Louisiana’s Proposed Sales Tax Centralization Constitutional Amendment Has Passed the Legislature and Now Goes to a Vote of the People

Louisiana House Bill 199, which would create a more centralized state and local sales tax collection system in Louisiana, has now been adopted by the House and Senate after negotiation in conference committee.

The legislative information regarding HB 199 can be found here.

The applicable  conference committee report proposed by the appointed conference committee conferees, and subsequently adopted by the Legislature, can be found here.

The proposed constitutional amendment will now go to a vote of the people.

This is a good first step in order to move the State toward constitutional validity in its state and local sales tax systems. There is, of course, more work to do.

Jones Walker’s SALT Team will continue to follow and report on this proposed constitutional amendment, as well as the other major Louisiana tax reforms being undertaken this legislative session.

New Louisiana De Minimis Mobile Workforce Exemption Bill Goes to Conference Committee

The Louisiana Legislature has now sent to conference committee proposed legislation (SB 157) that would exempt the wages of certain nonresident employees from Louisiana individual income taxation, and their employers from withholding and reporting requirements, if the employees only worked in Louisiana for fewer than 25 days in a calendar year.

If SB 157 becomes law, beginning in 2022, the exemption would apply to wages paid to an employee who performed work-related duties in Louisiana for fewer than 25 days in a calendar year. If, however, the employee worked in the state for more than 25 days in a year, the employer would be required to withhold and remit tax to Louisiana for the entire year, including the first 25 days.

The bill originally had a threshold of 30 days but was amended on the Senate floor before approval.  Subsequent House amendments to the bill were rejected by the Senate; thus the bill was sent to conference committee for further discussion and negotiation among the following six appointed members of the Legislature as conferees:  Rep. Bishop (Chair of the House Ways & Means Committee), Rep. Stefanski, Rep. Beaullieu, Sen. Allain (the bill’s author, and Chair of the Sen. Revenue & Fiscal Affairs Committee), Sen. McMath, and Sen. Smith.

Specifically, the Senate’s reengrossed version of the bill generally provides that, beginning January 1, 2022, wages paid to nonresident employees are exempt from individual income tax if all of the following conditions apply:

(1) the employee’s wages are paid for employment duties performed by the individual in Louisiana for 25 or fewer days in the calendar year;

(2) the employee performed employment duties in more than one state during the calendar year;

(3) the wages are not paid for employment duties performed by the employee in his/her individual capacity as a professional athlete, staff member of a professional athletic team, professional entertainer, public figure, or qualified production employee; and

(4) the employee’s income is exempt from taxation by Louisiana under the United States Constitution or federal statute, or the nonresident employee’s state of residence either provides a substantially similar exemption (a reciprocity requirement) or does not impose an individual income tax.

Also, importantly, the exemption would not apply if the nonresident employee has any other income derived from sources within Louisiana for the taxable year.

Under the bill, the employee would be considered present and performing employment duties in Louisiana for a day if the employee performs more of the employee’s employment duties in Louisiana than in any other state during that day.  Also, any portion of a day during which the employee is in transit would not be considered in determining the employee’s location of employment duties.

The bill also provides some relief for employers who do not properly follow the proposed law. Specifically, no interest or penalties would be imposed on an employer’s failure to properly deduct and withhold income taxes for a nonresident employee who does not qualify for the exemption, if the employer meets any of the following conditions:

  • The employer maintained a time and attendance system designed to allocate wages for income tax purposes among all taxing jurisdictions where its employees perform their employment duties, and the employer relied on data from that system;
  • The employer did not maintain a time and attendance system, but the employer relied on its own records of the employee’s location, with such records maintained in the regular course of the employer’s business; or
  • The employer did not maintain a time and attendance system, but the employer relied on the employee’s reasonable determination of the time the employee expected to spend performing employment duties in Louisiana, provided (1) the employer did not have actual knowledge of fraud on the part of the employee, and (2) the employer and employee did not collude to evade taxation in making the determination.

