TheDMAWay

Louisiana Tax Update

by DMA Staff | Apr 04, 2016
Blog_Image_LouisianaTaxUpdate2

 

Governor John Bel Edwards called a special session to address the budget short fall faced by the state. The 2016 First Extraordinary Session began February 14, 2016, and ended March 9, 2016. DuCharme, McMillen & Associates, Inc. (DMA) provides this summary information on tax bills enacted during the special session. The content of any specific bill is available on www.legis.state.la.us/.

Sales and Use Taxes

Act 9 (HB 72) repeals the provision that would have become operative April 1, 2016, to reduce the tax rate from 2% to 1% on interstate and international telecommunications services. The repeal keeps the tax rate at the current rate of 2%. This Act is effective April 1, 2016.

Act 14 (HB 39) imposes a 3% tax on the gross proceeds derived from the lease or rental of an automobile pursuant to an automobile rental contract for a period of less than 30 days. [Note: The Act reenacts the tax imposition statute that had expired on June 30, 2012.] This Act is effective April 1, 2016.

Act 15 (HB 43) imposes a cap of $1,500 per month on compensation that a dealer may claim for timely reporting and remitting sales taxes. The compensation rate of 0.935% of the taxes collected remains unchanged, but the monthly cap of $1,500 is calculated based only on taxes imposed under R.S. 47:302, 321, 331, and R.S. 51:1286. No compensation is provided for the new additional 1% state sales tax that is imposed by Act 26 (see below) or any other sales tax levied by the state. This Act is effective March 10, 2016, and applies to all taxable transactions occurring on or after April 1, 2016.

Act 17 (HB 59) expands the definitions of "dealer" and "hotel" to impose tax on short-term residential rentals. The Act expressly excludes persons leasing apartments or single family dwellings on a month-to-month basis from the modified definitions. This Act is effective July 1, 2016.

Act 22 (HB 30) includes the following out-of-state sellers to the term "dealer" for the purpose of Louisiana use tax collection:

  • Persons who solicit business by entering into an agreement with a Louisiana resident or business for the referral of potential customers whether the referral is by link on an internet website, in person or telemarketing. This provision applies to persons with cumulative gross receipts from sales of tangible personal property to customers in Louisiana from the referrals that exceed $50,000 for a 12-month period.
  • Persons who sell tangible personal property or taxable services into Louisiana and who:
    • sell the same or a substantially similar line of products as a Louisiana retailer under the same or substantially similar business name, using the same trademarks, service marks, or trade names that are the same or substantially similar to those used by the Louisiana retailer; and
    • solicit business in Louisiana through an agent, salesman, independent contractor, solicitor, or other representative pursuant to an agreement with a Louisiana resident or business, that engages in activities in Louisiana that help the out-of-state seller to develop and maintain a market for its goods or services in Louisiana.
  • Persons who hold a substantial ownership interest (directly or indirectly) in a retailer maintaining sales locations in Louisiana or persons who are owned in whole or in substantial part by a retailer maintaining sales locations in Louisiana, or by a parent or subsidiary.

This Act is effective March 14, 2016, and applies to tax periods beginning on April 1, 2016.

Act 25 (HB 61) removes existing exclusions and exemptions that apply to the taxes imposed under R.S. 47:302, 47:321, and 47:331. The Act identifies specific exclusions and exemptions for each tax imposition statute as the "exhaustive list of allowable exemptions and exclusions".

  • R.S. 47:302 (2% state tax) - The Act enumerates 32 exclusions and exemptions that apply for the period April 1, 2016 through July 1, 2018. The manufacturing machinery and equipment (MME) exemption is on the list but business utilities exemptions are not.
  • R.S. 47:321 (1% state tax) - The Act enumerates 31 exclusions and exemptions that apply from April 1, 2016 through June 30, 2016. Neither the MME exemption nor business utilities exemptions are on the list. However, beginning July 1, 2016, all existing exclusions and exemptions become operative, except the MME exemption, which is suspended from April 1, 2016 through June 30, 2018.
  • R.S. 47:331 (0.97% state tax and 0.03% Louisiana Tourism Promotion District tax) - The Act enumerates 32 exclusions and exemptions that apply from April 1, 2016 through July 1, 2016. The MME exemption is on the list and will continue thereafter when all existing exclusions and exemptions become operative on July 1, 2016. However, the exemptions for business utilities are suspended until April 1, 2019.

