Thank You for Attending Jones Walker’s Legislative Update Webinar

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Thanks to all who participated in our legislative update webinar!

Presenters from the Jones Walker State & Local Tax and Government Relations Teams provided an update on the ever-changing dynamics of the 2017 Regular Session of the Louisiana Legislature via a special webinar. With a budget shortfall for the upcoming fiscal year and a looming “fiscal cliff” in 2018, the Legislature is currently dealing with numerous spending and revenue-raising bills that will have a significant impact on businesses that operate in Louisiana, including bills to expand the sales tax base, reduce exemptions, and change the rate. Some of the proposed tax increases in this fiscal session will also likely have quickly approaching effective dates, so businesses will have to move swiftly to address the changes that affect them. Presenters also provided their insight on the political dynamics at play in this year’s Regular Session.

Now more than ever, businesses need to be actively engaged in the legislative process, as many of the tax measures working their way through the legislature and many of the longer-term tax reform measures could heavily affect businesses’ tax profiles in Louisiana.

Also, remember to SAVE the DATE for our annual State and Local Tax Seminar in Houston, Texas on October 5, 2017! More details to come!

Mississippi Governor Announces Special Session for June 5

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Mississippi Governor Phil Bryant announced Tuesday afternoon on Facebook that he would call a special session of the Mississippi Legislature to begin June 5. The 2017 regular session ended earlier this year without having approved 2018 fiscal year budgets for the Department of Transportation or the Attorney General’s office, and the special session is intended to complete that budget process.

While there has been no open discussion yet of any tax increases or similar changes and the official call has not been released, taxpayers should keep a close eye on any new revenue proposals that might be considered as part of this special session. One of the more heavily debated bills during the regular session was H.B. 480, a proposal to enact sales and use tax collection requirements on remote sellers deemed to have “economic nexus” with the state.

(See Jones Walker’s prior coverage here and here and here.) Various forms of that proposal would have diverted new use tax collections to badly needed road and bridge improvements throughout the state, which the local business community strongly supported. The bill died after the Lt. Governor publicly stated that he considered the use tax collection aspect of the bill to be unconstitutional. It is unclear whether the Legislature will reconsider this proposal or other new revenue sources as it completes the 2018 budget.

In January, the Department of Revenue proposed to adopt a similar remote use tax collection requirement through regulation, but no formal action has been taken on that proposal since the Department held a public hearing on February 15.

Jones Walker will continue to monitor these legislative and regulatory developments.

Louisiana CAT Cannot Claw Its Way Out of Committee: Bill Voluntarily Deferred by Sponsor

IMG_4317The hotly contested new Commercial Activity Tax (“CAT”) proposal in Louisiana – H.B. 628 – may now have officially run out of lives.

After hours of debate over two days of hearings in the Louisiana House Ways & Means Committee, Governor Edwards’ (D) proposed CAT was voluntarily deferred by the bill’s sponsor, Rep. Sam Jones.  The bill’s deferral came following a barrage of testimony against the bill from tax researchers, business and industry groups, and individual taxpayers, as well as a clear distaste for the bill by a majority of the Way & Means Committee members.

Despite efforts by the Governor’s administration to soften the effect of the CAT by eliminating its applicability to S Corporations and LLCs, there still remained a vocal concern from those testifying, and many Committee members, over the tax pyramiding effects of the CAT and the effect of the proposed tax on low-margin businesses in the State.  Thus, according to comments made during the hearings, the CAT became a KITTEN, but it still had claws that could adversely affect taxpayers in this current economic environment.

While this does not mean the CAT has necessarily given up all of its lives, the general consensus around the Capitol is that the votes on the House Ways and Means Committee are not lining up in favor of the CAT.

A full copy of the now-deferred CAT bill can be found here.

