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BHBM Tax Law Alert 3/18/2016 | Legislative Update


WELCOME

In this newsletter you will find information on recent updates and changes in the law on the state level following the Louisiana Legislative special session. If you have any questions, please feel free to contact Jenny Rigterink or Andrew Sullivan at (504) 569-2900.

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Come unwind with us at our annual CPA Appreciation Party being held on Monday, April 18th at the Blue Crab Restaurant. RSVP to Katie at kkelly@bhbmlaw.com. We hope to see you there!

BHBM CPA Appreciation Party
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4pm-7pm
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New Orleans, LA 70124

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Our tax and estate planning attorneys have published an update on The Louisiana Estate Planning Handbook: A Guide for the Professional Advisor. Click here to access the order form to secure your copy today. Click here to view the handbook’s table of contents.

LOUISIANA TAX LAW UPDATE

In its first 2016 extraordinary session, the Louisiana Legislature passed several bills designed to increase revenues to help close the State’s budget deficit.  The key changes resulting from these bills include the following: (i) an increase in Louisiana’s sales/use tax rate giving Louisiana the highest sales/use tax rate in the country (Act 25 and Act 26); (ii) an expansion to Louisiana’s franchise tax base (Act 12);  (iii) adoption of a flat corporate income tax rate for taxable years beginning on or after January 1, 2017 (Act 8); and, (iv) limitations on a corporation’s net operating loss deduction for any return filed on or after July 1, 2015 (Act 6).  The summary below provides further details on each of these changes.

Sales and Use Tax

Act 26: Beginning April 1, 2016, an additional one percent (1%) state sales/use tax is imposed on transactions subject to sales/use tax.  This “Clean Penny” tax applies regardless of any exclusions or exemptions under prior law except for those on a defined list.[1]

Act 25: In addition to the imposition of the “Clean Penny” tax discussed above, beginning on April 1, 2016, most exemptions and exclusions from state sales/use tax are suspended until the end of the fiscal year.[2]  This means that five percent (5%) state sales/use tax will apply on many otherwise exempted transactions and goods until June 30, 2016.

Beginning on July 1, 2016, the exemptions and exclusions for two percent (2%) of state sales/use tax are restored; however, the suspension remains in place for the remaining two percent (2%) of state sales/use tax until June 30, 2018.  The “Clean Penny” tax continues to apply, resulting in a combined three percent (3%) state sales/use tax on certain transactions and goods otherwise exempt under prior law.

On June 30, 2018, the “Clean Penny” ends and the exemptions and exclusions from the remaining two percent (2%) state sales/use taxes are restored.

Businesses should carefully review Act 25 and Act 26 to determine their obligations under the new laws as most transactions and goods excluded or exempted under prior law are now subject to five percent (5%) state sales/use tax beginning April 1, 2016.


[1] The list of exclusions and exemptions to Act 26 is reproduced at the end of this alert.
[2] The list of exclusions and exemptions not suspended under Act 25 is reproduced at the end of this alert.

Corporate Income and Franchise Tax

Act 12:  Certain Louisiana limited liability companies taxed as “C” corporations are now subject to franchise tax.

Under prior law, LLCs and other business entities operating in a non-corporate form were not required to pay franchise tax in Louisiana even if they were taxed as corporations for federal income tax purposes.  Also under prior law, non-resident corporations whose only contacts with Louisiana were through their interests in Louisiana LLCs or partnerships were not subject to franchise tax.

Act 12 expands the scope of business entities subject to franchise tax doing business in Louisiana.  Effective for taxable periods beginning on or after January 1, 2017, all business entities taxed as “C” corporations for federal income tax purposes are subject to franchise tax; provided, however, that  Louisiana LLCs eligible for and qualified to make an “S” election, whether or not made, will not be subject to the franchise tax.

Under Act 12, a non-exempt corporation will be obligated to pay franchise tax if its capital, plant, or property in Louisiana is directly or indirectly owned by or through a partnership, joint venture, or other entity of which the corporation is a related party as defined for purposes of the controlled group rules in 26 U.S.C. § 1563.  Although a complete discussion of the controlled group rules in this context is outside the scope of this update, any corporation invested in entities doing business in Louisiana should carefully review its obligations under the new law to determine whether it will be subject to franchise tax.

Act 6: A corporation’s net operating loss (NOL) deduction is limited to seventy-two percent (72%) of the value of Louisiana net income, effective on any return filed on or after July 1, 2015, regardless of the taxable year to which the return relates.

