Happy Mardi Gras!

We are thankful we are able to enjoy the sights, sounds, and most importantly the King Cakes! Our SALT Team celebrated with king cakes from around New Orleans, and even a homemade cake from our own John Fletcher. We would like to send special thanks to La Boulangerie, Nolita Bakery, Randazzo’s Camellia City Bakery, Beth Biundo, Chez Pierre, and Bywater Bakery for helping us celebrate and enjoying the sweets of Mardi Gras!

Louisiana Department of Revenue Updates Partnership Reporting Requirements

In the 2021 Louisiana Regular Legislative Session, the Louisiana Legislature enacted Act 287 making wholesale changes to the Louisiana income tax reporting and audit regime for partners and partnerships.  Effective June 2021, the Act’s updated reporting obligations were made applicable to 2021 returns filed in 2022, prompting a need for guidance with respect to how the Louisiana Department of Revenue (the Department) would implement the changes.  On February 15, 2022, the Department provided such guidance, issuing its first Revenue Information Bulletin under Kevin Richard’s leadership of the Department: Revenue Information Bulletin 22-007.

RIB 22-007 provides:

  • Effective for the 2021 tax year, all partnerships (including state law partnerships and LLCs treated as partnerships for federal income tax purposes) which do business in Louisiana or derive any income from Louisiana sources are required to annually file Form IT-565 , Partnership Return of Income.
    • The due date has been extended to May 15th for calendar year partnerships and the 15th day of the fifth month after the close of the fiscal year for fiscal year partnerships.
    • There are a handful of exemptions from filing the updated Form IT-565:
      • Partnerships classified as a disregarded entity under the Internal Revenue Code and wholly owned by Louisiana resident individuals (including LLCs disregarded pursuant to Proc. 2002-69);
      • Partnerships not required to file an IRS Form 1065 with the Internal Revenue Service; and
      • Partnerships which elect to be taxed as a corporation and file Form-620 with the Department.
    • Given the expanded requirement for filing partnership returns, Louisiana is discontinuing the Composite Partnership Return for partnerships with out of state partners. Similar information to what had been previously reported on the discontinued return will now be included in Schedule 6922 of the Form IT-565.
    • For partnerships filing a Form IT-565 for the first time, the Department outlined the procedure for obtaining a Louisiana Partnership Account Number:
      • If the partnership has previously filed a Composite Partnership Return with a Department-issued account number, the partnership will continue to use the same number.
      • If the partnership has registered with the Department for a non-income tax return, e.g. sales or withholding, then it will need to follow the procedure set out in the RIB for acquiring a partnership account number through LaTAP.
      • If the partnership has never filed a Louisiana tax return with the Department, the partnership will file its 2021 Form IT-565 with its FEIN, leaving the Louisiana account number blank. The Department will subsequently issue a partnership account number.
    • Partnerships are encouraged to use electronic filing.
      • The Department is in the process of implementing additional regulations further reducing eligibility for filing paper returns.
      • Partnerships filing a Form IT-565 with the new composite return schedule, Schedule 6922, are required to file electronically.

Cracking the Crypto Code: New Reporting Obligations (Current Developments in the World of Blockchain and Cryptocurrency)

As the usage of Bitcoin, Ether, and other cryptocurrencies proliferates throughout the US economy, it may seem inevitable that a comprehensive regulatory regime will sprout up around these novel assets. Thus far, the regulation has been piecemeal, primarily limited to pronouncements from the Internal Revenue Service (IRS), the Securities and Exchange Commission, and the Office of the Comptroller of the Currency covering the individual aspects of cryptocurrency that fall under each agency’s purview.

Over the years, Congress has contemplated enacting such a wide-ranging cryptocurrency regulatory regime; its members have held hearings, solicited comments, and drafted dozens of bills on the subject. Despite the buildup, Congress’ first intervention in the world of cryptocurrency was quite limited. On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the Act) into law, appropriating billions of dollars for infrastructure improvements and other government projects. However, beyond just appropriating funds, the Act also created a new reporting regime for cryptocurrency transactions.

Specifically, the Act created two new reporting obligations. Prior to the Act, Internal Revenue Code Section 6045 required “brokers” that are dealers/middlemen in “covered security” transactions to issue a Form 1099-B to both the brokers’ customers and the IRS identifying the sales of securities through the broker, the customer’s adjusted basis in the security, and the proceeds from the transaction.

The Act expanded the definition of broker to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” The Act also expanded the definition of “covered security” to include “digital assets,” defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”

In addition to expanding the Form 1099-B reporting obligation, the Act expanded the requirement under Internal Revenue Code Section 6050I that banks and other businesses report certain cash transactions in excess of $10,000 to the IRS to include reporting similar transactions undertaken with digital assets. Both of these provisions go into effect with returns and statements required to be filed after December 31, 2023.

As with any new legislation, there are several open issues with respect to these expanded reporting obligations. First, the extent of the revised definition of a broker is unclear. Does it apply to cryptocurrency miners? Does it apply to software developers who work in the cryptocurrency space? Second, the scope of the newly defined “digital assets” is opaque. As of this newsletter, there are hundreds of cryptocurrencies in circulation, each with slightly different characteristics. Further, there has been rampant growth in the market for non-fungible tokens (NFTs), which can demonstrate ownership of virtual assets or tangible assets. Will all cryptocurrencies and NFTs be subject to the rules related to “digital assets”?

