitting will be required for qualified Manufacturers.

Revenue Ruling No. 09-001
Page 4 of 12

As stated above, La. R.S. 47:301(10)(a)(i) provides that “[f]or purposes of the imposition of the state sales
and use tax, “retail sale” or “sale at retail” means a sale to a customer or to any other person for any
purpose other than for resale as tangible personal property. . .” (emphasis added). Therefore, a sale for
resale does not fall within the definition of “retail sale” or “sale at retail”. Under the facts presented, there
is no intent by EDC to sell the property to END USER; therefore, the sale by SELLER to EDC is not a sale for
resale and is a retail sale unless it is otherwise excluded from the above statute.
Since there is no qualification of ‘purpose’ that will exempt the sale or use in question, i.e., the statute
states that any purpose qualifies under the statute, the only other exemption that might re-characterize the
transaction from one of “retail sale” or “sale at retail” to exempt status would be if it is found that EDC is
not “a customer or any other person”.
For sales tax purposes, a “person” is defined in La. R.S. 47:301(8), in pertinent part, as follows:
(a) “Person”, except as provided in Subparagraph (c), includes any individual, firm, copartnership, joint adventure, association, corporation, estate, trust, business trust,
receiver, syndicate, this state, any parish, city and parish, municipality, district or other
political subdivision thereof or any board, agency, instrumentality, or other group or
combination acting as a unit, and the plural as well as the singular number.

(c) For purposes of the payment of the state sales and use tax and the sales and use tax
levied by any political subdivision, “person” shall not include this state, any parish, city
and parish, municipality, district, or other political subdivision thereof, or any agency,
board, commission, or instrumentality of this state or its political subdivisions. . . .
It is certain that EDC is not “[the] State, [a] parish, city or parish municipality, district, or other political
subdivision thereof, or any agency, board, or commission. . .”. However, EDC urges that it is an
instrumentality of PARISH by virtue of the fact that it is a nonprofit Economic Development Corporation3
approved by PARISH pursuant to La. R.S. 33:9022 et seq. and part of a “Cooperative Endeavor Agreement”
which uses funds of the STATE to promote public purposes. EDC asserts that no definition of
“instrumentality” exists in Louisiana law and thus reliance upon dictionary definitions is required. The
Department rejects this contention.
Federal and state case law has long recognized the status of “instrumentality of the government” or
“instrumentality of the state” and identifies the qualities that are evaluated to make such determinations.
Indeed, even the Louisiana Constitution sets forth the idiom “the state or any instrumentality thereof. . .”,
La. Const. art. 10 § 1(A), and the Louisiana Supreme Court and its appellate courts have developed an
evaluative process to determine whether the orbit of powers or functions exercised by an entity are that of

3

Louisiana Revised Statute 33:9024(B) describes an EDC as follows:
An economic development corporation organized under the provisions of this Chapter is a private, nonprofit
corporation and is prohibited from functioning as an agency of the state or of any political subdivision of the state,
and its directors, officers, or employees are prohibited from functioning as and are not to be considered to be
public employees for any purposes whatsoever, and neither the state of Louisiana nor any agency or subdivision of
the state may assign to any economic development corporation so organized any of the normal powers of
government, including the following:
(1) The power to impose or collect taxes or fees.
(2) The power to license or to exercise governmental regulatory authority over any person or
entity.
(3) The power to carry out, or to employ or contract with persons to carry out, any
governmental function which is purely and solely of a public nature.

