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!

Q&A with Kimberly Robinson, Secretary of the Louisiana Department of Revenue

SALT-Brochure-2016-vx-headerSecretary of the Louisiana Department of Revenue and former Jones Walker LLP State & Local Tax Partner, Kimberly Robinson, sat down with our own Bill Backstrom and Jay Adams to discuss a few of the items that she will discuss at the Jones Walker SALT Team’s annual seminar in Houston, Texas on Thursday, October 6, 2016.

 

Q: What has been your biggest challenge returning to public service?

The greatest challenge was starting work in the middle of a budget crisis. Within days of getting to work at Louisiana Department of Revenue (“LDR”), my management team and I were tasked with providing guidance for the two special legislative sessions and the Task Force on Structural Changes in Budget and Tax Policy. In addition, there is also a Task Force on Ad Valorem Tax Structure, a Sales Tax Streamlining and Modernization Commission and a Transportation Infrastructure Funding Task Force. Every corner of the state and local tax system in Louisiana is under review. Fortunately, I joined a team of knowledgeable, experienced professionals who supported me in providing the information that the Governor’s Office, the Division of Administration and the Legislature needed.

Q: What has been the most rewarding aspect of returning to public service?

Working with the Edwards Administration and the team of dedicated professionals at LDR is the most rewarding aspect of my return to public service. Our people are our greatest strength.

Q: What have been the biggest administrative challenges you faced as a result of the recent and historical legislative sessions?

It is the same challenge facing every other agency head in state government right now; making the most of limited resources to continue providing the level and quality of service that Louisiana residents expect and deserve. Of course, the implementation of the myriad of legislative changes to the tax code has been a very unique challenge. We have issued policy guidance on just about every tax administered by LDR, prepared new returns, re-programmed our system for all the changes, and conducted seminars around the state.

Q: What was the most controversial legislative change that has or will affect businesses, the energy industry in particular, in Louisiana?

The sales tax rates and exemptions being effective for three months and changing again…need I say more. Beyond the sales tax changes, the changes to the corporate income and franchise taxes are fairly extensive. Louisiana now has an add back statute, market-based sourcing, and a single-sales factor for apportionment. Did I mention the franchise tax now applies to any entity electing to be taxed as a corporation for income tax purposes? We are moving forward with rule making process and I expect to receive a great deal of feedback from the energy industry during that process.

Q: Any predictions for the 2017 fiscal session?

The only prediction I feel safe in making is that we will continue to see lawmakers and the administration working hard to ensure the state’s tax system meets the needs of all stakeholders, including individual and business taxpayers, tax professionals and public institutions. Easier said than done, certainly.

 

For more information or to register, please contact Courtney Farley at 713.437.1807 or cfarley@joneswalker.com.

 

A “Quest” for Certainty—Court of Appeal Affirms Louisiana Was a “Location-of-Performance” State All Along

In Quest Diagnostics Clinical Laboratories, Inc. v. T.A. “Tim” Barfield, Jr., Secretary, Department of Revenue, State of Louisiana; and the State of Louisiana, Louisiana Court of Appeal, First Circuit, Docket No. 2015-CA-0926 (September 9, 2016), the Louisiana Court of Appeal, First Circuit recently confirmed that Louisiana was a “location-of-performance” state when sourcing service-based receipts for corporate income tax apportionment purposes. We say “was” because the Louisiana Legislature amended the underlying statute this summer to expressly adopt market sourcing, in Act No. 8 of the Second Extraordinary Session. This decision, however, may present refund opportunities for numerous taxpayers who prior to 2016 may have sourced to Louisiana a wide range of receipts – perhaps not limited to services alone – based on a market-sourcing method.

Hurricanes Scramble Tax Returns, Too
Prior to Hurricane Katrina, Quest Diagnostics Clinical Laboratories, Inc. (“Quest”) performed medical diagnostic testing services such as blood testing and screening at a regional laboratory near New Orleans. Because its patients and the laboratory servicing them were both within the state, its Louisiana sales factor essentially would have been the same under either a traditional cost-of-performance or market-sourcing scheme. Thus, there was no need to make such a distinction when gathering its apportionment data.

After Katrina destroyed the Louisiana lab in August 2005, the company relocated its operations and most of its employees to another facility in Texas, and it began processing the specimens from its Louisiana patients at that lab. Following Katrina, however, the company did not immediately update its apportionment data collection practices to account for the fact that the services were no longer being performed in the same location as the patients.

