Much Ado About Nothing: Louisiana’s 2017 Regular Session Legislative Wrap-Up

IMG_5444The Louisiana Legislature’s 2017 Regular Session has now concluded, and as previously reported, numerous tax measures were proposed.  Ultimately, however, much of the proposed legislation addressing long-term tax reform was largely rejected by the Legislature during the Regular Session, leaving questions currently unanswered as to how the state will ultimately address the long-term issue of its current taxing and spending structure, as well as the short-term issue of the $1.3 billion “fiscal cliff” looming in the next fiscal year.

Tax Bills Passed by the Legislature in the 2017 Regular Session

Notwithstanding the title of this article, the following notable tax bills were passed by the Legislature and sent to the desk of Governor John Bel Edwards (D) for review and signature (or veto):

Corporate Income/Franchise Taxes:

HB 313

  • Extends the inventory tax credit to certain property held by retailers engaged in the short- term rental of such property.
  • Defines “inventory” to include any property available for short-term rental, which will ultimately be sold by the retailer.
  • Applicable short-term rentals include: a rental less than 365 days, a rental for an undefined period, or a rental under an open-ended agreement.

HB 425

  • Removes the restriction against taxes paid under protest concerning claims for the tax credit for ad valorem taxes paid with respect to certain offshore vessels.
  • Further provides that if a taxpayer does pay ad valorem under protest, the taxpayer is required to notify the Department of Revenue when the judgment is final and the department then has two years to recapture the credit after receiving notice of a final judgment.

HB 555

  • Provides a deduction against corporate income tax for amounts received as dividends from a related member in a “regulated group of entities.”
  • “Regulated Group of Entities” is defined to apply the proposed dividends received deduction to certain entity groups in which one of the members is either a telecommunications provider or an electric utility in Louisiana.

SB 182

  • Limits the refundability of excess inventory tax credits to treat those taxpayers who file a consolidated federal tax income tax return as one single taxpayer for credit cap purposes.

SB 243

  • Reduces the tax credit for the purchase of alternative fuel vehicles from 36% to 30% of the vehicle cost.
  • Imposes additional requirements on the tax credit for alternative fuel commercial vehicles such as registration and primary use in Louisiana.
  • Changes the tax credit from refundable to nonrefundable beginning January 1, 2018.

Sales/Use Taxes:

HB 264

  • Expands the types of construction contracts excluded from the imposition of a new sales and use tax levy if entered into and reduced to writing prior to the effective date of such levied tax.
  • Protected construction contracts will include the sales of materials or services in lump sum, unit price, fixed fee or guaranteed maximum price contract contracts.

HB 601

  • Establishes the Louisiana Uniform Local Sales Tax Board as a political subdivision of the state for the purpose of promoting certain uniform procedures and policies concerning the collection and administration of local sales and use taxes, and to provide policy advice and support to local sales and use tax collections.
  • Establishes the Louisiana Sales and Use Tax Commission for Remote Sellers as an independent agency within the Department of Revenue for the administration and collection of state and local sales and use taxes related to remote sales, and to provide for policy uniformity and simplicity in sales and use tax compliance for remote sellers.
  • Provides details of the duties, operations, and funding for both of the proposed political subdivisions.

SB 180

  • Restores the state-level sales and use tax exemption for medical devices, beginning July 1, 2017.

Credits/Incentives:

HB 237

  • Extends the sunset for the Enterprise Zone Program through July 1, 2021.

HB 300

  • Reduces the research and development tax credit rate to 5% of the difference, if any, of the Louisiana qualified research expenses for the taxable year minus the “base amount” for a taxpayer that employs more than one hundred or more persons, 10% for employment of fifty to ninety-nine persons, 30% for employment of less than fifty persons.
  • “Base Amount” is defined as 80% of the average annual qualified research expense during the three preceding taxable years if taxpayer employs 50 or more persons or 50% if taxpayer employs less than 50 persons.
  • Allows taxpayers participating in the Small Business Technology Transfer Program or the Small Business Innovation Research Grant program to sell or transfer their unused credits to another Louisiana taxpayer if both parties.

HB 454

  • Extends the sunset date of the Angel Investor Tax Credit through July 1, 2021, reduces the amount of the credit from 35% to 25% of the investment, and reduces the number of years over which the credit shall be taken from five to three years.
  • Limits the total amount of Angel Investor Tax Credits granted by the state in any calendar year to $3,600,000 and provides that if there is a balance at year end, it will be carried forward to the subsequent year.
  • Reduces the annual limit per business from $1 million to $720,000, and the overall limit per business from $2 million to $1,440,000.

SB 177

  • Provides a withholding requirement for the Motion Picture Tax Credit, requiring the payor to withhold taxes, excluding amounts otherwise not subject to withholding requirements, at the rate determined in accordance with an employee’s withholding allowance certificate, or the highest individual rate in effect at the time if there is no employee withholding allowance certificate.

SB 150

  • Removes the sunset date of July 1, 2018 and makes permanent the reductions of the investor tax credits and total annual program costs as provided in Section 2 of Act 125 of the 2015 Regular Session.
  • Eliminates the requirement of the State Bond Commission approval for such tax credits.
    Extends both the investor credit and the import-export cargo credit to July 1, 2021.