Revenue Ruling No. 09-001
Page 5 of 12

an instrumentality of the state or otherwise. Authoritative or primary sources of law are legislation and
custom. La. C.C. art. 1. As further stated in the 1987 Revision Comments:
They are contrasted with persuasive or secondary sources of law, such as jurisprudence,
doctrine, conventional usages, and equity, that may guide the court in reaching a
decision in the absence of legislation and custom.
There are entities that have or have not been identified as such instrumentalities through a plethora of cases;
therefore, there is existing definition to the quality of being such an entity. That said, the Department will
not rely upon the common definition of the word “instrumentality” as found in Black’s Law Dictionary (or
other source of common usage) as it cannot provide the integrity of definition as have been provided by the
courts through legal analysis for the legal term “instrumentality of the state”. Further, the legal term
“instrumentality of the state” has broader application than that of mere sales tax law, and is appropriately
recognized as determined by the exercise of powers or functions of an entity, not upon the discreet
character of taxation or tax laws. As such, an analysis related to a determination of whether an entity is an
instrumentality of the state concerns the broad analysis of executive, legislative, and even constitutional
authorities and the relationship of those to public and private rights or obligations.
An Instrumentality of the State or Local Government Defined
Louisiana law defines the term “instrumentality of the state” in its narrowest context, though the factors for
such analysis for determining “instrumentality” of the state are similar or the same as determining
“agency”4. The Louisiana Supreme Court case of Polk v. Edwards, (93-CA-0362) 626 So.2d 1128 (La.
8/20/93) is particularly illuminating in that the enabling act creating the “Casino Act” specifically excluded
the Louisiana Economic Development and Gaming Corporation5 (“Casino Corporation”) from being
considered an ‘agency’, and the Polk court was called upon to determine if it was an instrumentality of the
state. Similarly, in the instant matter, economic development corporations are specifically prohibited from
being recognized as agencies of the state or any subdivision of the state, La. R.S. 33:9024(E)(1), and this
Revenue Ruling determines if such economic development corporations, which is the corporate status of
EDC, are instrumentalities of the local government under which authority they are created.
In Polk v. Edwards, citizens filed an action challenging the constitutionality of four statutes authorizing the
licensing of gaming operations in Louisiana. The Casino Corporation was created, and the legislation
authorized the Corporation to establish and maintain a personnel program. Those personnel were
specifically excluded from the Louisiana State Civil Service System. La. Const. art. 10, § 1(A) requires
that employees of an instrumentality of the state be recognized as belonging to state civil service system.
Polk asserted that the corporation was an instrumentality of the state and, with the Corporation’s employees
denied civil service classification, the Act unconstitutional.
The trial court reviewed those factors found both to designate the corporation as an entity recognized and
created by government so as to have some responsibility toward the public or government, and those
factors found to establish powers and functions interrelated with government. As to the first category, of
which most if not all could be classified as ministerial duties, Polk recognized that the Corporation had
been created by the state; the governor appointed the board, the chairman of the board, and could remove
for cause; that it was established to advance the interests of the state and to carry out a public purpose; and
that the Corporation was subject to legislative audit and oversight.

4

See Bankston v. Board of Ethics for Elected Officials, (No. 98-C-0189) 715 So.2d 1181 (La. 6/22/98); Slowinski v.
England Economic and Industrial Development District, (No. 2002-C-0189) 828 So.2d 520 (La. 10/15/02).
5
“Louisiana Economic Development and Gaming Corporation Act”, Acts 1992, No. 384, §1, eff. June 18, 1992.
Redesignated from La. R.S. 4:601 by Acts 1996, 1st Ex. Sess., No. 7, §3, eff. May 1, 1996.

