By M. Dwayne Johnson

The D.C. Circuit’s July 7, 2017 decision on EPA’s 2015 definition of solid waste rule (DSW Rule)[1] may change the regulation of hazardous waste in Louisiana. First, some background.

In 2008, EPA promulgated a definition of solid waste rule that was intended to foster waste recycling (2008 Rule).[2] Therein, among other things, EPA provided two exclusions from the definition of solid waste:[3] (a) the generator control exclusion (GCE) for material reclaimed under the control of the generator, and (b) the transfer based exclusion (TBE) where the material is reclaimed by a third party reclaimer that has a RCRA permit or, if the reclaimer has no permit, the generator has made reasonable efforts to ensure that the reclaimer legitimately reclaims the material. The 2008 Rule was not mandatory.[4]

In 2015, EPA promulgated the DSW Rule that likewise was intended to foster waste recycling.[5] Therein, among other thing, EPA revised the GCE and replaced the TBE with the verified recycler exclusion (VRE). Under the VRE, material is excluded from the definition of solid waste if it is reclaimed by a third party reclaimer that has a RCRA permit or that has been approved (via variance) by EPA or a qualified state. EPA also provided 4 factors (Legitimacy Factors) to determine whether material is legitimately recycled and thus not discarded material (ergo solid waste): (1) the material must provide a useful contribution to the recycling process or to a product or intermediate of the recycling process; (2) the recycling process must produce a valuable product or intermediate; (3) the generator and the recycler must manage the material as a valuable commodity when it is under their control; and (4) the product of the recycling process must be comparable to a legitimate product or intermediate[6]. The DSW Rule contained both mandatory provisions (legitimate recycling) and non-mandatory provisions (the GCE and VRE).

Last month, LDEQ revised its hazardous waste regulations to adopt the DSW Rule and those portions of the 2008 Rule that remained in place.[7]

But in its decision, the DC Circuit:  (1) vacated the VRE, except for its emergency preparedness and response requirements and its expanded containment requirements; (2) reinstated the TBE (including its bar on spent catalysts); and (3) generally vacated Legitimacy Factor 4.[8]

The DC Circuit may reconsider its decision, and the Supreme Court may revise the decision on appeal. In the meantime, the decision’s effect is unclear and the Louisiana regulated community needs guidance from EPA and LDEQ.

Until then, it appears the DC Circuit’s decision will have the following effect in Louisiana:

  • The VRE is no longer available.
  • The TBE is not currently available (because it was never adopted in Louisiana).
  • If LDEQ amends its rules to adopt the TBE, spent catalysts will be barred, the generator will need to comply with the VRE emergency preparedness and response provisions, and the VRE expanded containment requirements will apply.
  • Because LDEQ’s hazardous program can be more stringent than EPA’s, until LDEQ amends its rules or otherwise stays enforcement, Legitimacy Factor 4 may remain in place for all recycling (not just under the GCE).

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[1] American Petroleum Institute v. EPA, No 09-1038 (D.C. Circuit 2017).

[2] 73 Fed. Reg. 64668 (October 30, 2008).

[3] Fundamentally, for a material to be a hazardous waste, it must first be a solid waste. Or stated differently, if a material is not a solid waste, it cannot be a hazardous waste. Thus, material excluded from the definition of solid waste will not be regulated as a hazardous waste.

[4] That is, qualified states — like Louisiana — that have been authorized by EPA to administer and enforce the state hazardous waste program in lieu of the federal program were not required by EPA to adopt the 2008 Rule in order to maintain their qualification (or delegation).

[5] 80 Fed. Reg. 1694 (January 13, 2015).

[6] Under the DSW Rule, for recycling to be legitimate, all four Legitimacy Factors have to be met.

[7] 43 La. Reg. 1151 (June 20, 2017).

[8] Because the GCE specifically requires compliance with the rule containing all four Legitimacy Factors (40 CFR 260.43(a)), Legitimacy Factor 4 apparently still will have to be met to establish legitimate recycling under the GCE.

 

By Tyler Kostal

Consistent with public comments that it will pursue all available appellate remedies, today the South Louisiana Flood Protection Authority filed a petition for a writ of certiorari with the United States Supreme Court, to seek review of the decision in Board of Comm. of the Southeast Louisiana Flood Protection Authority-East v. Tennessee Gas Pipeline Company, LLC,  850 F.3d 714 (5th Cir. 2017).

The questions presented focus on claims arising under federal law pursuant to the standard developed in Grable & Sons Metal Prods. v. Darue Engineering & Manufacturing, 125 S. Ct. 2363, 2368 (2005), and succeeding cases.  Specifically, the questions presented are:

  1. Whether the “substantial[ity]” and “federal-state balance” requirements of Grable are satisfied whenever a federal law standard is referenced to inform the standard of care in a state-law cause of action, so long as the parties dispute whether federal law embodies the asserted standard.
  2. Whether a federal court applying Grable to a case removed from state court must accept a colorable, purely state-law claim as sufficient to establish that the case does not “necessarily raise” a federal issue, even if the court believes the state court would ultimately reject the purely state-law basis for the claim on its merits.