As a result of this oversight, for the latter part of 2005 and all of 2006 it mistakenly attributed to Louisiana considerable revenue for services which in fact were performed in Texas. Quest realized its data collection error during a subsequent audit, and filed amended returns solely to correct its sales numerator to reflect the out-of-state performance of those services. The Department refused to process the amended returns, effectively denying the refunds generated by this apportionment change.

The “Quest” for Sourcing Certainty
Prior to the extensive legislative amendments enacted this summer, service enterprises apportioned their income based on a two-factor payroll and sales ratio under La. R.S. 47.287.95(D), which explicitly sourced to Louisiana “the revenue from services performed in this state.” That subsection, however, defined “service enterprises” only to include those service businesses “in which the use of property is not a substantial income producing factor.” The immateriality of property in generating these service enterprises’ income was the basis for using a two-factor rather than a three-factor formula. In the Court’s words, “[t]hat the legislature would do this makes perfect sense.”

The Department successfully argued that Quest’s reliance upon highly-specialized technical equipment in rendering its diagnostic testing services removed it from Subsection (D), forcing it instead to use the catch-all three-factor formula set forth in Subsection (F). That subsection applied to any taxpayers not covered by the industry-specific provisions of Subsections (A) through (D), including service providers for whom property is a substantial income producing factor. Subsection (F) sourced to Louisiana all “net sales made in the regular course of business” as well as “other gross apportionable income attributable to this state.” It did not, however, directly cross-reference the location-specific sourcing rule under Subsection (D) or contain its own guidance in this regard.

The Department first argued that Quest’s services were “net sales made in the regular course of business” and sourced to Louisiana, but the Court rejected this position based on the Department’s own regulation that clearly limited that phrase to sales of tangible property, not sales of intangible items such as service.

The Department then argued that the phrase “other gross apportionable income attributable this state” as used under Subsection (F) required sourcing based on the patient’s location (market sourcing), even though the virtually identical phrase used in Subsection (D) clearly required sourcing based on the “location of performance.” The Court rejected this argument, stating that it could find “absolutely no indication” that the Legislature intended to source services differently under Subsections (D) and (F) when the only difference between those provisions was whether to include or exclude a property factor from the apportionment formula.

Indeed, we can conceive of no plausible reason why the sourcing of income for the
revenue factor in Subsection (F) would be different from that in Subsection (D).”

Because Subsection (D) unambiguously required use of a “location-of-performance” sourcing method, that same method must be used under Subsection (F). Quest argued, and the Court agreed, that absent a statutory amendment by the Legislature, the Department had no authority to source these Texas-based receipts to the state, and the Court awarded Quest the refund requested on the amended returns.

Refund Claims May Exist
For periods prior to 2016, the Quest decision confirms that Louisiana has always been a location-of-performance state in sourcing service based receipts. To the extent any taxpayers reported those receipts to the state on a market-sourcing method when a location-of-performance method would have produced a lesser tax liability, those taxpayers should investigate their data to determine if refund claims may exist. Refund claims for the 2012 income tax year will generally prescribe on December 31 of this year.

Jones Walker LLP SALT Team Heads Back to Houston for 8th Annual SALT Seminar!

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The Jones Walker State & Local Tax Proudly Presents the 8th Annual SALT Seminar in Houston, Texas on October 6, 2016!

Lights… camera… action! The Jones Walker LLP State & Local Tax team is back with a day-long program on October 6, 2016, titled Cooking With SALT Goes to the Movies. The team will screen some big hits in the morning, including state and local tax procedure and new legislative developments in Louisiana and Mississippi. In 2016, Louisiana made some of the more drastic tax changes in recent history. The cast will critique these recent tax law changes in depth.

Our featured guest luncheon speaker is Kimberly Robinson, Secretary of Louisiana Department of Revenue. Kim, a former Jones Walker SALT team member, will discuss not only the recent tax changes, but also changes at the Department of Revenue and how those changes will affect taxpayers.

We will then have a behind-the-scenes look at some “short movies” focusing on such topics as negotiating incentives, managing an audit, protest hearings, trials, and appeals. We’ll have different takes with director comments. In the afternoon breakout sessions, attendees will choose their genre: sales/use tax or income/franchise tax.

We’ll wrap up with an epilogue addressing some additional hot topics and have a post-screening Q&A, where you can meet the cast and directors and ask questions.