Revenue Ruling No. 09-001
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However, as to the second category, the district court found substantively greater than mere ministerial
duties, which included the transfer of some governmental powers and restraints. The Polk district court
found that the Corporation was owned by the State; that all officers and employees were engaged full-time
and could not engage in any other occupation for remuneration while working for the corporation; and, the
employees were subject to suspension, dismissal, reduction in pay, demotion, transfer, or other personnel
action. Most significantly, the Casino Act granted to the Corporation and its board of directors extensive
power to conduct gaming operations in general: the board was empowered to adopt rules for the conduct of
specific games and gaming operations, including the types of games to be conducted, the granting of credit
to a person, and special procedures for making and soliciting requests for major procurement; the
Corporation was subject to the public bid law for purchases over $100,000 or special procedures adopted
by the Corporation; all rules, regulations, or special procedures of the board would include legislative
oversight and publication of notice of intent in accordance with the Administrative Procedures Act; the
Corporation was authorized to conduct hearings, issue subpoenas, and to compel the attendance of
witnesses, and to punish as contempt the failure to obey its orders.
The Supreme Court upheld the finding of the district court that the Corporation was an instrumentality of
the state, Polk at 1147:
It has been held that such broad regulatory powers could not be delegated to a private or
non-governmental agency. State Licensing Board of Contractors v. State Civil Service
Comm’n, 119 So.2d 847, 849 (La. App 1st Cir. 1959) aff’d, 240 La. 331, 123 So.2d 76
(1960). . .
After considering its powers and functions, as well as the interrelationship with the state
in many areas, we find that the Casino Corporation is an instrumentality of the state and
is subject to the provisions of the civil service system. The Casino Corporation does not
enjoy an existence separate from the state. It does not independently transact its
business and hire its personnel. Furthermore, its actions determine the progress of the
gaming industry, which the legislature has designed to assist the growth of tourism and
generate revenue as a benefit to the general welfare.
In the instant matter, the EDC is owned by private parties, the entity can own property and does (or will)
own the equipment being acquired through the transactions, and no power or function of government has
been accorded to EDC . Merely directing payments to EDC for payment to another entity within the
cooperative endeavor agreement does not rise to the level of “power or function” of government so as to
render the nonprofit corporation an “instrumentality of the state or other local government.” In fact, La.
R.S. 33:9024(B) specifically excludes such transfer of power or function to a nonprofit economic
development corporation, and states:
An economic development corporation organized under the provisions of this Chapter is
a private, nonprofit corporation and is prohibited from functioning as an agency of the
state or any political subdivision of the state, and its directors, officers, or employees are
prohibited from functioning as and are not to be considered public employees for any
purpose whatsoever, and neither the state of Louisiana nor any agency or subdivision of
the state may assign to any economic development corporation so organized any of the
normal powers of government, including the following:
The power to impose or collect taxes or fees.
(1) The power to license or to exercise governmental regulatory authority over any
person or entity.

Revenue Ruling No. 09-001
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(2) The power to carry out, or to employ or contract with persons to carry out, any
governmental function which is purely and solely of a public nature. [Emphasis
added.]
Louisiana Revised Statute 33:9024 (E) further states:
Economic development corporations are not agencies of the state, nor of any subdivision
of the state, and are prohibited from exercising governmental powers or carrying out
functions which are purely and solely of a public nature.
Thus, even though excluded as being termed “agency” of the state or local government, the finding of
“instrumentality” is determined by analysis of the same or similar factors. As to nonprofit economic
development corporations, the legislature has determined that they are private entities unauthorized to hold
public power or function such as to render it an instrumentality of government.
In Slowinski v. England Economic and Industrial Development District, (No. 2002-C-0189) 828 So.2d 520
(La. 10/15/02), the Louisiana Supreme Court examined again the relationship of powers of an entity for the
purpose of determining whether it was an ‘instrumentality’ of the state. In 1992, the federal government
closed England Air Force Base to the devastation of the local economy of Rapides Parish. The Louisiana
State Legislature created the England Economic and Industrial Development District (“EEIDD”) to
facilitate the transition from the closure to a viable local economy. EEIDD was sued on employment
matters and plaintiffs urged that it was an instrumentality of the state. The Supreme Court reversed both
the district and appellate courts to find that it was not. The Court set forth the issues at 523:
. . .this Court must determine (1) whether EEIDD is “an arm of the state” or state
agency, or (2) whether EEIDD is sufficiently detached from the state that is more local
and autonomous in nature, similar to a parish or municipal government. This
determination requires a fact intensive inquiry, investigating the entity's powers and
functions, as well as its interrelationship with the state. Polk, 626 So.2d 1128 (La.1993);
State Licensing Board of Contractors v. State Civil Service Commission, 123 So.2d
(La.1960). Additionally, we find factors such as the geographic scope and level of
autonomy are helpful in investigating the “relationship” prong of the analysis. Anderson
v. Red River Waterway Commission, 231 F.3d 211 (5th Cir.2000).FN2
FN2. In Anderson, the court addressed the issue of whether the Red River
Waterway Commission was an “arm of the state” entitled to Eleventh Amendment
immunity. Although Anderson did not directly address whether a public entity was
an instrumentality of the state for purposes of state civil service, we find its analysis
useful in examining a political subdivision's connection to the state. The Court of
Appeals in Anderson used six factors as a guide in the determination of whether an
entity is an arm of the state: (1) whether the state statutes and case law characterize
the agency as an arm of the state, (2) the source of funds for the entity, (3) the
degree of local autonomy the entity enjoys, (4) whether the entity is concerned
primarily with local, as opposed to statewide, problems, (5) whether the entity has
authority to sue and be sued in its own name, and (6) whether the entity has the
right to hold and use property. Id. at 214.
Significantly, and in direct contradiction to the statutes at issue in the instant matter, the court cited
EEIDD’s enabling legislation, which is set forth at 527:
The exercise by the board of the powers conferred by this Subpart shall be deemed and
held to be essential governmental functions of the state. As the exercise of the powers
granted hereby will be in all respects for the benefit of the people of the state, for the
increase of their commerce and prosperity, and for the improvement of their health and

