Significant Changes in Louisiana for Income/Franchise & Sales/Use Tax

As a result of a $900 million budget shortfall, Louisiana lawmakers have passed the following tax measures aimed at bridging the revenue gap.  Some of the more important changes are as follows:

Income/Franchise Tax Changes (effective 1/1/2017):

  1. Expansion of franchise tax:
    1. “Domestic Corporation” now includes partnerships, joint ventures, and LLCs electing to be taxed as C Corporations for federal income tax purposes.
    2. Expansion of franchise tax nexus for out of state taxpayers – nexus for corporations that own interest in partnerships with Louisiana operations.
  2. Net Operating Loss (NOL) Reduction – NOL deduction cannot exceed 72% of Louisiana taxable income.
  3. NOL Carryover ordering – must use loss carryovers starting with the loss for the most recent taxable year. Older NOLs may expire since taxpayers would have to first use newer NOLs.
  4. Modification of corporation income tax rate to flat rate of 6.5% (contingent).
  5. Addback of intercompany interest, intangible expenses and management fees unless certain exceptions are met.
  6. Modification of federal income tax deduction (contingent).

Sale/Use Tax Changes:

  1. Effective 4/1/16 through 6/30/2018, the legislation increases the sales tax rate by 1% (bringing the rate to 5%).  Referred to as the “Clean Penny” Legislation, the legislation includes its own set of exclusions and exemptions apart from the exclusions and exemptions that apply to the original 4% sales tax rate (referred to as “Old Penny”).
  2. Old Pennies (the original 4% sales tax) – law modifies the list of exclusions and exemptions, specifically as they relate to the 2% basic rate (sub component of the 4% tax).  It is important to note the inconsistencies between the exclusions and exemptions offered under the Clean Penny and Old Penny laws.
  3. Affiliate Nexus provisions – the legislations drastically expands the definition of a “dealer.”

For additional background regarding the legislation, please visit the tax foundation website.

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