This Act is effective April 1, 2016.

Act 26 (HB 62) enacts R.S. 47:321.1 to impose an additional 1% state sales/use tax on taxable sales or purchases from April 1, 2016 to June 30, 2018. The Act enumerates 65 specific exclusions and exemptions to the new additional 1% state sales/use tax as the "exhaustive list of allowable exemptions and exclusions". Business utilities exemptions are not on the list. The MME exemption does not apply to the new additional 1% tax from April 1, 2016 through June 30, 2016, but becomes operative beginning July 1, 2016. The Act also specifies that certain exclusions in the definitions of cost price, sales price, retail sale, and use only apply to R.S. 47:302, 47:321, and 47:331, which means certain sales or purchases could be exempt from the existing 4% state sales/use tax but would not be exempt from the new additional 1% state sales tax. This Act is effective April 1, 2016.

Alcoholic Beverage Tax

Act 7 (HB 28) reduces the discount rates for accurately reporting and timely remitting from 3.33% to 2.5% for high alcohol content (wine and liquor) and from 2% to 1.5% for low alcohol content (beer and malt liquor). The Act does not change current law that allows a 2% discount for timely remittance of local excise tax on low alcohol beverage. This Act is effective April 1, 2016.

Act 13 (HB 27) increases the tax rates on the following alcoholic beverages:

  • Liquors - from 66¢ per liter to 80¢ per liter
  • Sparkling wines and wines of more than 24% alcohol by volume - from 42¢ per liter to 55¢ per liter
  • Still wines
    • alcoholic content up to 14% by volume - from 3¢ per liter to 20¢ per liter
    • alcoholic content that is more than 14% but less than 25% by volume - from 6¢ per liter to 35¢ per liter
    • alcoholic content of more than 24% by volume - from 42¢ per liter to 55¢ per liter
  • Malt beverages and low alcohol content beverages (beer) - from $10 per barrel to $12.50 per barrel

This Act is effective March 10, 2016, but the tax rate increases apply to all alcoholic beverages purchased on or after April 1, 2016. The tax rate increases on sparkling wine or still wine apply to all products shipped directly to consumers on or after April 1, 2016.

 

Cigarette, Cigar and Tobacco Taxes

Act 4 (HB 14) increases the tax on a pack of cigarettes from 86¢ to $1.08. This Act is effective with periods beginning on April 1, 2016.

Act 5 (HB 18) reduces the discount given on cigarette tax stamps purchased by out-of-state wholesale tobacco dealers who have a direct purchasing contract with a manufacturer and serve a trade area of retail dealers in Louisiana. The discount rate is changed to 5% from the lesser of 6% or the discount offered by the state where the wholesaler is located. The Act also reduces the discount that registered tobacco dealers may claim for timely and accurately filing and paying tax on previously untaxed cigars and smoking tobaccos to 5% from 6%. This Act is effective April 1, 2016.

 

Corporate Income Tax/Corporate Franchise Tax

HB 31 proposes a constitutional amendment to eliminate the provision that authorizes the deduction of federal income taxes paid when computing corporate state income tax. If the voters pass the constitutional amendment at the statewide election to be held on November 8, 2016, the constitutional change will be effective on January 1, 2017. The joint resolution was sent to the Secretary of State on March 14, 2016.

Act 1 (HB 7) increases the corporate income exclusion for dividend income received from certain banking institutions from 72% to 100%. [Note: The legislature had reduced the exclusion from 100% to 72% in 2015.] This Act is effective March 3, 2016, and applies to all exclusions from taxable income claimed on any return filed for any taxable year beginning on or after January 1, 2015.

Act 6 (HB 20) clarifies that net operating loss deduction provided by R.S. 47:287.86 is limited to 72% of Louisiana net income. This Act is effective January 1, 2016.