Revenue Ruling No. 09-001
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living conditions, the district shall not be required to pay any taxes, including, but not
limited to, sales and use taxes, ad valorem, occupational licencing [sic], income, or any
other taxes of any kind or nature....(emphasis in original).
The Supreme Court then opined, at 527:
Admittedly, phrases such as “essential governmental functions of the state” and “for the
benefit of the people of the state” could be construed to imply a legislative intent for
EEIDD to be considered a state instrumentality. However, we are more persuaded by the
legislature's omission of an express declaration that EEIDD shall be considered an
instrumentality of the state.
Hence, not only was it most significant that the entity be exercising essential governmental functions of the
state for the benefit of the people of the state, it simply was not enough for the Supreme Court to deem the
entity an ‘instrumentality of the state’. The comparison of the instant matter is not contravened in that the
entity was considered to be similar to a “unit of local government”. The determination was made by
analysis of several factors, though the factors were not in and of themselves exclusive to the determination.
Essential in the analysis were the public powers and functions accorded to the created entity, and the
relationship with the public source of power. EDC is organized under Chapter 2 of Title 12 of the Revised
Statutes of 1950 as a private nonprofit corporation. Its powers would encompass any lawful activity for
which private corporations may be formed under that chapter. As such, it has the power to sue and be sued,
and the power to own movable and immovable property. Nowhere pursuant to Title 12, Chapter 2, or the
entity’s Articles of Incorporation or its Bylaws is it required to purchase property pursuant to the Public Bid
Laws, or is it subject to following the Administrative Procedures Act for any activities that it engages in. It
has no regulatory authority, and it has been accorded no authority to exercise any governmental power or
function. It functions to channel money from the State of Louisiana to other private entities.
It is also interesting that the Supreme Court found that even though the entity was exempt from all state
taxes, that fact failed to support a finding that it was an ‘instrumentality’ of state government. “[W]e can
find nothing in the Louisiana Revised Statutes, Civil Code, or even the jurisprudence that states that tax
exempt status equates to being a state instrumentality.” Slowinski, at 526.
In Bankston v. Board of Ethics for Elected Officials, (No. 98-C-0189) 715 So.2d 1181 (La. 6/22/98), the
Louisiana Supreme Court visited additional issues related to the legal status of entities asserted to be
instrumentalities or agencies of the state. In reaching its conclusion that the entity of that inquiry was not a
public entity, the Court relied upon its reasoning in an earlier case, State v. Smith, to find that the
contractual relationship between the public entity source of funds and other factors did not re-characterize
the legal status of a private nonprofit corporation into a public entity. The Court stated, at 1184-1185:
In State v. Smith, 357 So.2d 505 (La.1978), this Court was called upon to determine
whether Community Advancement, Inc., a community action agency, was a state, or
public, agency. This Court identified several factors that should be used in determining
whether or not an entity should be so classified. Those factors were the following: (1)
the entity was created by the Legislature; (2) the powers were specifically defined by the
Legislature; (3) the property of the entity belonged to the public; and (4) the entity's
functions were exclusively of a public character and performed solely for the public
benefit. Smith, 357 So.2d at 507.
In Smith, we noted that a continuing theme running through the jurisprudence which had
previously addressed this issue was that entities which were classified as state agencies
were either created by the Legislature or established by the Constitution. Id.
Consequently, in Smith, we declined to hold that Community Advancement, Inc. was a
state agency for the reason that it was not legislatively created. In reaching this