This proposed state-level mobile workforce de minimis exemption follows prior unsuccessful efforts by stakeholders at the federal level in Congress to address growing concerns over burdens of state income tax administration and compliance with an ever-increasing remote and mobile workforce, exacerbated most recently by the COVID-19 pandemic. Several mobile workforce bills have been introduced in the United States Congress in past years, including a Senate bill in 2020 with a similar limitation on the taxation and remuneration of nonresident employee wages in any taxing jurisdiction where an employee worked for 30 days or less. Given prior lack of passage of such legislation at the federal level, groups such as the Council on State Taxation (COST) who have been proponents of federal legislation are now also pushing for similar legislation at the state level.  In addition, almost half of all states have now passed some form of de minimis exemption on wages from nonresident employees who only work occasionally in the state.

The Jones Walker SALT Team will continue to monitor and provide updates on the progress and ultimate language of SB 157, as well as other notable bills in Louisiana’s current legislative session.

Louisiana Tax Commission Issues Hearing Notice for 2022 Rulemaking Sessions

The Louisiana Tax Commission issued its Hearing Notice for its 2022 Rulemaking Sessions. Unlike many agencies, the Tax Commission invites anyone with suggestions for amending current regulations or even adopting new regulations to participate by presenting a proposal for consideration. If you have an issue with the property tax regulations as adopted by the Tax Commission, now is your chance to make a proposal to remedy your issue.

The deadline to file a proposal is June 25, followed by presentation of the written proposals. If you disagree with any proposal made by someone else, you can submit a rebuttal to explain why you disagree. If you have any questions about the process or have a proposal you would like to discuss, call Jay Adams on the Jones Walker SALT Team.

 

New Jones Walker SALT Blog Series: Interplay of Louisiana Sales and Use Taxes – Part 1: Which Laws and Rules Apply? – Sales Tax or Use Tax?

This first post in this series focuses on the obvious first question to address:  are we dealing with a Louisiana sales tax issue or a Louisiana use tax issue (or perhaps both)?  Which tax is applicable, and which Louisiana statutory tax provisions are to be utilized?

The interplay of sales tax and use tax in Louisiana has long created confusion among taxpayers and collectors alike. The recent case of Songy v. Bayou Bridge Pipeline, LLC, 2020-0860 (La. App. 1 Cir. 02/19/21); 2021 La. App. LEXIS 186 (“Bayou Bridge”), decided late last month by the Louisiana First Circuit Court of Appeal, is no exception and in fact perfectly illustrates such confusion regularly faced by taxpayers … and regularly presented to the Jones Walker SALT Team.  Thus, a discussion of this case is, in turn, a perfect way to kick off a multi-part blog series addressing various issues we see regularly relating to the intersection/interaction/interplay of Louisiana’s sales tax provisions and corresponding use tax provisions.  While these two taxes are meant to be complementary in nature, their statutory provisions are indeed different, and their application can have different results.  We will delve into these differences.

This first post in this series focuses on the obvious first question to address:  are we dealing with a Louisiana sales tax issue or a Louisiana use tax issue (or perhaps both)?  Which tax is applicable, and which Louisiana statutory tax provisions are to be utilized?  The Bayou Bridge case will be our “case study” example for such discussion.

We will then follow up with subsequent posts in this series on other interesting sales tax vs. use tax topics commonly presented to us in Louisiana, such as:  taxability issues and applicability of exemptions and exclusions; sourcing issues; state and local credit issues; the interplay of state-level statutes vs. local ordinances; as well as contract/invoice drafting and interpretation.

Now, on to our “case study” and corresponding initial discussion of which tax actually applies – sales tax or use tax.

Whether a particular interstate or inter-parish transaction triggers a sales tax or use tax (and the resulting applicability of the sales tax laws vs. the use tax laws) still seems to, at times, trip up taxpayers (and collectors).  Although these are complementary taxes with many required similarities, the actual taxing provisions are in fact different and can have different outcomes when applied to the facts at issue.

Louisiana’s state and local sales tax is generally imposed on the sale at retail of tangible personal property in a taxing jurisdiction.  See, e.g., La. R.S. 47:302(A)(1).  The sales tax statutes define “sale” as any transfer of title or possession, or both, of tangible personal property for a consideration.  See La. R.S. 47:301(12).