It remains to be seen whether the Supreme Court will accept this case for review.

See prior post on this topic hereClick here for a copy of the petition.

by Carrie Tournillon

The Louisiana Public Service Commission (“LPSC”) and the State Legislature are conflicted over regulation of motor carriers of waste in Louisiana.  While the Louisiana Constitution grants the LPSC the authority to regulate common carriers, and the LPSC oversees the certification and permitting of such carriers, in the 2017 Regular Session the Legislature enacted Senate Bill 50 (Act 278) that changes the statutory requirements for a carrier to become an approved motor carrier of waste in the State.  Act 278 was signed into law by Governor Edwards on June 15, 2017.

Under the LPSC rules, carriers of waste must prove “public convenience and necessity,” which requires contracts with shippers for contract carrier permits and testimony or affidavits from shippers for common carrier certificates, in support of need for the requested new or expanded authority.  An applicant also must prove fitness to operate.

However, Legislative Act 278 eliminates the requirement to prove “public convenience and necessity” to obtain authority from the LPSC to operate as a common or contract carrier of waste within the state.  An applicant only must prove fitness to operate.

At the LPSC’s Business & Executive Session last month, there was much discussion regarding whether the new legislation is an unconstitutional infringement on the jurisdiction of the LPSC over common carriers. Ultimately, the LPSC directed its Staff to file suit challenging Act 278 and to take all action necessary to protect the LPSC’s jurisdiction.

At the same meeting, the Commissioners also considered but declined to adopt new rules for obtaining authority to haul waste within Louisiana. The LPSC Staff’s proposed rules would have set forth guidelines for certification of common and contract carriers and created a rebuttal presumption that granting the certificate was in the public interest if the applicant met the application requirements.  While considered to be an improvement over current LPSC rules, the Staff’s proposed rules still required applicants to prove “public convenience and necessity,” including having shippers provide affidavits in support of the need for the certificate.

The LPSC Commissioners disagreed over whether the Staff’s proposed new rules went far enough to change the standard for obtaining authority to haul waste within the state.  One Commissioner offered a motion to approve the Staff proposal, supporting it as an industry solution developed with stakeholders in the trucking business.  Another Commissioner argued extensively in favor of opening up the market for hauling waste in Louisiana and urged as a substitute motion that the LPSC adopt new rules based on the Legislative Act 278, which would eliminate the “public convenience and necessity” requirement.  Both motions failed 2-2.

While the LPSC Staff’s proposed rules were not adopted by the LPSC in June, it is expected that there will be additional discussion of changes to the rules, and that the constitutional issues raised by Act 278 will be pursued by the LPSC in the courts.

For more information, contact a member of the Kean Miller Utilities Regulatory Team.

 

By Tod J. Everage

The US Fifth Circuit recently published an opinion in Feld Motor Sports, Inc. v. Traxxas, LP, recognizing that it had jurisdiction to review a district court’s denial of a motion for summary judgment on a legal issue. This ruling was the first of its kind in the 5th Circuit, who now joins the 1st, 4th and 8th Circuits to acknowledge this exception to the general rule.

The case involved a fight over allegedly unpaid royalties in a licensing agreement between a monster truck show promoter and an RC car maker. During the case, both parties filed motions for summary judgment advancing their own interpretations of the subject licensing agreement. The district court denied both motions, concluding that the contract was ambiguous and the case proceeded to trial. After a seven-day trial, the jury found Traxxis owed FMS the unpaid royalties. Traxxas then filed a combined renewed motion for summary judgment as a matter of law under Rule 50(b), motion for new trial under Rule 59, or alternative motion to modify the judgment. The district court denied the motions and Traxxas appealed. FMS argued that the 5th Circuit did not have jurisdiction to hear Traxxas’s appeal, among other things.

The 5th Circuit analyzed its recent jurisprudence on the issue of jurisdiction and Rule 50 motions. In 2014, the Court recognized the long-standing general rule that “an interlocutory order denying summary judgment is not to be reviewed when final judgment adverse to the movant is rendered on the basis of a full trial on the merits.” See Blessey Marine Services, Inc. v. Jeffboat, LLC, 771 F.3d 894, 897 (5th Cir. 2014) (quoting Black v. J.I. Case Co., 22 F.3d 568, 570 (5th Cir. 1994)). Before now, the 5th Circuit had recognized only one exception to that rule. In Becker v. Tidewater, Inc., the Court held that it could review “the district court’s legal conclusions in denying summary judgment,” but only when “the case was a bench trial.” 586 F.3d 358, 365 n.4 (5th Cir. 2009). The Court reasoned in Becker that “because Rule 50 motions are not required to be made following a bench trial, it is appropriate to review the court’s denial of summary judgment in this context.” In Blessey, the 5th Circuit noted (in dicta) that it may have jurisdiction to hear an appeal of the district court’s legal conclusions following a jury trial, but only if the party restated its objection in a Rule 50 motion.