Also voluntarily deferred today were:

  • H.B. 563 (imposing an alternative corporate income tax based on a percentage of taxable capital and net income);
  • H.B. 647 (imposing a Louisiana Petroleum Refinery Business Tax on a “value added” basis);
  • H.B. 648 (imposing a Louisiana Business Tax on a “value added” basis); and
  • H.B. 666 (imposing a new Louisiana Margins Tax based on a percentage of “taxable margin,” or taxable margin minus the greater of cost of goods sold or compensation).

Even with these actions, interested persons should keep an eye on a myriad of other bills that could impact taxes on businesses.  The Jones Walker SALT Team will continue to monitor all of the bills as they progress during the legislative session, and we will be sure to continue to report on any new updates as they occur.

Louisiana Governor’s Proposed Commercial Activity Tax (CAT) Bill Now Filed at Louisiana Legislature

IMG_5444Louisiana Governor John Bel Edwards’ (D) administration has now filed its bill proposing to create a new Commercial Activity Tax (CAT) in Louisiana.

A full copy of the filed original bill, HB 628 (authored by Representative Sam Jones), can be found here.

According to the Governor’s previously released 2017 Budget Stabilization Plan, the proposed new CAT would raise $800M – $900M and replace Louisiana’s franchise tax.  The proposed CAT, however, has already received strong criticism from many business and industry groups throughout the state.

The Jones Walker SALT Team is currently reviewing the bill in detail, and we will be sure to provide an update on our analysis.

Jay Adams and Team Fleur De Que Compete in 9th Annual Hogs for the Cause BBQ Competition

FotoJet CollageJay Adams and his Fleur de Que teammates competed at the 9th Annual Hogs for the Cause BBQ Competition. Hogs for the Cause is a non-profit, annual fundraising music festival and barbecue competition in New Orleans that raises money for families with children fighting pediatric brain cancer.

Jay is a proud member of Team Fleur de Que which won the “Top Fundraiser” award for the 5th straight year by donating $225,000 to families struggling against pediatric brain cancer.

Teams compete in categories that include ribs, shoulder, whole hogs and “porkpourri” (an anything-goes category), Blue Plate best side, and best booth.

Please click here for more information on HFTC and how you can contribute.

Louisiana Governor Announces 2017 Budget Stabilization Plan

LegislationStanding on the edge of a $1.3 billion fiscal cliff, Governor John Bel Edwards (D‑La.) announced his 2017 Budget Stabilization Plan, which he intends to pursue during the 2017 Regular Session of the Louisiana Legislature beginning on April 10, 2017.  The Plan notes that Louisiana is operating under a broken, outdated system, “that just simply does not work for Louisiana any longer.”

The Governor’s Plan includes the following tax-related highlights:

Individual income tax proposals –

  • Eliminate the federal income deduction
  • Lower tax rates to 1%, 3% and 5%

Sales tax proposals –

  • Let the “temporary” 1% state sales tax rate sunset as planned on July 1, 2018 (- $880M)
  • Permanently repeal numerous exclusions and exemptions otherwise applicable to the remaining 4% state sales tax rate (+ $180M)
  • Expand sales tax to certain services beginning on 10/1/17 (+ $200M)

Corporate tax proposals –

  • Retain corporate income tax, but eliminate the federal income tax deduction and lower corporate income rates to 3%, 5% and 7% (+ $66M)
  • Implement a Commercial Activity Tax (CAT) based on gross receipts for all entities doing business in Louisiana (+ $800M – $900M)
    • Corporations would pay greater of the corporate income tax or the CAT
    • Entity with less than $1.5M in gross receipts would pay a minimum CAT of $250 – $750
    • CAT rate would be .35% for any entity with more than $1.5M gross receipts
  • Phase out corporate franchise tax over ten years

Tax expenditure proposals –

  • Make permanent the 28% reductions to income/franchise tax credits, exemptions, rebates and deductions (+ $192.5M)
  • Sunset or eliminate certain credits and incentives

 

The Proposed Louisiana CAT:

As anticipated, the Plan includes a proposal to implement a CAT in Louisiana to both raise revenue and replace Louisiana’s franchise tax.  However, as is always the case, the “devil” is in the details.  Based on the summary Plan, the Louisiana CAT would apply to partnerships, limited liability companies, limited liability partnerships, regular C corporations, S corporations, joint ventures, and disregarded entities.  Entities that would be exempt from the CAT include non‑profit organizations, governmental entities, certain public utilities, certain financial institutions, certain insurance companies, and business with $1.5M or less of taxable gross receipts.  The proposed tax rate for the Louisiana CAT is 0.35%.