Louisiana’s state and local use tax, conversely, is generally imposed on the use, consumption, distribution, or storage for use or consumption of tangible personal property in a taxing jurisdiction.  See, e.g., La. R.S. 47:302(A)(2).  Established Louisiana case law has also now made clear that Louisiana state and local use tax does not apply to the storage of tangible personal property in the state (or a particular parish) solely for use in a different state (or a different parish).  See, e.g., Scientific Drilling Intl., Inc. v. Meche, 2009-1120 (La. App. 3rd Cir. 2/3/10), 29 So.3d 1283, writ denied, 2010-511 (La. 4/30/10), 34 So.3d 298; Frank’s International, LLC v. Robinson, BTA Doc. No. 10050D (La. Bd. Tax App. 12/11/18).

However, importantly, the first inquiry when analyzing a sales/use tax issue should be:  which transaction are we actually talking about – the sale of the tangible personal property or the subsequent use of the tangible personal property?  Sales and use taxes are transaction taxes; thus, the tax is imposed on the transaction itself, rather than the property.  As a result, the incidence of taxation will be on the sale itself (sales tax) or the subsequent use itself (use tax).  It is therefore critical to make clear which specific transaction is being analyzed and what specific tax outcome results regarding that specific transaction.

In the recent case of Bayou Bridge, the taxpayer Bayou Bridge Pipeline, LLC (“Bayou Bridge”) purchased pipe from an East Baton Rouge pipe manufacturer, Stupp Corporation (“Stupp”), for purposes of constructing a pipeline.  Stupp, however, transported a certain amount of the pipe at issue to its other facility in West Baton Rouge prior to transferring title or possession of that pipe to Bayou Bridge while the pipe was in West Baton Rouge.  When Stupp billed Bayou Bridge for the pipe, the bill included Louisiana state sales tax, but did not include any parish sales tax; thus, Bayou Bridge accrued and self-remitted West Baton Rouge Parish tax on the transaction directly to the West Baton Rouge Parish collector.  After the sale transaction, Bayou Bridge also paid Stupp for subsequent storage of the pipe in West Baton Rouge for a year while awaiting permits, before Bayou Bridge subsequently transferred a majority of the pipe out of West Baton Rouge and installed the pipe (i.e., “used” the pipe) in Iberville Parish.

The Iberville Parish sales/use tax collector filed suit against Bayou Bridge and West Baton Rouge Parish, alleging that Bayou Bridge improperly remitted local sales/use tax to West Baton Rouge Parish and failed to remit local sales/use tax to Iberville Parish on its use of the pipe in Iberville Parish.  Cross-motions for summary judgment were then filed by all parties involved.

Iberville Parish and West Baton Rouge Parish were then left to “fight it out” between themselves as to which parish was legally entitled to the tax amounts at issue.

The trial court ultimately granted Bayou Bridge’s request to be removed from this case and controversy, because Bayou Bridge was entitled to a credit for any amount of sales/use taxes erroneously paid to West Baton Rouge Parish instead of Iberville Parish (or, conversely, a credit for any amount of sales tax properly paid to West Baton Rouge Parish to offset any subsequent use tax that may be owed to Iberville Parish). See La. R.S. 47:337.15(A)(3); La. R.S. 47:337.86(A).  Iberville Parish and West Baton Rouge Parish were then left to “fight it out” between themselves as to which parish was legally entitled to the tax amounts at issue.  The trial court ultimately concluded that Iberville Parish was entitled to the tax money, as the parish in which the pipe was actually used.

On appeal, however, the First Circuit disagreed, reversing the trial court’s judgment and ruling that West Baton Rouge Parish was in fact actually the correct local taxing jurisdiction entitled to the tax amount at issue.  In making this determination, the Court had to first determine the initial “gatekeeper issue” of which transaction was being addressed in this case and which type of tax was actually at issue (the sales tax or the use tax).