Act 8: Effective for tax years beginning on or after January 1, 2017 (if a proposed constitutional amendment passes by statewide ballot) corporate income is taxed at a flat rate of 6.5%.

Miscellaneous

Act 4: Levies an additional tax of 22 cents per pack of 20 cigarettes increasing the total tax from 86 cents to $1.08 per pack of 20 cigarettes.

Act 13, Act 7: Increases the state excise taxes on wine, liquor, and beer. Reduces the amount of the discount for accurately reporting and remitting state alcohol tax.

Act 22:  Provides a method for collecting state sales tax from online retailers.

Act 15: Caps the amount that a vendor can receive as compensation for timely filing and payment of state sales taxes, effective April 1, 2016.

Act 9: Retains 2% state sales tax on interstate and international telecommunications services; rate was otherwise scheduled to decrease to 1% on April 1, 2016.

Act 10: Reduces the applicable insurance premium tax credit for insurers who invest assets in Louisiana financial institutions and investment products by 5%; removes certain investments from the list of investments qualifying for the credit.

SB4: Dedicates first $200 million of funds deposited into the Deepwater Horizon Economic Damages Collection Fund to be used to eliminate the 2015-2016 fiscal year deficit.

What Failed?

HB 46: Failed to pass a bill reducing the ad valorem tax credit on inventory.

HB 33: Failed to pass a bill increasing state income tax for taxpayers that itemize their tax deductions by limiting the percentage of federal excess itemized deductions they could take on their state tax return.

HB 34: Failed to pass a bill increasing income taxes on people with net income above $17,500 per year.

ACT 25 Exclusions and Exemptions

The following exclusions and exemptions from state sales/use tax are not suspended for the purposes of Act 25:

For purposes of La. R.S. 47:302 (April 1, 2016 -June 30, 2018)

(1) Food for home consumption, as defined in R.S. 47:305(D)(1)(n) through (r) on January 1, 2003, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(2) Natural gas, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(3) Electricity, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(4) Water, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(5) Prescription drugs, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(6) Gasoline and other motor fuels subject to the state excise tax on fuel.

(7) Sales to the United States government and its agencies, as provided in R.S. 47:301(10)(g).

(8) Sales of raw agricultural products, as provided in R.S. 47:301(10)(e) and 305(A)(3).

(9) Lease or rentals of railroad rolling stock as provided in R.S. 13 47:301(4)(k), piggyback trailers as provided in R.S. 47:305.45, and certain trucks and trailers in interstate commerce as provided in R.S. 47:305.50(A) and (B).

(10) Tangible personal property for resale as provided in R.S. 47:301(10)(a)(i).

(11) Feed and feed additives for animals held for business purposes as provided in R.S. 47:305(A)(4).

(12) Farm products produced and used by farmers as provided in R.S. 47:305(B).

(13) Sales of fertilizers and containers to farmers as provided in R.S. 47:305(D)(1)(f).

(14) Sales of seeds for planting crops as provided in R.S. 47:305.3.

(15) Sales of pesticides for agricultural purposes as provided in R.S. 47:305.8.

(16) Purchases, use, and lease of manufacturing machinery and equipment as provided in R.S. 47:301(3)(i)(i), (13)(k) and (28)(a).

(17) Sales of materials for further processing as provided in R.S. 47:301(10)(c)(i)(aa).

(18) Sale of 50-ton vessels and new component parts and sales of certain materials and services to vessels operating in interstate commerce as provided in R.S. 47:305.1 (A) and (B).

(19) Louisiana Tax Free Shopping Program for international visitors as provided in R.S. 51:1301.

(20) Sales of farm equipment used in poultry production as provided in 7 R.S. 47:301(13)(c).

(21) Sales of pharmaceuticals administered to livestock for agricultural purposes as provided in R.S. 47:301(16)(f).

(22) Sales of livestock, poultry and other farm products and sales at public livestock auctions as provided in R.S. 47:305(A)(1) and (2).

(23) Materials used in the production of crawfish and catfish as provided in R.S. 47:305(A)(5) and (6).

(24) First fifty thousand dollars of farm equipment purchases as provided in R.S. 47:305.25.

(25) Fuel used on the farm as provided in R.S. 47:305.37.

(26) Taxation of electrical cooperatives as provided in R.S. 12:425.

(27) Overhaul of naval vessels as provided in R.S. 47:301(7)(c) and (14)(h).

(28) Purchases by state and local governments as provided in R.S. 47:301(8)(c).

(29) Transactions in interstate commerce and tangible personal property imported into this state, or produced or manufactured in this state, for export as provided in R.S. 47:305(E).