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conclusion, we noted that Community Advancement, Inc. had not been established by
some special act of the Legislature, but rather that it was established by corporate charter
in compliance with general state corporations law. Moreover, we noted that the federal
Economic Opportunity Act, which authorized federal financial assistance for community
action programs, contemplated that a private nonprofit agency could be a community
action agency as defined in the federal statute.FN8 We additionally found that Community
Advancement, Inc.'s relationship with East Baton Rouge Parish, by which it was
designated a community action agency, was contractual, and that the flow through of
public funds was not enough to transform Community Advancement, Inc. into a public
agency.
Cooperative Endeavor Agreements Do No Render a Participant Nonprofit Corporation an Instrumentality
of the State or Local Government
“Economic development is a legitimate concern of government because it serves the public interest, but it is
not purely and solely a public purpose, since successful economic development serves the private interests
of business and industry as much as the public interest.” La. R.S. 33:9021(7). With this statement, the
legislature has definitively set forth the limitations that are accorded to economic development, and have
identified it as merely an ‘interest’ of governmental entities. Nowhere in 33:9020 et seq. does the
legislature announce that ‘economic development’ is a function of the government. In fact, La. R.S.
33:90216 merely recognizes the abilities of the government to address this matter of public concern through
partnership with private enterprise.
6

Louisiana Revised Statute 33:9021 provides as follows:
It is hereby found and declared that:
(1) There exists in some of the regions, parishes, and municipalities of the state a condition of substantial and
persistent unemployment, underemployment, and other forms of economic distress.
(2) Such unemployment, underemployment, and other forms of economic distress cause hardships to many individual
citizens of the state and their families, waste invaluable human resources, and adversely affects the welfare and
prosperity of the people.
(3) The maintenance of the economy of the several local governmental subdivisions of the state at a high level is
necessary to overcome these problems and is vital to the best interest of the state.
(4) The maintenance of the economy of the several local governmental subdivisions of the state at a high level is a
matter of public policy and the cooperative economic development activities and powers prescribed and conferred
by this Chapter are for a public purpose for which public money may be expended.
(5) As the maintenance of the economies of said local political subdivisions at a high level is found and declared to be
a public purpose, the state’s assistance to areas and regions of substantial and persistent unemployment,
underemployment, and other forms of economic distress is necessary for the employment of effective steps in the
planning, promotion, and financing of local economic development.
(6) State authorization to local governmental subdivisions, public corporations, and public benefit corporations to
engage in cooperative endeavors with each other, the United States or its agencies, or with any public or private
associations, corporations, or individuals for the purpose of economic development would help said local
governmental subdivisions to alleviate the conditions of unemployment, underemployment, and other forms of
economic distress presently existing in their areas, and as such, is in the public interest.
(7) Economic development is a legitimate concern of government because it serves the public interest, but it is not
purely and solely a public purpose, since successful economic development serves the private interests of business
and industry as much as the public interest.
(8) Public-private partnerships which take advantage of the special expertise and experience of representatives of the
private sector can be among the most effective programs to encourage and maintain economic development.
(9) The economic development needs of the state of Louisiana require the existence of entities which can function as
public-private partnerships, taking advantage of the congruence between the public interest and the interest of
business and industry.
(10) It is in the best interest of the state of Louisiana and of its regions, parishes, and municipalities to encourage,
create, and support public-private partnerships and to permit and encourage participation by representatives of