Most receipts generated in the ordinary course of business and attributable to sales of goods or services sourced to Louisiana would be included in the CAT calculation.  Deductions for gross receipts would be limited to cash discounts allowed and taken and returns and allowances.  Gross receipts would be apportioned to Louisiana using a single-sales factor and market-based sourcing.  Rents and royalties from real property located in Louisiana would be sourced to Louisiana.  Gross receipts from sales of tangible personal property would be sourced to Louisiana if the purchaser receives the property in Louisiana, and gross receipts from sales of services would be sourced to Louisiana if the purchaser or recipient of the service receives the benefit in Louisiana.

For corporations and other disregarded or pass-through entities that have elected to be taxed as corporations for federal income tax purposes, the Louisiana CAT would serve as an alternative minimum tax to the Louisiana corporate income tax.

At this point, it is difficult to evaluate the implications of the governor’s proposals.  The Jones Walker SALT Team will continue to follow legislative developments related to the governor’s Plan and report on them throughout the upcoming 2017 Regular Session.

The CAT is out of the bag; now businesses will have to determine whether they are allergic to, or can live with, the CAT.

Fletcher and Mantle Quoted in Law360

JW 105 BIO rd8.inddJohn FleJW 105 BIO rd8.inddtcher and Matt Mantle were quoted in the Law360 article, “Taxing Remote Vendors Politically Safer Than Tax Hikes.” John cautioned that any ruling in favor of state revenue departments regulating remote retailers has implications beyond the tax area saying, “If under the due process clause, they can get somebody out of state and turn them into their collection agent, then I don’t know why that same due process clause would not prohibit other regulations on that out-of-state party.” Matt also commented, “it is something we see a lot in the state and local tax world, where if an idea gains traction, it will be readily adopted by a number of states across the entire country.” For more information on this article, please contact John or Matt.

Louisiana Discussing Possible New Gross Receipts Tax As Part of Upcoming 2017 Regular Legislative Session

IMG_5444Louisiana is at it again!

Louisiana Governor John Bel Edwards and the Louisiana Department of Revenue are now seriously discussing and considering the recommendation of legislation to create a new gross receipts tax in Louisiana.  The Governor’s administration will likely be presenting this gross receipts tax option to the Louisiana Legislature as part of the Governor’s budget package in the 2017 regular legislative session (which is a fiscal session).

The model the Edwards administration is currently considering is based on the Ohio Commercial Activities Tax (or “CAT”), although the administration is also examining various approaches utilized by other states such as Texas.

Interestingly, this new gross receipts tax proposal comes very soon after the conclusion of a multitude of recent revenue studies, fiscal review commissions, and tax policy task forces , including the Legislature’s Task Force on Structural Changes in Budget and Tax Policy  – none of which ever recommended or discussed the creation of a new gross receipts tax in Louisiana.

The Jones Walker SALT Team understands that the administration’s idea of a new gross receipts tax is a result of the Governor’s interest in immediately finding a replacement for the Louisiana corporate franchise tax, as well as the Legislature’s (and the public’s) current lack of appetite to entertain discussion of certain other key revenue raising measures, such as a repeal of the corporate income tax deduction for federal income taxes paid (the “FIT deduction”) and similar individual income tax changes.

