Louisiana 2017 Special Session Possible

The Revenue Estimating Conference met Friday, January 13, 2017 to determine the budget deficit for fiscal year 2017. Based on tax collections, which are below expectations, Louisiana’s economists proposed either a $340M or $502M deficit. The Revenue Estimating Conference ultimately concluded the deficit for fiscal year 2017 is $340M, of which $313M in cuts will be needed.

Governor John Bel Edwards previously stated that any budget deficit requiring cuts in excess of $300M would require a special session by the legislature to make those cuts and/or raise revenue. Coupled with the fiscal regular session that begins in March and will likely involve large-scale tax reform discussions, 2017 is shaping up to be another interesting (and busy) year for Louisiana taxpayers.

Congress Set to Embark on Ambitious Tax Reform Package in First 100 Days of Trump Administration Fundamental Tax Reform

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The 2016 elections have laid the foundation for the most significant Congressional tax reform effort since the enactment of the Tax Reform Act of 1986. In the past several years, the leadership of the Congressional tax-writing committees (i.e., the House Ways and Means Committee and the Senate Finance Committee) have produced the blueprint for tax reform. More recently, President-elect Trump offered his own tax reform package and pledged to work with the Congress to enact tax reform this year. Against this backdrop, we anticipate that the House Ways and Means Committee will move a comprehensive tax reform bill during the first 100 days of the Trump administration. The Senate Finance Committee will likely move at a slower pace, but its leadership is equally committed to tax reform this year.

While the final version of the tax reform legislation is still under development, it may include the following elements:

  1. a compressed rate structure for individuals with a top rate of 33 percent on ordinary income, a 50 percent deduction for investment income, and a corresponding reduction in the availability of various personal credits, deductions, and exclusions
  2. a top corporate rate of 20 percent (although Trump has called for a rate as low as 15 percent) together with a similar reduction of various business tax preferences and credits
  3. a general elimination of depreciation in favor of immediate expensing for depreciable business assets
  4. a repeal of the estate tax and replacement with, for example, a capital gains tax on death, and
  5. a transition to a territorial international tax system under which foreign profits of American companies would generally not be subject to U.S. tax, together with a deemed repatriation provision for previously accumulated earnings

As a result, this legislation will likely impact virtually every taxpayer in the United States.

Our Washington office, together with our tax professionals firmwide, will be working closely with the congressional tax-writing committees on this tax reform legislation and are available to assist clients as necessary on issues that may arise during the consideration of the bill. Our client alert series will provide legal insight and timely content from our tax and government relations advisors.

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President-elect Trump’s Tax Plan

Speaker of the House Paul Ryan’s Tax Plan

Jones Walker LLP Launches Tax Reform Client Alert Series

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Our Washington office, together with our tax professionals firmwide, will be working closely with the congressional tax-writing committees on tax reform legislation and are available to assist clients as necessary. Our client alert series will provide legal insight and timely content from our tax and government relations advisors.

Sign up for our client alerts and newsletters online at our website.

Matt Mantle quoted in Bloomberg BNA regarding Louisiana law requiring parishes equal access to exemptions

JW 105 BIO rd8.inddState & Local Tax partner Matt Mantle was recently quoted in the Bloomberg BNA article “Louisiana Law Requires Parishes Equal Access to Exemptions,” regarding optional local-level exemptions in Louisiana and the recent Louisiana Supreme Court decision (Arrow Aviation Co, LLC v. St. Martin Parish, La., No. 2016-CA-1132, 12/6/16) addressing the issue of whether a pointed mandatory exemption or exclusion directed to only one local taxing jurisdiction is valid under the Louisiana Constitution. The Court addressed whether the local tax uniformity clause in the Louisiana Constitution requires the Legislature to treat every local tax authority the same, or to make every local tax authority actually act the same, when the Legislature enacts a tax exemption. Mantle provided his thoughts on the decision and the potential ramifications.

The Supreme Court seemed to make it clear that this constitutional provision applies to all tax [exemptions and] exclusions, thus if you have a tax exemption on the books that is direct[ed] exclusively to one locality and not to others, there’s a potential risk that [it] is subject to constitutional challenge. … Hopefully, if taxing authorities do decide to start collecting tax, it will only be on a prospective basis.

Louisiana Task Force Releases Recommendations to Reform Louisiana Tax Policy

The Louisiana Task Force on Structural Changes in Budget & Tax Policy recently released its recommendations to reform Louisiana’s sales and use tax, individual income tax, corporate income & franchise taxes, ad valorem property tax and economic development incentives. The highlights of the Task Force’s recommendations include:

Sales and Use Tax:

  • Expand the sales and use tax base by:
    • retaining the expanded state sales and use tax base adopted in Act 26 of the 2016 1st Extraordinary Session of the Louisiana Legislature, as amended by Act 12 of the 2016 2nd Extraordinary Session of the Louisiana Legislature (e.g., continue the tax on such things as custom software and business utilities);
    • making certain services taxable similar to services taxed in Texas, and
    • making certain digital transactions taxable (e.g., cable and satellite television, repairs to nonresidential and commercial property, web hosting and security services).
  • Reduce the sales and use tax rate from its current 5% to no more than 4%.
  • Align exemptions and exclusions, to the extent possible, at the state and local level.
  • Create a uniform system of tax administration, collection and audit for state and local sales and use taxes.
  • Allow local governments the ability to increase their sales and use tax rates without a vote of the state Legislature, but still requiring a vote of the people in the area being taxed.
  • Recodify the sales and use tax laws to ensure greater clarity and ease of compliance.

