Is bulk water pumped into a vessel's built-in potable or ballast tanks taxable in Louisiana?

Plain-English summary

Louisiana Revenue Ruling 12-001 said bulk water pumped into a vessel's built-in potable or ballast tanks qualified for the statutory water exemption.

A ship's tank was not the kind of “container” that made water taxable. The ruling limited that term, in context, to containers such as bottles, jugs, and cartons.

The exemption applied under the stated facts whether the water was used by the vessel's crew, used as ballast, or pumped to a rig for potable water or drilling operations.

Louisiana's water exemption

The ruling described water as exempt from state and local sales and use tax except for:

• mineral water;
• carbonated water; and
• water put in bottles, jugs, or containers.

The Louisiana Constitution separately protected water sold directly to a consumer for residential use. That constitutional protection did not control the vessel transaction because the water was not sold for residential use.

The Department instead applied the statutory exemption in La. R.S. 47:305(D)(1)(c).

Why a ship's tank was not a taxable container

The purchased water was pumped into potable-water tanks or ballast tanks built into and forming part of the vessel.

Although “container” could be read broadly, LAC 61:I.4401 described taxable containers by examples such as a jug, bottle, or carton. The ruling used that context to conclude that an integral vessel tank was not the type of container contemplated by the exception.

Purchaser-supplied containers can still matter

The ruling discussed Gard Limited Liability Company v. Calcasieu Parish School Board. That case held that the bottled-or-containerized-water exception could not be avoided merely because the purchaser supplied the container.

RR 12-001 did not reject that principle. It distinguished the vessel's built-in tanks from the bottles, jugs, and similar containers covered by the exception.

Covered uses in the ruling

The exempt bulk water served three stated purposes:

1. crew bathing, cooking, and drinking through the vessel's plumbing;
2. ballast used to balance the vessel; and
3. transfer to rig water tanks for potable use or drilling operations.

What this means for you

Vessel operators

Document that the water is delivered in bulk into tanks built into the vessel and how the water is used.

Marine water suppliers

The ruling distinguished bulk pumping into an integral ship tank from selling water in bottles, jugs, cartons, or similar portable containers.

Accountants and tax professionals

Do not rely solely on who supplies the receptacle. The ruling focused on the type of receptacle and treated the built-in vessel tank as outside the taxable-container exception.

Common questions

Q: Was crew drinking water exempt even though it was not residential water?

A: Yes. The ruling applied the statutory water exemption rather than the Constitution's residential-use provision.

Q: Did ballast use change the result?

A: No. Bulk water placed in the vessel's ballast tanks was also exempt under the ruling's facts.

Q: What about water pumped from the vessel to a drilling rig?

A: The conclusion included water later used as potable water or in drilling operations on a rig.

Q: Is all water sold in a purchaser's container exempt?

A: No. The ruling cited a case holding that purchaser-supplied containers do not avoid tax when the water is carried in the type of container covered by the statutory exception.

Citations and references

• La. Const. art. VII, section 2.2 — residential water exemption
• La. R.S. 47:305(D)(1)(c) — state sales and use tax exemption for water
• La. R.S. 47:337.9(B)(8) — local sales and use tax exemption for water
• LAC 61:I.4401 — bottles, jugs, cartons, and similar containers
• Gard Limited Liability Company v. Calcasieu Parish School Board, 693 So.2d 10 (La. Ct. App. 1997) — purchaser-supplied container did not avoid the exception
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 12-001

Original ruling text

Revenue Ruling
No.12-001
May 17, 2012
Sales Tax
Taxability of Bulk Sales of Water Put in a Ship’s Reservoir
In Louisiana, the sale or use of water is taxable only when it is (1) mineral water, (2) carbonated
water, or (3) water put in bottles, jugs, or containers. Article 7, § 2.2 of the Louisiana
Constitution provides that no state or local sales and use taxes apply to sales or purchases of
water sold directly to the consumer for residential use. La. R.S. 47:305 D(1)(c) and
47:337.9 B(8) exempt from taxation all sales or use of water except for “mineral water or
carbonated water or any water put in bottles, jugs, or containers, all of which are not exempted.”
Issue
Questions have arisen concerning the taxability of sales of water which is held in large storage
tanks primarily for use on vessels. Taxation of such sales is not prohibited by the Constitution,
as the water is not “sold directly to the consumer for residential use.” Are such sales not
exempted under the statute because the water is “put in … containers …”?
Facts
The taxpayer charters a vessel and crew for one charge. Additionally, fuel, water, and other
consumables are purchased by the taxpayer and billed to the taxpayer as separate transactions.
The water is pumped into potable water tanks or ballast tanks, which are built into and are part of
the vessel.
There are multiple uses for the water. First, the vessel’s crew uses the potable water for bathing,
cooking, and drinking. The potable water travels from the potable water tank through the
vessel’s internal plumbing system. Second, it is used in the operation of the vessel itself. In this
case, it is pumped into ballast tanks and used to balance the vessel. Third, it is pumped off the
vessel to water tanks on rigs, where it is used as potable water or in drilling operations.
Analysis/Discussion
Although the Constitution’s prohibition against taxation of water sold directly to the consumer
for residential use did not go into effect until 2003, La. R.S. 47:305 has contained a sales and
use tax exemption for water since it was enacted in 1948. Originally the wording was a little
different. It applied to “water (not including mineral water or carbonated water or any water put
up in bottles, jugs, or other containers, all of which are not exempted) ….”
A 1984 amendment to R.S. 47:305 made numerous “nonsubstantive” changes, including the
change of the wording of the water exemption to its present form. In Gard Limited Liability
Company v. Calcasieu Parish School Board, 96-1520 (La.App. 3 Cir. 4/2/97), 693 So.2d 10, the
court held that the exception to the exemption cannot be circumvented by requiring the purchaser
to provide the container. The court agreed with the taxing authority that “the exemption does not

apply to water which must be carried from the point of sale in a container,” no matter who
supplies the container.
While “container” can have a broad meaning, since February 1987 LAC 61:I.4401 has explained,
“Water (but not including mineral or carbonated water) is also exempt provided it is not placed
in a container such as a jug, bottle, or carton” [emphasis added]. Where a statute is ambiguous,
a long-settled contemporaneous construction of the statute by those charged with administering it
is given substantial and often decisive weight in its interpretation. The regulation shows that for
many years the word “containers” in the R.S. 47:305 water exemption has been interpreted in
context to mean containers such as bottles, jugs, and the like.
The water or ballast tanks on a ship are not the type of containers to which the statute refers.
Conclusion
Under the facts as stated above, R.S. 47:305 D(1)(c) does apply to exempt the bulk sale of water
to fill a vessel’s tanks for use by the crew, for balance of the vessel, or for use in drilling rig
operations. A ship’s tank is not the type of container that causes sales of water to be taxable
when put therein.
Cynthia Bridges
Secretary

A Revenue Ruling is issued under the authority of LAC 61:III.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 is statute, regulation, declaratory ruling, or court decision.