(30) Parish councils on aging in R.S. 47:305.66.

(31) Articles traded in on purchases of tangible personal property as provided in R.S. 47:301(13)(a).

(32) A factory built home as provided in R.S. 47:301(16)(g).

For purposes of La. R.S. 47:321 (April 1, 2016 – June 30, 2016)

(1) Food for home consumption, as defined in R.S. 47:305(D)(1)(n)  through (r) on January 1, 2003, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(2) Natural gas, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(3) Electricity, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(4) Water, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(5) Prescription drugs, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(6) Fuel that is subject to the road-use excise tax, as provided in Article VII, Section 27 of the Constitution of Louisiana.

(7) Sales to the United States government and its agencies, as provided in R.S. 47:301(10)(g).

(8) Sales of raw agricultural products, as provided in R.S. 47:301(10)(e) and 305(A)(3).

(9) Lease or rentals of railroad rolling stock as provided in R.S. 47:301(4)(k), piggyback trailers as provided in R.S. 47:305.45, and certain trucks and trailers in interstate commerce as provided in R.S. 47:305.50(A) and (B).

(10) Tangible personal property for resale as provided in R.S. 47:301(10)(a)(i).

(11) Feed and feed additives for animals held for business purposes as provided in R.S. 47:305(A)(4).

(12) Farm products produced and used by farmers as provided in R.S. 47:305(B).

(13) Sales of fertilizers and containers to farmers as provided in R.S. 47:305(D)(1)(f).

(14) Sales of seeds for planting crops as provided in R.S. 47:305.3.

(15) Sales of pesticides for agricultural purposes as provided in R.S. 47:305.8.

(16) Sales of materials for further processing as provided in R.S. 47:301(10)(c)(i)(aa)

(17) Sale of 50-ton vessels and new component parts and sales of certain materials and services to vessels operating in interstate commerce as provided in R.S. 47:305.1 (A) and (B).

(18) Louisiana Tax Free Shopping Program for international visitors as provided in R.S. 51:1301.

(19) Sales of farm equipment used in poultry production as provided in R.S. 47:301(13)(c).

(20) Sales of pharmaceuticals administered to livestock for agricultural purposes as provided in R.S. 47:301(16)(f).

(21) Sales of livestock, poultry and other farm products and sales at public livestock auctions as provided in R.S. 47:305(A)(1) and (2).

(22) Materials used in the production of crawfish and catfish as provided in R.S. 47:305(A)(5) and (6).

(23) First fifty thousand dollars of farm equipment purchases as provided in R.S. 47:305.25.

(24) Fuel used on the farm as provided in R.S. 47:305.37.

(25) Taxation of electrical cooperatives as provided in R.S. 12:425.

(26) Overhaul of naval vessels as provided in R.S. 47:301(7)(c) and (14)(h).

(27) Purchases by state and local governments as provided in R.S. 47:301(8)(c).

(28) Transactions in interstate commerce and tangible personal property imported into this state, or produced or manufactured in this state, for export as provided in R.S. 47:305(E).

(29) Parish councils on aging in R.S. 47:305.66.

(30) Articles traded in on purchases of tangible personal property as provided in R.S. 47:301(13)(a).

(31) A factory built home as provided in R.S. 47:301(16)(g).

[…]

O. Notwithstanding Subsections L and M of this Section, purchases, use, and lease of manufacturing machinery and equipment as provided in R.S. 23 47:301(3)(i)(i), (13)(k), and (28)(a) shall be subject to the tax levied in this Section beginning April 1, 2016, through June 30, 2018.

For purposes of La. R.S. 47:331 (April 1, 2016 – June 30, 2016)

(1) Food for home consumption, as defined in R.S. 47:305(D)(1)(n) through (r) on January 1, 2003, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(2) Natural gas, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(3) Electricity, as provided in Article VII, Section 2.2 of the Constitution  of Louisiana.

(4) Water, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(5) Prescription drugs, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(6) Fuel that is subject to the road-use excise tax, as provided in Article VII, Section 27 of the Constitution of Louisiana.

(7) Sales to the United States government and its agencies, as provided in R.S. 47:301(10)(g).

(8) Sales of raw agricultural products, as provided in R.S. 47:301(10)(e) and 305(A)(3).

(9) Lease or rentals of railroad rolling stock as provided in R.S. 47:301(4)(k), piggyback trailers as provided in R.S. 47:305.45, and certain trucks and trailers in interstate commerce as provided in R.S. 47:305.50(A) and (B).