One of Iberville Parish’s arguments in the case was based on the fact that no local tax was actually charged and collected by the seller, Stupp, on the sale of the pipe; Bayou Bridge instead voluntarily self-remitted tax to West Baton Rouge Parish.  Iberville Parish asserted that the self-remitted tax was erroneously remitted to West Baton Rouge because the pipe was not stored in West Baton Rouge for use in West Baton Rouge (impliedly asserting that the amount of tax self-remitted by Bayou Bridge was a local use tax).  Citing to and relying upon the decision in Scientific Drilling, the Iberville Parish collector argued that, since the pipe at issue was not actually used in West Baton Rouge, the mere storage of the pipe in West Baton Rouge was not enough to create a “taxable moment” subject to use tax in that parish.  Iberville Parish argued that, instead, use tax should have been imposed (and the taxable moment actually occurred) at that situs where the pipe was in fact actually used – i.e., Iberville Parish.

The First Circuit, however, rejected this argument.  The Court explained that the first gatekeeper inquiry should be whether the transaction (and resulting tax) being analyzed is a sale transaction (with corresponding sales tax) or a use transaction (with corresponding use tax).  The Court explained that the facts were clear that title and possession of the pipe at issue were transferred from Stupp to Bayou Bridge while the pipe was in West Baton Rouge Parish; thus, a “sale” occurred in West Baton Rouge Parish.  The Court, therefore, determined that it was first required to address whether a local sales tax applied to that sale transaction.  As part of this analysis, the Court also essentially concluded that the self-remitted tax paid by Bayou Bridge was a local sales tax (rather than a local use tax).  As a result, the Court concluded that Iberville Parish’s reliance on Scientific Drilling and the corresponding “storage for use” test was misplaced, because that test only applied to the use tax.  In Louisiana, the local sales tax applies in the locality where the “sale” itself occurs, regardless of whether the actual “use” of the tangible personal property by the purchaser actually ultimately takes place in that same locality.  According to the Court, the proper West Baton Rouge tax at issue for discussion was a sales tax rather than a use tax.  Therefore, the use tax sourcing rules and requirements articulated in Scientific Drilling were simply not applicable.

As exemplified by Bayou Bridge, determining whether or not the facts and transaction at issue trigger a sales or use tax is a critical first step in determining everything else, including whether, and where, the tax is ultimately owed.

Other interesting sales/use tax issues abound in the Bayou Bridge case, including the interplay of provisions regarding:  sourcing of transactions; applicability of exemptions/exclusions; credits for taxes paid to other taxing jurisdictions; and state statutes vs. local ordinances.  As noted above, we will be following up with additional posts in this series, identifying and discussing these additional issues, among others, which seem to perplex taxpayers (and collectors) when trying to comply with the current interacting sales and use tax laws in Louisiana.  We also plan to use the new Bayou Bridge case as an example where applicable in those subsequent posts.

Stay tuned for more to come in this series!

Jones Walker Presents: Louisiana Legislative Update 2021 – Register Now!

With a business-friendly state legislature in Louisiana, significant pro-business tax reform remains front and center on the state’s legislative agenda for 2021.

In this webinar, we will discuss the big picture tax policy issues for consideration in the current tax reform package being presented by Louisiana’s legislative leadership. This will include a candid discussion between, and with, Senator R.L. “Bret” Allain, II, Chairperson of the Senate Revenue and Fiscal Affairs Committee and Douglas Lindholm, President and Executive Director of the Council on State Taxation (COST).

In addition, we will dive into the details and discuss how the current proposed legislation would actually be interpreted and ultimately interact with the current tax laws in Louisiana if/when enacted.

The upcoming legislative session is a fiscal session and many tax bills will be filed and heard. Also, given the pro-business state of the current legislature, there seems to be real momentum for true tax reform this year.

Legislative leadership, including the chairs of the tax writing committees, has made clear that they are pursuing important tax reform measures, including lowering corporate tax rates, and the phasing out of the corporate franchise tax and the tax on inventory. However, taxpayers will need to pay close attention to how these bills are initially drafted and how they evolve during the legislative process. There are a number of big ideas circling around, but the devil, as they say, will be in the details of the actual bills that gain traction and ultimately pass.

When: Thursday, April 1, 2021 | 11:00 a.m. – 12:00 p.m. CDT

Presenters:

  • Jay Adams, Partner, Jones Walker LLP
  • Andre Burvant, Partner, Jones Walker LLP
  • Matt Mantle, Partner, Jones Walker LLP
  • The Honorable R. L. “Bret” Allain, II, Louisiana State Senate (District 21)
  • Douglas Lindholm, President and Executive Director, Council on State Taxation (COST)

Webinar Registration Details: Registration is complimentary.