Revenue Ruling No. 09-001
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There is one singular purpose to be accomplished by the state legislature declaring economic development
to be of public policy and of interest to the welfare of the government (as distinct from a function of the
government). The State of Louisiana and its political subdivisions are strictly prohibited by La. Const. art.
7 § 14 from loaning, pledging, or donating the funds, credit, property, or things of value of the state or any
political subdivision to any person, association, or corporation, public or private. Without the declaration
that ‘economic development’ is a ‘public purpose’, the granting of public funds to a private entity is strictly
prohibited. Thus, the purpose of La. R.S. 33:9021 is to create a means by which public monies can be
granted to private interests without violating the Louisiana constitution.
The granting of public funds to another public or private corporation can only be accomplished through the
‘cooperative endeavor agreement’, which is a contractual arrangement between a governmental entity and a
public or private corporation. The contractual arrangement contains conditions to ensure that a public
purpose is achieved through the granting of public monies or property. However, nowhere in La. R.S.
33:9021 does the legislature convert a private corporation into an ‘instrumentality’ of state or local
government because it, or in tandem with other private interests, has agreed to perform some activity which
benefits the public. In fact, the statute clearly and expressly limits the character of the arrangement to one
of a public-private “partnership”. Thus, the legislature has spoken only to the character of the arrangement
in La. R.S. 33:9021, not to the characterization or re-characterization of the private corporation.
Requestors cannot attach such significant legal authority to the character of EDC, or any other nonprofit
economic development corporation.
In numerous instances, legislative enactment or other law establishes the characterization or classification
of an entity. The absence of a legislative or constitutional pronouncement declaring an entity as agency or
instrumentality of the state is compelling. It is even more compelling when the legislative pronouncement
declares that a particular entity is not an ‘agency of the state’. In the instant matter, the legislature has
clearly spoken as to how it deems an economic development corporation. The activities of such a
corporation do not approach the standards required to be deemed a public entity, which would include
being deemed an instrumentality of the state.
An ‘agency’ or 'instrumentality of the state' may possess similar or diverse attributes of control by the
governmental authority over it and may have varying degrees of authority accorded to it. The courts
analyze the obligations, responsibilities and degree of governmental authority the entity is authorized to
exercise to determine its classification. Critical to find an entity an ‘agency’ or ‘instrumentality’ of the
state are the factors showing that the entity is either empowered to act as the government or required to act
as the government. Thus, being required to act as the government would include the requirement to follow
the Public Bid Law or to operate under the constrictions of a civil service system. Being empowered to act
as the government would include such activities as authority to implement and enforce governmental
regulations upon private parties. Alone, the ability to accept monies and make payments does not rise to a
standard of exercising governmental acts, regardless of the public good that may result. EDC cannot be
considered an ‘instrumentality of the state’ based upon legislative enactment and established case law.
Instrumentalities Are Not Immune From Taxation
Even if it could be said that EDC was an instrumentality of the State or local government, which it cannot,
then the state sales tax would still apply under prevailing law of the U.S. Supreme Court and the Louisiana
Supreme Court. “The exemption of instrumentalities of the state or federal government from taxation does
not extend to anything outside of governmental functions.” State v. Whitney National Bank of New
Orleans, 189 La. 211, 179 So. 84, at 86 (Jan. 10, 1938) rehearing denied, citing Indian Motorcycle Co. v.
U.S., 283 U.S. 570, 51 S.Ct. 601, 75 L.Ed. 1277.

private-sector industries which may benefit from economic development programs, while providing appropriate
protections for the public interest.

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Whitney, at So.86:
Under the doctrine laid down in the case of Trinityfarm Construction Co. v. Grosjean,
State of Louisiana, 291 U.S. 466, 54 S.Ct 469; 78 L.Ed 918, (03/05/1934), the immunity
from taxation does not apply where the tax at most gives rise to a burden which is
consequential and remote and not to one that is necessary, immediate or direct. This
same doctrine was followed in Alward v. Johnson, 282 U.S. 509, 51 S.Ct. 273, 75 L.Ed
496.
In the case Helvering v. Powers, 293 U.S. 214, 55 S.Ct., 171, 174, 79 L.Ed 291, the
court, after reviewing the case of South Carolina v. U.S., 199 U.S. 437, 26 S.Ct. 110, 50
L.Ed 261, stated: ‘We see no reason for putting the operation of a street railway in a
different category from the sale of liquors. In each case, the state, with its own
conception of public advantage, is undertaking a business enterprise of a sort that is
normally within the reach of the federal taxing power and is distinct from the usual
governmental functions that are immune from federal taxation in order to safeguard the
necessary independence of the state.’
Whitney, at La. 218, So. 86.
“Necessary, immediate, or direct” does not describe the transaction of purchasing or leasing equipment for
ultimate use by a for-profit corporation, END USER. The state in this instance has agreed to provide
economic assistance to the FOR-PROFIT corporation to encourage certain employment goals be met by the
FOR-PROFIT corporation.
The business of END USER, in this example that of a for-profit corporation, or the establishment of a
nonprofit corporation to distribute public funds, or being part of a cooperative endeavor agreement which
purpose is specifically stated to be that of “private-public partnership” is of a sort normally within the reach
of the state taxing power, and is distinct from the usual governmental functions. “. . .[E]conomic
development corporations are intended to operate as public-private partnerships. . .”. La. R.S. 33:9024
(C)(1). Under the rationale of Whitney, the operation of a for-profit company or a nonprofit corporation is
not the exercise of a power necessary to carry on the business for which state or local governments are
established and the carrying on of such business is not beyond the taxing power of the state.
EDC asserts that “[a]ny sales tax levied against an EDC results in a direct reduction in the State’s
appropriation of funds to alleviate the identified economic distress present in the political subdivision.”
This is a legally unjustified argument in support of designating a private nonprofit corporation an
instrumentality of the government. To the contrary, EDC is merely increasing the amount of the public
grant of monies by demanding that it be exempt from sales tax, which increase in grant of public funds was
not part of the agreement. END USER, the ultimate user, is obtaining use of government purchased
equipment for the cost of $1 per year. It enjoys exemption from lease tax by statute for this equipment.
However, EDC is required to pay the sales tax on the purchase of the equipment. The parties to the
cooperative endeavor agreement may contractually arrange their affairs in the manner that they choose.
It is noted at this point that no Louisiana non-profit corporation engaged in a cooperative endeavor
agreement is excluded or exempted from sales or lease taxes on its purchases or leases. In fact, under two
other well established programs for economic development which target underemployment and economic
distress in communities, the Quality Jobs Program and Enterprise Zone Program, there is no exemption
from sales taxes for purchases made by the companies who engage in these economic development
programs. Both of these programs afford those corporations operating under its guidelines and within its
rulemaking to obtain sales tax rebates for a period of two years when all conditions of their agreements on
employment and/or investment are met.