(10) Tangible personal property for resale as provided in R.S. 47:301(10)(a)(i).

(11) Feed and feed additives for animals held for business purposes as provided in R.S. 47:305(A)(4).

(12) Farm products produced and used by farmers as provided in R.S. 2 47:305(B).

(13) Sales of fertilizers and containers to farmers as provided in R.S. 4 47:305(D)(1)(f).

(14) Sales of seeds for planting crops as provided in R.S. 47:305.3.

(15) Sales of pesticides for agricultural purposes as provided in R.S. 47:305.8.

(16) Purchases, use, and lease of manufacturing machinery and equipment as provided in R.S. 47:301(3)(i)(i), (13)(k) and (28)(a).

(17) Sales of materials for further processing as provided in R.S. 47:301(10)(c)(i)(aa).

(18) Sale of 50-ton vessels and new component parts and sales of certain materials and services to vessels operating in interstate commerce as provided in R.S. 47:305.1 (A) and (B).

(19) Louisiana Tax Free Shopping Program for international visitors as provided in R.S. 51:1301.

(20) Sales of farm equipment used in poultry production as provided in R.S. 47:301(13)(c).

(21) Sales of pharmaceuticals administered to livestock for agricultural purposes as provided in R.S. 47:301(16)(f).

(22) Sales of livestock, poultry and other farm products and sales at public livestock auctions as provided in R.S. 47:305(A)(1) and (2).

(23) Materials used in the production of crawfish and catfish as provided in R.S. 47:305(A)(5) and (6).

(24) First fifty thousand dollars of farm equipment purchases as provided in R.S. 47:305.25.

(25) Fuel used on the farm as provided in R.S. 47:305.37.

(26) Taxation of electrical cooperatives as provided in R.S. 12:425.

(27) Overhaul of naval vessels as provided in R.S. 47:301(7)(c) and (14)(h).

(28) Purchases by state and local governments as provided in R.S. 2 47:301(8)(c).

(29) Transactions in interstate commerce and tangible personal property imported into this state, or produced or manufactured in this state, for export as provided in R.S. 47:305(E).

(30) Parish councils on aging in R.S. 47:305.66.

(31) Articles traded in on purchases of tangible personal property as provided in R.S. 47:301(13)(a).

(32) A factory built home as provided in R.S. 47:301(16)(g).

ACT 26 Exclusions and Exemptions

The following exclusions and exemptions will apply to the “Clean Penny,” Act 26:

(1) Food for home consumption, as defined in R.S. 47:305(D)(1)(n) through  (r) on January 1, 2003, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(2) Natural gas, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(3) Electricity, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(4) Water, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(5) Prescription drugs, as provided in Article VII, Section 2.2 of the Constitution of Louisiana.

(6) Gasoline and other motor fuels subject to the state excise tax on fuel.

(7) Sales to the United States government and its agencies, as provided in R.S. 301(10)(g).

(8) Other constructions permanently attached to the ground, as provided in R.S. 47:301(16)(l).

(9) Installation charges on tangible personal property, as provided in R.S. 47:301(3)(a).

(10) Installation of oil field board roads, as provided in R.S. 47:301(13)(c).

(11) Transactions involving the construction or overhaul of United States Navy vessels, as provided in R.S. 47:301(7)(c) and (14)(h).

(12) Property purchased for exclusive use outside the state, as provided in R.S. 47:305.10.

(13) Sale, lease or rental of tangible personal property paid by or under the provisions of Medicare, as provided in R.S. 47:315.3.

(14) Sales of human tissue transplants, as provided in R.S. 47:301(10)(d).

(15) Sales of raw agricultural products, as provided in R.S. 47:301(10)(e) and 305(A)(3).

(16) Sales of food by youth serving organizations chartered by congress, as provided in R.S. 47:301(10)(h).

(17) Tangible personal property sold to food banks as provided in R.S. 47:301(10)(j).

(18) Materials used in the collection of blood as provided in R.S. 47:301(16)(j).

(19) Aphaeresis kits and leuko reduction filters as provided in R.S. 47:301(16)(k).

(20) Donation to schools and food banks from resale inventory as provided in R.S. 47:301(18)(a).

(21) Manufacturers rebates on new motor vehicles as provided in R.S. 47:301(3)(e) and (13)(b).

(22) Lease or rentals of railroad rolling stock as provided in R.S. 47:301(4)(k).

(23) Purchases and leases by free hospitals as provided in R.S. 47:301(7)(e), (10)(p) and (18)(c).