Registration Contact: Courtney Farley | cfarley@joneswalker.com

This program is intended for intermediate to advanced practitioners in state and local tax administration and those doing business in Louisiana and Mississippi. This program has been recommended for (1) hour of Texas and Louisiana CPE. An application for accreditation of this activity has been submitted to the Mandatory Continuing Legal Education Committee of the Louisiana Supreme Court and is pending. An application for accreditation of this activity has been submitted to the MCLE Committee of the State Bar of Texas and is pending. No prerequisites required. Agenda subject to change.

Save the Date! Join us for a Legislative Update Webinar

With a business-friendly state legislature in Louisiana, significant pro-business tax reform remains front and center on the state’s legislative agenda for 2021.

The upcoming legislative session is a fiscal session; therefore, the focus is almost exclusively on tax legislation; many tax bills will be filed and heard, and the scope of the tax session will be broad. Also, given the pro-business state of the current legislature, there seems to be real momentum for true tax reform this year.

Legislative leadership, including the chairs of the tax writing committees, has made clear that they are pursuing important tax reform measures, including lowering corporate tax rates, and the phasing out of the corporate franchise tax and the tax on inventory. However, taxpayers will need to pay close attention to how these bills are initially drafted and how they evolve during the legislative process. There are a number of big ideas circling around, but the devil, as they say, will be in the details of the actual bills that gain traction and ultimately pass.

In this webinar, we will discuss the big picture tax policy issues for consideration in the current tax reform package being presented by Louisiana’s legislative leadership, including a candid discussion between, and with, Senator R.L. “Brett” Allain, II (chairperson of the Senate Revenue and Fiscal Affairs Committee) and Douglas Lindholm, President and Executive Director of the Council on State Taxation (COST).

In addition, we will dive into the details and discuss how the current proposed legislation would actually be interpreted and ultimately interact with the current tax laws in Louisiana if/when enacted.

When: Thursday, April 1, 2021 | 11:00 a.m. – 12:00 p.m. CDT

Presenters:

Webinar registration is complimentary.

Questions or to Register: Courtney Farley | cfarley@joneswalker.com

This program is intended for intermediate to advanced practitioners in state and local tax administration and those doing business in Louisiana, Mississippi, Texas, and along the Gulf Coast.

How to Accidentally Renege on Tax Incentives Agreements – the Consequences of Mississippi Income Tax Repeal

Mississippi’s proposal to repeal the state’s individual income tax portends to surreptitiously renege on many of the state’s existing tax incentives agreements.  One of Mississippi’s more valuable economic development tools is the Advantage Jobs Program providing a cash rebate to certain businesses that create high-paying new jobs in the state.  The rebate is based on a percentage of employee payroll tax withholdings, and the number of new jobs required for eligibility varies based on whether the business is located in more or less developed areas of the state.  The term of these incentive payments can extend to up to 10 years.

H.B. 1439 proposes to immediately exempt from the individual income tax the first $50,000 for single taxpayers and $100,000 for married couples.  The entire individual income tax potentially could be eliminated in ten years, although that is far from certain based on the complex phase-out formula used in the bill.  This sudden increase in exempt wages could effectively eliminate future withholdings for many of the recently hired employees who originally qualified for Advantage Jobs.  Because this rebate is calculated as a percentage of a company’s individual income tax withholdings, income tax repeal could effectively nullify many Advantage Jobs incentives previously negotiated to lure businesses to the state.  Unquestionably, this could fundamentally alter the original economic equation relied upon by many of these taxpayers during the site selection process.

While state leaders appear to be increasingly aware of this consequence (whether that was unintended or otherwise), no formal proposal has been offered to address the issue.  If passed in its current form, H.B. 1439 could not only complicate current economic development negotiations, it could also lead to discord and possible litigation by numerous taxpayers who relied upon these valuable incentives when selecting Mississippi for their recent expansions and relocations.

