Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 12/5/2017


WELCOME

Thank you for subscribing to our firm’s Tax Law Alert. If you have any questions pertaining to this information, please contact Andrew SullivanJeannette Waring or Jack Casanova at (504) 569-2900. 

FEDERAL TAX LAW UPDATE

Senate Passes Tax Reform Bill

On December 2, 2017, the Senate passed the “Tax Cuts and Jobs Act.” Highlights of the bill are set forth below.

  • Corporate Tax Rate: the bill cuts the corporate tax rate from 35% to a flat 20% rate commencing in 2019.
  • Deduction for Pass-Throughs: the bill provides a 23% deduction for taxpayers who have qualified business income from a partnership, S Corporation, or sole proprietorship. The deduction would generally be limited to 50% of the taxpayer’s allocable or pro rata share of “W-2” wages paid by the pass-through entity. The deduction would apply to taxpayers with income from specified service businesses whose taxable income does not exceed $500,000 for married individuals filing jointly or $250,000 for other individuals (indexed for inflation). Special income phase-out rules apply. The deduction would expire December 31, 2025.
  • Mortgage Interest Deduction: the bill retains the mortgage interest deduction for mortgages up to $1,000,000, but eliminates the deduction for equity indebtedness.
  • Business Expensing: the bill would initially allow full expensing for property placed in service from September 27, 2017 through December 31, 2022. However, the amount that may be expensed for property placed in service after January 1, 2023, would be phased-down over the following 5 year period.
  • Business Interest Deduction: the bill limits the deduction for net interest expense incurred by a business in excess of the sum of 30% of the business’ adjusted taxable income, the business interest income and the floor plan financing interest. Businesses with average annual gross receipts of $15 million or less would be exempt from the limit.
  • Like-Kind Exchanges: the bill limits the non-recognition of gain for like-kind exchanges to real property not held primarily for sale.
  • Estate and Gift Tax: the bill doubles the estate and gift tax basic exclusion amount to $11 million for individuals and $22 million for couples, but does not repeal the estate tax in the future as provided in the House bill.
  • GST Tax: the bill doubles the generation skipping transfer tax exemption amount to $11 million for individuals and $22 million for couples, but does not repeal the generation skipping transfer tax in the future as provided in the House bill.
  • State and Local Tax: the bill limits the state and local tax deduction to property taxes and caps the deduction at $10,000.
  • Repatriation: the bill provides for repatriation rates on corporate profits held overseas at 14.5% for cash and 7.5% for illiquid assets.
  • Individual Mandate: the bill eliminates the individual mandate to buy health insurance by reducing the applicable penalty to $0.
  • Medical Expenses: the bill provides a lower threshold for deduction of medical expenses of 7.5% of adjusted gross income for two years.
  • 529 Plans: the bill contains an amendment that would allow funds from Section 529 savings accounts to be used for certain elementary and high school tuition payments.

The House and Senate will now begin to reconcile any remaining differences between their two bills, including how to approach pass-through taxation and whether the plan should include an alternative minimum tax. The final product will have to pass both chambers before President Trump can sign the bill into law.

LOUISIANA TAX LAW UPDATE

LDR Issues Policy Statement for Net Capital Gains Deduction

The Louisiana Department of Revenue (the “LDR“) recently issued a policy statement regarding calculation and substantiation requirements for the revised net capital gains deduction.

In 2007, the Louisiana Legislature introduced legislation providing an individual income tax deduction for net capital gains resulting from the sale or exchange of an equity interest in or substantially all of the assets of a non-publicly traded corporation, partnership, limited liability company or other business organization commercially domiciled in Louisiana (the “Net Capital Gains Deduction“). See La. R.S. § 47:293(9)(a)(xvii).

However, Act 11 of the 2016 Extraordinary Session of the Louisiana Legislature amended the Net Capital Gains Deduction to provide that the deduction is limited to taxpayers holding equity interests or assets for a minimum of five (5) years immediately prior to the exchange; furthermore, the amount of the applicable deduction varies based on the number of years the taxpayer held the interests or assets.

In Revenue Information Bulletin (“RIB“) No. 16-039, the LDR provided the following guidance regarding calculation and substantiation of the revised Net Capital Gains Deduction:

  • The taxpayer’s holding period starts on the day the taxpayer acquires an equity interest in or assets of the business. The taxpayer’s holding period does not include the holding period of the predecessor owner, regardless of the method of transfer (e.g., donation, sale, exchange). Of particular concern, the RIB also indicates that the fact that a business is a continuation of a prior business or that businesses have substantially similar ownership will have no effect on the ability to take the Net Capital Gains Deduction.
  • The business must have been commercially domiciled in Louisiana for at least five (5) years prior to the sale/exchange to qualify for the deduction. No deduction is allowed if the business has been domiciled in Louisiana for less than five (5) years.
  • Taxpayers claiming the deduction are required to submit a completed Form R-6180 as well as documentation substantiating the deduction (e.g., documentation establishing the date of acquisition/formation and documentation establishing a sale of substantially all of the interests/assets).

For the full text of the Revenue Information Bulletin, please click here.

Tax Clearance for State Sales Tax Resale Certificates and State Procurement Contracts

The Louisiana Department of Revenue (the “LDR“) recently issued formal guidance on the newly enacted requirement that taxpayers obtain a Louisiana state tax clearance to be: (1) issued or reissued a Louisiana state sales tax resale certificate and (2) approved for certain Louisiana state procurement contracts.

Effective June 14, 2017, La. R.S. 47:1678 requires applicants for the issuance or renewal of a Louisiana sales tax resale certificate to be current in filing of all tax returns and reports and in payment of all taxes, interest, penalties and fees due to the state and collected by the LDR.

RIB No. 17-020 stipulates that the tax clearance requirement of La. R.S. 47:1678 applies to all requests for issuance or renewal of a Louisiana state sales tax resale certificate submitted on or after October 1, 2017. RIB No. 17-020 further clarifies that the tax clearance requirement applies to all state taxes, including but not limited to sales, income, withholding, excise, severance, tobacco, or automobile rental tax.

In addition, effective June 14, 2017, La. R.S. 39:1624(A)(10) and 47:1678 require applicants for the approval of the central purchasing agency of Louisiana Office of State Procurement for the procurement of personal, professional, consulting, or social services to be current in filing of all tax returns and reports and in payment of all taxes, interest, penalties and fees due to the state and collected by the LDR.

RIB No. 17-021 expounds upon the tax clearance requirement of La. R.S. 39:1624(A)(10) and 47:1678. The tax clearance requirement applies to all requests for approval of contracts submitted on or after October 1, 2017. Conversely, tax clearance is not required to bid on or solicit a procurement contract. Further, if an assessment has become final and collectible for distraint and sale, the proposed contractor cannot be approved until the contractor has filed all returns and reports due, paid or made arrangements with the LDR to pay the delinquent tax liability, and the Secretary notifies the state chief procurement office of the payment or arrangement to pay.

RIB Nos. 17-020 and 17-021 both provide that any taxpayers without tax clearance will not be eligible for issuance or reissuance of a Louisiana state sales tax resale certificate or for approval of certain Louisiana state procurement contracts, unless the items at issue are under formal appeal pursuant to applicable statutes or being paid in compliance with the terms of an installment agreement with the LDR.


  |  

Meritas

Connect with us