(24) Purchases by nonprofit entities that sell donated goods as provided in R.S. 47:301(8)(f).

(25) Tangible personal property for resale as provided in R.S. 47:301(10)(a)(i).

(26) Purchases of property for lease or rental as provided in La. R.S. 47:301(10)(a)(iii) and (18)(a)(iii).

(27) Isolated or occasional sales of tangible personal property as provided in R.S. 47:301(1) and (10)(c)(ii)(bb).

(28) Use of motor vehicles in Louisiana by active duty military as provided in La. R.S. 47:303(A) and 305.48.

(29) Purchases made with food stamps and WIC as provided in R.S. 47:305.46.

(30) Articles traded in on purchases of tangible personal property as provided in R.S. 47:301(13)(a).

(31) Donations of toys as provided in R.S. 47:301(10)(z)(aa)(i) and (18)(m).

(32) Stocks, bonds, notes or other obligations or securities as provided in R.S. 47:301(16)(b)(i).

(33) Credit for sales/use taxes paid to other states on tangible personal property imported in Louisiana as provided in R.S. 47:303(A)(3)(a).

(34) Work product of certain professionals as provided in R.S. 47:301(16)(e).

(35) Purchases by regionally accredited independent educational institutions as provided in R.S. 47:301(8)(b).

(36) Sales through coin-operated vending machines as provided in R.S. 47:301(10)(b)(i)

(37) Purchases by a private post-secondary academic degree-granting institution as provided in R.S. 47:301(10)(cc) and as provided in R.S. 47:301(18)(n).

(38) Purchases of food items for school lunch or breakfast programs by nonpublic elementary or secondary schools as provided in R.S. 47:301(10)(dd).

(39) Repair services performed in Louisiana when the repaired property is exported as provided in R.S. 47:301(14)(g)(i)(bb).

(40) Funeral directing services as provided in R.S. 47:301(14)(j).

(41) Feed and feed additives for animals held for business purposes as provided in R.S. 47:305(A)(4).

(42) Farm products produced and used by farmers as provided in R.S. 47:305(B).

(43) Sales of fertilizers and containers to farmers as provided in R.S. 47:305(D)(1)(f).

(44) Sales of seeds for planting crops as provided in R.S. 47:305.3.

(45) Sales of pesticides for agricultural purposes as provided in R.S. 47:305.8.

(46) The cost price for the printing of a news publication as provided in R.S. 47:301(3)(h).

(47) Vehicle rentals to warranty customers as provided in R.S. 47:301(7)(h).

(48) Lease or rental of a crane and related equipment with an operator as provided in R.S. 47:301(7)(k).

(49) Sales by and to the state and its political subdivisions as provided in R.S. 47:301(8)(c).

(50) Sales of materials for further processing as provided in R.S. 47:301(10)(c)(i)(aa).

(51) The sales price for new farm equipment used in poultry production as provided in R.S. 47:301(13)(c).

(52) A factory built home as provided in R.S. 47:301(16)(g).

(53) Any advertising service rendered by an advertising business as provided in R.S. 47:302(D).

(54) The sale of livestock, poultry, and other farm products direct from a  farm as provided in R.S. 47:305(A)(1).

(55) The sale of livestock at public sales sponsored by breeders’ or registry associations or livestock auction markets as provided in R.S. 47:305(A)(2).

(56) The sale of agricultural products by a person other than the producer, for use in further processing as provided in R.S. 47:305(A)(3).

(57) Transactions in interstate commerce and tangible personal property imported into this state, or produced or manufactured in this state, for export as provided in R.S. 47:305(E).

(58) Ships, vessels, barges, and related supplies as provided in R.S. 47:305.1.

(59) The sales price for new farm equipment as provided in R.S. 47:305.25.

(60) Trucks and trailers if used at least eighty percent of the time in interstate commerce as provided in R.S. 47:305.50(A).

(61) Freight cars, piggy-back cars and rolling stock, and railroad ties as provided in R.S. 47:305.45 and 305.50(F).

(62) Councils on Aging as provided in R.S. 47:305.66.

(63) Sales of pharmaceuticals administered to livestock for agricultural purposes as provided in R.S. 47:301(16)(f).

(64) Materials used in the production of crawfish and catfish as provided in R.S. 47:305(A)(5) and (6).

(65) Manufacturing machinery and equipment as provided in R.S. 27 47:301(3)(i), (13)(k), and (28)(a). The provisions of this Paragraph shall be operative and in effect beginning July 1, 2016.

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