Act 8 (HB 29) imposes a flat 6.5% tax rate on corporate net income rather than the current five-tiered rate and bracket structure. The Act applies to all tax years beginning on and after January 1, 2017, if the proposed constitutional amendment contained in HB 31 is adopted at the statewide election to be held on November 8, 2016.

Act 12 (HB 19) makes the following changes:

  • expands the definition of "corporation" for the purpose of franchise tax to include a limited liability company that is taxed as corporation pursuant to 26 U.S.C. Subtitle A, Chapter 1, Subchapter C for federal income tax purposes;
  • modifies the activity that subjects a corporation to franchise tax to "owning or using any part or all of its capital, plant, or other property in Louisiana, whether owned directly or indirectly by or through a partnership, joint venture, or any other business organization." The reference to owning or using in a corporate capacity was deleted;
  • authorizes a holding company to deduct from its taxable capital its investments in and advances to one or more subsidiaries, whether made directly or indirectly;
  • increases the initial franchise tax from $10 to $110; and
  • requires the payment of the initial tax on the first day of the calendar or fiscal year in which the franchise tax levied becomes due and payable.

This Act is effective March 10, 2016, but applies to taxable periods beginning on or after January 1, 2017.

Act 16 (HB 55) requires corporations to add back otherwise deductible interest expenses and costs, intangible expenses and costs, and management fees directly or indirectly paid, accrued, or incurred to one or more related members. The deduction may be allowed if a corporation can show:

  • that the corresponding item of income was in the same taxable year either:
    • subject to a tax based on or measured by the related member's net income in Louisiana or any other state, or
    • it was subject to a tax based on or measured by the related member's net income by a foreign nation which has an enforceable income tax treaty with the United States, if the recipient was a "resident" as defined in the income tax treaty with the foreign nation;
  • that the transaction giving rise to the interest expenses and costs, the intangible expenses and costs, or management fees did not have as a principal purpose the avoidance of any Louisiana income tax.
  • that the transaction giving rise to the interest expenses and costs, intangible expenses and costs, or the management fees has a substantial business purpose and economic substance and contains terms and conditions comparable to a similar arm's length transaction between unrelated parties.
  • that the interest expenses and costs, intangible expenses and costs, and management fees were paid or incurred by the related member during the same taxable year to a person that is not a related member.

This Act is effective March 10, 2016, and applies to all tax years beginning on and after January 1, 2016.

Act 23 (SB 15) changes the order of tax credits that may be taken against income tax or franchise tax and imposes additional requirements on transferable income or franchise tax. Currently, corporations are required to claim refundable credits after all nonrefundable credits are taken, but this Act requires that refundable credits be applied before all other credits and payments of tax and requires refundable credits be applied against income tax liability and then to franchise tax. There are two exceptions to the general rule that refundable credits be applied before nonrefundable credits: (1) nonrefundable credits with no carry forward is to be applied first; and (2) refundable credits for corporation franchise tax for ad valorem taxes paid to political subdivisions on inventory held by manufacturers, distributors, and retailers may be taken after other refundable credits and nonrefundable credits.

With respect to transferable income or franchise tax reflected in the Tax Credit Registry, this Act provides the following: (1) a tax credit cannot be claimed on a tax return or utilized as a payment prior to the effective date of transfer between the transferor and transferee; (2) to claim a credit on a tax return, the effective date of transfer must be on or before the original due date of the return, not the extended due date; (3) a tax credit with an effective date of transfer, after the original due date of the return may be used as a payment; and (4) A credit acquired through transfer can be applied to any allowable tax liability that is due for the year the credit was originally earned or to any year due afterward until the applicable carryforward period is over.

 This Act is effective March 10, 2016, and applies to all taxable periods beginning on or after January 1, 2016.

 Act 24 (HB 116) modifies the order in which net operating loss carryforward is applied. The Act requires corporations to reduce net income by net operating loss carryforward beginning with the loss for the most recent taxable year rather than beginning with the loss from the earliest taxable year. The Act is effective January 1, 2017.