Individual Income Tax:

  • Option 1:
    • Eliminate the state deduction for federal income taxes paid.
    • Limit the excess itemized deduction for personal income to 50%.
    • Decrease tax rates by 25%:
      • 1.5% on the first $25,000 for couples ($12,500 single);
      • 3% on $25,001 through $50,000; and
      • 4.5% above $50,000.
  • Option 2:
    • Eliminate the excess itemized deduction.
    • Compress rate structure at current tax rate levels:
      • 2% on the first $25,000 for couples ($12,500 single);
      • 4% on $25,001 through $50,000; and
      • 6% above $50,000.
  • Eliminate numerous income tax exemptions and credits.
  • Impose a moratorium on any new tax credits or exemptions.

Corporate Income & Franchise Taxes:

  • Eliminate the corporate income tax deduction for federal taxes paid as outlined in the proposed constitutional amendment on the November 2016 ballot (Amendment No. 3).
  • Adopt combined reporting in place of the single-entity / separate return filing method.
  • Restructure, phase out or eliminate the corporate franchise tax.

Ad Valorem Property Tax:

  • Provide local governmental authorities a role in granting industrial tax exemptions.
  • Expand use of payment in lieu of taxes (PILOT) arrangements for local governments considering property tax exemptions to attract economic development.
  • Gradually eliminate inventory taxes over a 10-year period accompanied by the elimination over a five-year period of the state income and franchise tax credit paid on inventory.
  • Limit the property tax exemption on property owned by non-profits to that used exclusively for the tax-exempt purposes of the non-profit.

Economic Development Incentives:

  • Establish sunset review periods for all incentive programs and the elimination of underutilized or inactive programs.
  • Louisiana Economic Development should continue to monitor and regularly report on the performance of all its incentive programs.
  • Retain the Motion Picture Investor Tax Credit as a non-refundable tax credit incentive with both discounted redemption and transferability as alternative options for use.
    • Implement a modified front-end cap to control the number of credits issued from inception and implement other mechanisms to encourage reasonably timely use of the credit.

 

Backstrom Quoted in Law360, ‘La. Voters Refuse to Get Rid of Corporate Tax Deduction’

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Jones Walker SALT Team Leader, Bill Backstrom, was quoted in the Law360 article, “La Voters Refuse to Get Rid of Corporate Tax Deduction” regarding the rejected ballot measure to scrap the corporate tax deduction for federal income taxes paid. The measure was rejected by 56.1 percent of Louisiana voters on Tuesday, November 8.

Bill said that the vote represents a setback for Louisiana Governor Edwards’ efforts to stabilize the state’s complicated tax system.

As a result of the failure of the constitutional amendment, the current Louisiana corporation income tax rates will remain in place, and corporate taxpayers will continue to be entitled to a deduction for federal income taxes paid by the corporate taxpayer

Bill Backstrom Presents at COST Annual Meeting

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Jones Walker SALT Team partner, Bill Backstrom, recently presented on the panel “Why Stop at One? The Joys and Pains of Multistate Tax Litigation” at the Council on State Taxation’s 47th Annual Meeting in Las Vegas.

The panel discussed challenging tax assessments in a multistate setting often involves addressing common issues, such as choice of forum, picking your (legal) battles, and privilege concerns. If navigated successfully, a single victory could be the first domino to topple as other states fall in line. If unsuccessful, however, a taxpayer could just as easily get tangled in a morass of duplicitous discovery and fruitless litigation. The speakers shared advice on attaining the first result and avoiding the second.

COST’s 2½ day program covered all types of state and local taxes that business taxpayers are confronted with today. In addition to the ever popular audit sessions and state chamber of commerce roundtables, conference topics ranged from income/franchise, property and sales & use taxes to payroll & employment tax and unclaimed property issues.

Jones Walker SALT Memorializes Louisiana Collectors’ Attorney Bob Rainer

Robert R. Rainer, known as “Bob,” passed away on Sunday, October 9th, 2016. Bob was an iconic fixture in Louisiana state and local taxes. He usually represented tax administrators and the Louisiana Department of Revenue. In fact, he represented most parish tax administrators throughout the state. As such, Bob was an institutional adversary of the Jones Walker SALT Team and of many taxpayers. Bob always advocated for his clients with tremendous zeal and was a worthy opponent. Despite this inherently adversarial relationship, the Jones Walker SALT Team has always viewed Bob as a colleague and a friend. Bob always conducted himself as a professional and a gentleman. His presence in Louisiana tax matters will be missed, and the void he leaves behind significant.

And that’s a wrap!

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Thank you for attending our 8th Annual Jones Walker LLP State & Local Tax Seminar in Houston, Texas, to discuss tax law updates in Louisiana and Mississippi! In 2016, Louisiana made some of the most drastic tax changes in history, and we were pleased to review these changes with you as they continue to impact businesses.

We would once again like to thank Kimberly Robinson, our former Jones Walker SALT Team member and current Secretary of Louisiana Department of Revenue, for being our featured luncheon speaker. Secretary Robinson not only shared valuable information about the recent tax changes, but she also detailed the changes at the Department of Revenue and how those changes will affect taxpayers.

Please stay tuned to our Cooking with SALT blog for additional updates on the topics we discussed at the seminar, as well as those for which you requested more follow up information.

We sincerely appreciate your attendance and the opportunity to assist you in your legal tax needs.

If there are other specific tax issues that would be of interest to you in 2017, please let us know!

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