SB 172

  • Provides a sunset date of January 1, 2022  for the following income and corporation franchise tax credits:
    • Offset against tax based on insurance premiums
    • Rehabilitation of historic structures
    • Conversion of vehicles to alternative fuel usage
  • Also proposes a sunset date of January 1, 2022, for other income and corporation franchise tax credits such as the Louisiana Citizens Property Insurance Corporation Assessment.
  • Eliminates the 36% credit for the value of the property directly related to the alternative fuel.
  • Increases the value of the credit for the purchase of an alternative fuel vehicle from 7.2% to 10 % and changes the per vehicle credit cap from $1,500 to $2,500.

SB 178

  • Ends the authority of the Department of Economic Development to contract with a corporation to allow the use of a single sales factor in determining Louisiana corporation income and franchise tax liability as of July 1, 2017.
  • Eliminates the green job tax credits, urban revitalization zone exemption, and the technology commercialization tax credits as of July 1, 2017.
  • Proposes a sunset date of both the Angel Investor Tax Credit Program and the Sound recording investor tax credit as of July 1, 2021.
  • Proposes a repeal of the Motion Picture Incentive Act.

HB 187

  • Increases the amount of credit for a leased solar panel system from 38% of the first $20,000 of the cost of purchase to 38% of the first $25,000 of the cost of purchase.
  • Proposes a supplemental credit for taxpayers whose claim for the solar energy credit was denied or was not receive in full because of the annual $10 million dollar cap on the program, where qualifying taxpayers can receive credit for equipment purchased installed on or before December 31, 2015.
  • Terminates the solar energy system tax credit as of January 1, 2016.

HB 646

  • Extends the sound recording investor tax credit program to July 1, 2021 and additionally proposes credits for 10% of payroll for investors who create fewer than 10 new jobs, each with a minimum annual salary of $35,000 per year and 15% of payroll for investors who create 10 or more new jobs, each with a minimum annual salary of $35,000 per year.
  • Provides a new QMC (entity authorized to do business in Louisiana, engaged directly or indirectly in the production, distribution and promotion of music, certified by the secretary) payroll credit program beginning July 1, 2017.

SB 183

  • Provides termination dates for certain tax incentive and rebate programs such as:
    • Enterprise Zone Program – July 1, 2021
    • Cooperative endeavor agreements with a mega-project for the rebate of severance tax – July 1, 2017
    • Quality Jobs Program – July 1, 2022
    • Competitive Projects Payroll Incentive Program – July 1, 2022
  • The purpose of these sunset dates are to “force a discussion” concerning each credit program’s effectiveness in generating economic growth and/or benefit for the state.

SB 79

  • Provides amendments to certain income tax credits/sales tax exemptions and includes additional qualifications for such programs.
  • Repeals the sunset date of June 30, 2018 and thus makes permanent the 28% “haircut” reductions to certain tax credits, such as:
    • Angel Investor tax credit program
    • Digital interactive media and software tax credit
    • Sound recording investor tax credit
    • Musical and theatrical production income tax credit
    • Credit for conversion of vehicles to alternative fuel usage
    • Ports of Louisiana tax credit
    • Credit for “green job industries”
    • Proposed law includes a retroactive effective date of January 1, 2017

Ad Valorem Property Tax:

SB 140

  • Constitutional Amendment to exempt from ad valorem taxation certain property delivered to a construction site for the purpose of incorporating the property into any tract of land, building, or other construction as a component part, including the type of property that may be deemed to be a component part once placed on an immovable for its service and improvement pursuant to the provisions of the Louisiana Civil Code.
  • The exemption would remain effective until the construction project is complete and can be used or occupied for its intended purpose.
  • Includes an exception for projects constructed in two or more distinct phases, where if one phase is complete for its intended use, the property of such phase can be properly assessed.

The 2017 Second Extraordinary Session of the Legislature

At the close of the 2017 Regular Session, the fiscal year budget had not been agreed upon and set by the Legislature.  As a result, a “precautionary” 2017 Second Extraordinary Session of the Legislature that was previously called by the Governor did in fact convene at 6:30 PM on June 8th (immediately after the 2017 Regular Session ended).  The Governor, however, restricted his call in this second special session to outlays and appropriations; taxes are off the table.  The complete call is available by clicking here.

Future Special Sessions

Given the looming “fiscal cliff” in next year’s budget resulting from the scheduled roll-off of incoming revenue from the additional 1% “clean penny” state sales tax, it is almost assured that another special session will be called by the Governor in 2018 to again address revenue needs of the state and possible long-term tax reform.  As we move closer to a 2019 gubernatorial election year in Louisiana, budget issues, tax reform, and the raising of taxes will surely continue to be infused with a heavy dose of politics from all sides.

The Jones Walker SALT team will continue to monitor and report on the Louisiana Legislature’s efforts in the current 2017 special session and the future legislative sessions to come.

Thank You for Attending Jones Walker’s Legislative Update Webinar

iStock_000019834746_Large

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

iStock_000024072281_Large

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.

 

LexBlog