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Finally, La. R.S. 301(18)(a)(iii) provides an exemption on equipment used for re-lease, and states in
pertinent part:
The term "use", for purposes of sales and use taxes imposed by the state on the use for
rental of automobiles which take place on or after January 1, 1991, and by political
subdivisions on such use on or after July 1, 1996, and state sales and use taxes imposed
on the use for lease or rental of tangible personal property other than automobiles which
take place on or after July 1, 1991, shall not include the purchase, the importation, the
consumption, the distribution, or the storage of tangible personal property to be leased or
rented in an arm's length transaction as tangible personal property. . . Beginning July 1,
2002, for purposes of the imposition of the tax levied by any political subdivision of the
state, the term "use" shall not include the purchase, the importation, the consumption, the
distribution, or the storage of any tangible personal property which is to be leased or
rented in an arm's length transaction in the form of tangible personal property.
Because the equipment was leased by EDC to END USER for a consideration of one dollar per year, it is not
an ‘arms-length transaction’ as contemplated by the statute. Thus, this exemption cannot be applied in the
instant matter.
Conclusion
Based upon the significant findings of the Louisiana Supreme Court in numerous decisions, and the facts as
they are presented in this matter, it is determined that EDC, a nonprofit economic development corporation,
is not an instrumentality of the State of Louisiana or of any other political subdivision of the state. No
distinction can be found in any authority to conclude that the analysis applied to EDC should differ from
any other entity evaluated to determine its public status. Since EDC is not an ‘instrumentality’ of the state
or other political subdivision, EDC is a “person” pursuant to La. R.S. 47:301(8) and the transaction is
subject to sales tax. Further, the purchase is not exempt under La. R.S. 47:301(18)(a)(iii) as the transaction
between EDC and END USER, in that it is made for less than market value, is not one at ‘arms length’.
Thus, the sale from SELLER to EDC is not exempt from sales taxes. Any other obligations present for
collection of sales taxes due would apply.
The assertion that sales taxes levied against an EDC results in a direct reduction in the State’s appropriation
of funds for ‘public purposes’ is legally incorrect. In actual fact, to grant a tax exemption to the EDC
transactions circumvents the legislature’s well-constructed policies of the Economic Development Act and
acts to increase the amount of the public grant of monies not intended by the grantor, in this case the State
of Louisiana.
The Department has previously expressed a similar conclusion in Revenue Ruling 01-009, published on
October 8, 2001.
If you should have any questions or need additional information, please contact the Policy Services
Division at (225) 219-2780.
Sincerely,
Cynthia Bridges
Secretary
By:

Johnette L. Martin
Attorney
Policy Services Division