Throughout the day, we will be sure to address all of the star-studded issues that the paparazzi have been following over the course of the year, as well as previews of upcoming “shows”. Certain lucky viewers in attendance will receive prizes, and one lucky person will win a movie prize pack!

This program is intended for intermediate to advanced practitioners in state and local tax administration and those doing business in Louisiana, Mississippi, and along the Gulf Coast. There are no prerequisites for this seminar. The full day’s program has been recommended for 9 hours of Texas CPE.

WHEN:

October 6, 2016
8:30 a.m. to 5:00 p.m.

WHERE:

Hilton Americas-Houston
1600 Lamar Street
Houston, Texas 77010

REGISTRATION FEE:

$150 on or before September 28
$175 on or after September 29
Company group rate:
$150 for first registrant, $100
for each subsequent registrant

For more information or to register, please contact Courtney Farley at 713.437.1807 or cfarley@joneswalker.com.

Legal Deadlines in Louisiana Temporarily Suspended

As a result of the flooding throughout Louisiana, Governor John Bel Edwards issued Executive Order JBE 2016-053 to suspend deadlines in legal, administrative and regulatory proceedings.  The suspension is retroactive from Friday, August 12, 2016 and continues through Friday, September 9, 2016, unless amended, modified, terminated or rescinded by the Governor.

The Louisiana Department of Revenue issued Revenue Information Bulletin 16-046 to confirm that the suspension applies to all tax assessments issued by the Secretary of the Department.  The delays that are suspend include the prescriptive period for a taxpayer to file a petition for the redetermination of an assessment with the Board of Tax Appeals, as well as all time delays for appeals in Louisiana courts in matters filed by taxpayers and the Department.

Property Purchased or Leased for Use Outside of Louisiana and Offshore Addressed in New Louisiana Guidance

The Louisiana Department of Revenue issued Revenue Information Bulletin No. 16-034 (July 14, 2016) to address the taxability of items of tangible personal property purchased or leased for use outside of Louisiana and offshore.

Louisiana Revised Statute 47:305(E) provides that it is not the intention of any taxing authority to levy a tax upon articles of tangible personal property imported into this state, or produced or manufactured in this state, for export; nor is it the intention of any taxing authority to levy a tax on bona fide interstate commerce.  The corresponding regulation, LAC 61:I.4401(I), provides that specific pieces of property, which have been clearly labelled for transshipment outside the taxing jurisdiction at the time of manufacture or importation into the taxing jurisdiction, meet the requirements of La. R.S. 47:305(E), even though the item may be stored for an indefinite period of time.  This exemption includes items purchased for use in an offshore area beyond the territorial limits of Louisiana.

With respect to purchases for use in the federal offshore waters, the RIB requires that the invoice issued to the purchaser should evidence that the item has been purchased for use in a federal offshore area and identify in the destination area of the invoice:  (1) the federal lease number, (2) area and (3) block number.  If this information is not available, the invoice should note that the item is being shipped to the purchaser’s yard to await shipment to the purchaser’s platform in a federal offshore area.

With respect to a taxpayer’s importation of property from its yard in another state to a yard in Louisiana to be used in an offshore area beyond the territorial limits of Louisiana, then the taxpayer should document on the material transfer sheet the following:  (1) the federal lease number, (2) area and (3) block number.

With respect to an item leased for use both in interstate and intrastate commerce, such property may be subject to state lease tax depending upon its usage for each lease payment billing cycle. The amount subject to Louisiana lease tax is determined by a ratio of the property’s operational use in Louisiana intrastate commerce versus total operational use of both interstate and intrastate commerce. The Department set forth two percentages that will either exempt the entire lease payment or trigger full state lease tax on the lease payment:

  • If the average operational in Louisiana intrastate commerce is less than or equal to 10 percent of the total operational usage during a lease payment billing cycle, then the leased property is deemed to be used exclusively in interstate commerce, and no state lease tax will be due for this transaction.
  • If the average operational usage in Louisiana intrastate commerce is greater than or equal to 90 percent of the total operational usage during a lease payment billing period, then the leased item is deemed to be used in Louisiana intrastate commerce and state lease tax is due upon the entire payment.

Finally, the Department specifically notes the provisions of this Revenue Information Bulletin do not apply to ships of 50-ton displacement and ship’s supplies, which are exempt from state sales tax pursuant to La. R.S. 47:305.1.

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