The 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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Restores the state-level sales and use tax exemption for medical devices, beginning July 1, 2017.
- Extends the sunset for the Enterprise Zone Program through July 1, 2021.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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:
- 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.