An ultimate goal of the administration in the upcoming fiscal session would be to repeal the current Louisiana franchise tax, enact and implement a new Louisiana gross receipts tax, lower the state sales tax rate back to 4%, continue (or make permanent) certain of the statutory suspensions of many state sales tax exemptions and exclusions, expand the sales tax base to include certain additional services (including real property repairs and “digital goods and services” transactions), among other potential changes. Further, depending on the ultimate net revenue generation projected from a proposed gross receipts tax (coupled with these other tax changes), another possibility on the table would be a corresponding phase-out of the Louisiana corporate income tax.

Closely reviewed by the administration as a model for Louisiana, the Ohio CAT is a tax imposed on each person with taxable gross receipts for the privilege of doing business within the state. The CAT is imposed on the person receiving the gross receipts (subject to a minimum threshold amount), and applies to most businesses regardless of organizational structure (sole proprietorships, disregarded entities, LLCs, S-corporations, corporations, trusts, and other associations are subject to the CAT).  Net taxable gross receipts over $1 million are subject to the Ohio CAT at a rate of 0.26% (coupled with a variable Annual Minimum Tax (AMT)).

Ohio also currently uses a bright-line factor presence economic nexus test to determine which persons have nexus with the state for purpose of the CAT. This economic nexus issue, however, is currently the subject of closely watched litigation that is now before the United States Supreme Court.  Sourcing and apportionment would likely be interesting challenges for such a new tax in Louisiana.

Of additional note is the fact that the Ohio CAT has a rate of only 0.26%, while a proposed Louisiana gross receipts tax is currently rumored to have a rate that is much higher.

While it is true that Louisiana is suffering from a current fiscal crisis and several years of revenue instability, critics of the gross receipts taxes – such as COST – have in the past explained that gross receipts taxes can sometimes run afoul of the tax policy principles of transparency, fairness, economic neutrality, and competitiveness.

Taxpayers in the Louisiana and multistate business community should follow closely the upcoming regular session and be prepared to let legislators, industry groups, and/or tax advisors know of any areas of concern or other considerations regarding the implementation of a possible new gross receipts tax in Louisiana.

The Jones Walker SALT Team will of course be closely following these developments, and we will be sure to continue to report on any new updates as they occur.

Should make for an interesting legislative session.

 

PAUL H. FRANKEL

PAUL H. FRANKEL – SALT OF THE EARTH AND BEYOND

 

If you are reading this blog post, it is far more likely than not that you have been touched by the greatness of Paul H. Frankel, who passed away overnight between February 27th and 28th. In fact, without Paul’s influence on many SALT professionals over many years, myself included, this very blog and many others like it probably would not exist.

Paul is referred to as “the godfather of SALT.” There could be no better title for Paul as a SALT professional. More importantly, Paul was a friend and colleague for so many of us who call ourselves SALT professionals. Speaking of professionals, Paul was the consummate professional. He practiced what he preached – true professionalism – at all times and in all places.

I always tried to sit in on every presentation that Paul made around the country at countless seminars and forums. Many of us worked with Paul on cases in our “home” jurisdictions. In every presentation I heard Paul make, he was quick to mention the names of fellow SALT professionals who had an impact on SALT matters across the country. There was no better endorsement than to have Paul mention your name in one of his presentations. Paul was fiercely loyal to his many friends, clients, and colleagues.

Years ago, Paul and I were at a seminar together. I do not remember exactly where or when, but I do remember that we both were on the same flight to New Orleans, Paul to present at yet another seminar and me to return home. Paul asked if I could give him a ride to his hotel. Without hesitation, I quickly took on the job as Paul’s New Orleans Chauffeur. I was not going to miss the opportunity to have 30 minutes of uninterrupted time with Paul in a car. From that time on, whenever I knew Paul was coming to New Orleans, I offered to be his chauffeur. We often dined together, too. Paul was my mentor, colleague and, most of all, friend. I was his proud New Orleans Chauffeur!

Paul will be greatly missed the many people he touched, directly and indirectly. Paul’s legacy is and will continue to be far reaching for many years on many levels. We all owe Paul a debt of gratitude for all he did for so many SALT professionals and the industry as a whole.

Our collective thoughts and prayers are with Paul’s family.

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