Both Treasury and Congress are aware of these issues. Treasury has indicated that it will be promulgating regulations clarifying its view on these definitions in the very near future, though it has yet to tip its hand on their substance. Meanwhile, a bipartisan group of senators have expressed sympathy toward the concerns of cryptocurrency users and have already proposed amendments to the new reporting regime. Whether Treasury adopts a broad or narrow interpretation of “broker” and “digital assets,” these senators will likely push legislation furthering their own interpretation of the reporting requirements.

The legal treatment of cryptocurrency is a rapidly developing field, and impacted industries need to monitor legislative (both federal and state) and agency developments in order to stay in compliance. Keep an eye on this space for news and analysis of developments related to cryptocurrency.

Mississippi Senate Counters House Proposal on Income Tax Reform

Today the Mississippi Senate released a summary of its proposal for income tax reform.  Readers may recall the House passed its proposal, HB 531, and passed it on January 13 (see our prior coverage).  That bill has been transmitted to the Senate and referred to the Finance Committee.

While the Senate has not yet introduced the actual bill, the summary released today contained the following highlights:

  • An immediate income tax rebate of up to $1,000 for “citizens with tax liability”;
  • A four-year phase out of the current 4% tax bracket applicable to taxable income between $5,000 and $10,000 (recall the 3% bracket on the first $5,000 was recently eliminated);
  • An immediate reduction in the grocery sales tax rate from 7% to 5%; and
  • Immediate elimination of all state fees included in car tags that go to the general fund

This proposal shares very few features with the earlier House proposal, and is distinguishable on the following important points:

  • The Senate proposal contains no complete elimination or phase out of the individual income tax;
  • Elimination of 4% bracket may apply to corporations as well as individuals, whereas the House bill eliminated the individual tax by increasing personal exemptions; and,
  • The Senate proposal contains no sales tax increases of any kind

Once the actual Senate bill is released, the specific language may clarify details related to how the income tax rebate and 4% bracket elimination will work, as well as other important questions.  While the eventual path of Mississippi income tax reform remains unpredictable for this session, Jones Walker will continue to monitor this and other related developments and post updates as available.

Mississippi House Revisits Income Tax Phase-Out for 2022

Today the Mississippi House of Representatives filed and passed out of the Ways and Means Committee H.B. 531 which appears to represent the House leadership’s income tax elimination proposal for the 2022 session.  The bill, which is 294 pages long, appears to have the following primary features:

  • Quantifies the amounts by which actual fiscal year 2021 general fund collections exceeded original estimates ($1.1B excess), and projects additional excess collections for fiscal year 2022;
  • Immediately increases the personal income tax exemptions from $12,000 to $75,400 for married/joint filers, from $6,000 to $37,700 for single filers, and from $9,500 to $36,600 for heads of households;
  • Provides an inflation-adjusted “trigger” formula, based on a $6.175B collections baseline, for additional increases in personal exemptions and eventually the full elimination of the individual income tax based on relative state revenue growth (no specified time line, all based on mathematical calculations);
  • Enacts an offsetting increase in the general sales tax rate on tangible personal property and taxable services from 7% to 8.5% (less than the 9.5% proposed in 2021);
  • The increased 8.5% sales tax rate also will be applicable to certain other specific items such as entertainment/amusement charges, alcoholic beverages, telecommunications services, specified digital products, and software, music, games, etc. delivered electronically;
  • Makes no change to many of the special sales tax rates applicable to farmers, manufacturing machinery and equipment, railroads, electric power associations, etc. (a particularly sensitive issue in the 2021 proposal);
  • Offers an immediate cut in the sales tax rate on groceries from 7% to 5.5%, with an additional five-year phase-down to 4% with that lower rate effective as of July 1, 2028;
  • Diverts a portion of the new sales tax increases into a new motor vehicle ad valorem tax credit fund, and authorizes a new credit against the cost of car tags;
  • Incorporates new grant mechanisms into the Advantage Jobs Tax Credit and the Mississippi Major Economic Impact Withholding Rebate Incentive programs to account for the potential impact of the income tax withholding reductions on existing agreements under those programs; and
  • Brings forward, without current change but for possible future amendment, numerous additional statutes containing income tax definitions, certain income tax credits, most sales tax exemptions, state gas severance tax, and certain economic incentive programs.

Readers may recall the robust debate during the 2021 session over income tax repeal and the extensive discussions and public meetings during the remainder of the year to gather information and ideas for a renewed proposal this session.  The changes in the current proposal appear to reflect some of the feedback obtained through that process.

A vote of the full House may come as early as Wednesday afternoon.  It is yet to be known how the House proposal will be received in the Senate or by the Governor if it should advance that far, but Jones Walker will continue to monitor these and other related developments as they occur.

If anyone should have any questions about this or other tax proposals they can contact John Fletcher at 601.949.4620 / jfletcher@joneswalker.com or Dennis Miller at 601.949.4776 dmiller@joneswalker.com.

Questions Submitted for Hearing on Mississippi Software Sales Tax Regulation

In anticipation of the upcoming public hearing on Mississippi’s proposed amendments to its sales tax regulation on Computer Equipment, Software and Services, Jones Walker recently submitted a letter to the Mississippi Department of Revenue summarizing a wide range of questions and issues raised by the proposal.  These questions were compiled as a result of discussions among numerous Mississippi trade associations and businesses, and are intended to help foster the dialogue between the Department and taxpayers at the hearing on Wednesday, November 3.  Jones Walker will follow up with additional insight from the hearing following those discussions. Please contact Jones Walker SALT partner John Fletcher with any questions on the proposed amendments.

LexBlog