The current tax repeal proposal swiftly and overwhelmingly passed the House, but is meeting increasing resistance in the Senate.  The bill remains viable and it is too early to predict whether it might ultimately pass or what changes might be made during the remainder of the current session.  Jones Walker will continue to monitor this and other tax related bills and will provide updates as things develop.

Mississippi House Passes Massive Sales Tax Increase on Business Inputs

Within a 24 hour period, the Mississippi House of Representatives introduced and passed a bill to repeal the individual income tax, but at a cost of massive increases in sales taxes imposed on business inputs.  H.B. 1439 would phase out the individual income tax by gradually increasing the personal exemption over an undefined period of time based on a complex formula taking into account general fund revenue growth, but would leave the corporate income tax in place.  If passed, any business income generated by pass-through entities such as partnerships and LLCs, as well as trusts and estates, would be exempt.  The bill also would gradually reduce the sales tax on groceries from the current 7% to 3.5%, which may be the only favorable sales tax change in the bill.

The net cost to Mississippi businesses could be huge.  The regular retail sales tax rate applicable to ordinary purchases of business related goods, services, telecommunications services and utilities would increase from 7% to 9.5%, placing Mississippi among the highest standard rates in the country.  Manufacturers currently pay a 1.5% sales tax on manufacturing equipment and repairs, but the bill would increase that by over 160% to a 4% rate.  Identical increases would apply to farm and timber industry implements, equipment and repairs, as well as technology intensive enterprises.  The dairy industry also will be hit hard, rising from 3.5% to 6%.  Sales taxes on vehicles including aircraft, trucks and semitrailers would increase from 3% to 5.5%.  Rates applicable to sales to electric power associations would increase 250% from the current 1% rate to 3.5%, an upstream cost that will likely be passed on to consumers including business customers in the form of higher rates.

Potentially more troubling is the fact that the bill brings forward all of the sales tax statutes containing the standard industrial, agricultural, governmental and utility exemptions, as well as most income tax credits.  While these provisions are unchanged in the present version, by including them in the bill all of those exemption and credit provisions are open to potential modification or elimination during the legislative process.

Notwithstanding the assumed eventual income tax elimination, H.B. 1439 is receiving considerable attention and commentary over its potential negative impact on Mississippi’s competitiveness in attracting new business and retaining existing enterprises.  It is unclear what the bill’s prospects are in the Senate, but Jones Walker will continue to monitor this bill and other active legislation – including bills calling for a major overhaul of Mississippi’s tax incentives programs – impacting businesses in the state.

Mississippi House bill would extend contractors tax to residential construction; Senate bill will require all contractors to register with DOR to obtain local building permit

The Mississippi House of Representatives passed HB 1142 to extend the state’s 3.5% contractor’s tax to residential construction and to require builders to obtain a material purchase certificate (“MPC”) in order to pull a local building permit. Under current law, the contractor’s tax only applies to commercial construction, and the ordinary 7% sales tax applies to certain aspects of residential construction. Confusion and disagreement over that residential tax scheme has led to extensive controversy and litigation especially in the context of roofers, remodelers and others performing home repairs and renovations rather than original construction.

The House bill would also remove certain land costs from the contractor’s tax base, and that would apply both for commercial and residential projects. If enacted, this bill would become effective July 1, 2021.

The Senate passed SB 2874 that would require all residential or commercial contractors to register with the Department of Revenue in order to pull a local building permit, but that bill did not extend the contractor’s tax to residential construction and repairs as with the House bill. The Senate bill would be effective immediately upon passage.

Mississippi House advances offer in compromise legislation

For several years Mississippi has attempted to pass legislation to authorize offers in compromise allowing taxpayers to pay less than the full amount of finally determined taxes due by them. The Mississippi Constitution prohibits any release or extinguishment of any obligation or liability to the state, except for the compromise of certain doubtful claims.

On Thursday the House of Representatives amended and advanced HB 1095 to enact a process by which the Department of Revenue may approve offers in compromise for doubtful claims upon “the advice of the Attorney General.”  The original draft required approval by the Governor.  The bill defines a doubtful claim as one for which a notice of tax lien has been enrolled in the Uniform State Tax Lien registry for a finally determined tax liability and for the collection of which the ordinary process of law has been ineffectual. If enacted, this bill would be effective July 1, 2021.

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