 HB 95 eliminates the deduction for federal income taxes paid when computing corporate income taxes. This Act is effective for all tax years beginning on and after January 1, 2017, if the proposed constitutional amendment contained in HB 31 is adopted at the statewide election to be held on November 8, 2016. [Note: The enrolled bill was sent to the Governor on March 14, 2016, for approval.]

 
Incentives and Economic Development

Act 2 (SB 1) adds a college tournament or championship to the list of qualified events for the Major Events Incentive Program. This Act is effective March 3, 2016.

Act 18 (HB 71) ends the acceptance of advance notice as of July 1, 2017, for the Enterprise Zone program. Effective for advance notice filed on or after April 1, 2016, the Act makes the following changes: (1) makes ineligible employment services (NAICS 5613) and hotels (NAICS 721) to receive benefits; (2) caps the amount of the rebate of sales and use taxes and the investment income tax credit granted to $1,000 per net new job created; (3) calculates the job credit on positions that are in excess of the median state-wide number of employees of the business, including affiliates; (4) increases the job credit from $2,500 to $3,500 for net new employees receiving public assistance during the six months prior to employment or projects located in enterprise zones but lowers the credit to $1,000 for those not meeting those qualifications. This Act is effective March 10, 2016.

Act 21 (HB 2) repeals the Student Assessment for a Valuable Education (SAVE) program that allocates a portion of higher education means-of-finance from general fund resources to statutory dedication resources. The Act is effective March 14, 2016.

 

Insurance Premium Tax

Act 10 (HB 87) makes the following change:

  • modifies the rate for annual license tax paid by health maintenance organizations with more than 55,000 individuals enrolled in coverage in the individual market in Louisiana as of December 31, 2015, from $140 for the first $7,000 in gross annual premiums or less, with an additional $225 for each additional $10,000 to $600 per $10,000 in gross annual premiums collected;
  • reduces the insurance premium tax credit by 5% for any tax year beginning on or after January 1, 2016, and before January 1, 2018, except an insurance company that writes life insurance premiums and has total admitted assets of $15 million or less;
  • eliminates from qualified Louisiana investment the following: (i) certificates of deposit issued by a Louisiana bank or investments in such instruments by a trust company with a main office or one or more branches in Louisiana; and (ii) cash on deposit in a Louisiana bank or a trust company holding such funds in trust, operating in the state with a main office or one or more branches.

This Act is effective March 9, 2016.

Concurrent Resolutions

HCR 11 creates the Task Force on Structural Change in Budget and Tax Policy to continue the budget and tax reform evaluations begun in the 2016 First Extraordinary Session and to make recommendations of changes to the state's tax laws in an effort to modernize and enhance the efficiency and fairness of the state's tax policies for individuals and businesses. The task force must provide a report of its recommendations to the legislature by September 1, 2016. The concurrent resolution was sent to the Secretary of State on March 14, 2016.

SCR 6 creates a task force to meet and study state and local taxation laws and to recommend comprehensive solutions that will fully fund local government, reduce or eliminate the growing impact on the state general fund of the state tax credits for ad valorem taxes on inventory and vessels, and retain or enhance the state's business competitiveness. The task force will be required to report its findings and recommendations by February 1, 2017. The concurrent resolution was sent to the Secretary of State on March 9, 2016.

SCR 8 clarifies that the legislature intended Act 108 of the 2015 Regular Session to be applied prospectively only. Act 108 of the 2015 Regular Session modified income and franchise tax credits to provide that eligible costs and expenses incurred prior to January 1, 2018, would be eligible for the 25% credit for costs and expenses to rehabilitate nonresidential and rental historic structures in downtown development and cultural products districts. The clarification will apply to tax periods beginning on and after April 1, 2016. The concurrent resolution was sent to the Secretary of State on March 9, 2016.

The 2016 Regular Session convened March 14, 2016. Revenue increases associated with tax policy changes are prohibited from being considered during a regular session commencing in an even-number year. Thus, we do not anticipate any tax bill from the 2016 Regular Session, but it is possible that the legislature could consider fees and tax procedural matters to address revenue concerns. We will keep you informed of any developments.

Please do not hesitate to contact your local DMA office should you have specific questions or requests.