For clarification, Rule 50 governs motions for a judgment as a matter of law in a jury trial. Rule 50(a) allows a party (usually the defendant) to move for a judgment as a matter of law in a jury trial against the other party if the other party has been fully heard on an issue, arguing that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue. If the Court denies the Rule 50(a) motion, a defendant has 28 days after entry of judgment to renew its motion under Rule 50(b).

Here, the 5th Circuit held that “following a jury trial on the merits, this court has jurisdiction to hear an appeal of the district court’s legal conclusions in denying summary judgment, but only if it is sufficiently preserved in a Rule 50 motion.” In doing so, the Court joined the 1st, 4th, and 8th Circuits.

While technically plowing new ground, the 5th Circuit very directly reminded practitioners to make sure to renew their Rule 50(b) motion for judgment as matter of law after an adverse jury verdict or risk waiving their right to appeal the Court’s adverse legal finding. This issue is much more prevalent in contractual interpretation disputes, but can arise in casualty litigation should a defendant be unsuccessful asserting a legal defense on a dispositive motion or Rule 50(a) motion at the close of Plaintiff’s case.

By Claire E. Juneau

The United States Supreme Court recently issued an opinion which significantly limits the ability of a state court to assert personal jurisdiction over non-resident defendants. This ruling is hardly a surprise and is consistent with the Court’s recent decisions in BNSF Railway Co. v. Tyrrell, 137 S. Ct. 1549 (2017) which reaffirmed the court’s commitment to the limitations on state-court jurisdiction set forth a few years ago in Daimler AG v. Bauman, 134 S. Ct. 746, 187 L.Ed. 2d 624 (2014)(Due process did not permit exercise of general jurisdiction over German corporation in California based on services performed there by its United States subsidiary that were “important” to it).

In Bristol-Myers Squibb Company v. Superior Court of California, San Francisco County, et al., 137 S. Ct. 1773 (2017), the Supreme Court held that the due process clause of the United States Constitution did not permit exercise of specific personal jurisdiction by a California Court over non-resident consumer claims. The plaintiffs in Bristol were a group of 600 consumers, most of whom were not California residents. The plaintiffs had filed suit in California state court against Bristol-Myers Squibb (“BMS”) asserting a variety of state law claims, all based on injuries purportedly caused by a BMS drug, Plavix. The facts relied upon by the courts to analyze jurisdiction were as follows:

  • BMS is a large pharmaceutical company incorporated in Delaware with its principal place of business in New York.
  • BMS’s business activities in California are comprised of five research and laboratory facilities, 160 employees, 250 sales representatives, and a small state governmental advocacy office.
  • Plavix was not developed, manufactured, labeled, or packaged in California. BMS did not create a marketing strategy or work on regulatory approval in California. All of these activities occurred in New York or New Jersey.
  • Plavix is sold in California – approximately 187 million pills which amount to more than $900 million in revenue, a little over one percent of the company’s nationwide revenue.

After suit was filed in California, BMS moved to quash summons on the non-resident plaintiffs’ claims asserting that California did not have personal jurisdiction over those claims. The case made its way to the California Supreme Court who agreed with BMS that its contacts with California were insufficient for general personal jurisdiction under the United States Supreme Court’s decision in Daimler AG. However, in adoptiong a “sliding scale” test, the court found that specific personal jurisdiction could be established. The California court held that “[a] claim need not arise directly from the defendant’s forum contacts in order to be sufficiently related to the contact to warrant the exercise of specific jurisdiction.” The court found that BMS, through its national advertising and distribution scheme and business conducted in California, had sufficient contacts with the forum for California to exercise specific personal jurisdiction over all Plavix claims. Therefore, California courts could hear the claim of every Plavix plaintiff nationwide, even those non-California plaintiffs whose injuries were not caused by conduct within California.

In a near unanimous decision, with Justice Sotomayor as the lone dissenting voice, the United States Supreme Court reversed California’s decision holding that the due process clause of the Fourteenth Amendment precluded California’s sliding-scale test. The Court re-affirmed prior precedent: to invoke specific personal jurisdiction, a claim must “arise out of” defendant’s conduct within the state. Quoting directly from World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980), the Court reasoned that the “primary concern” in determining personal jurisdiction is “the burden on the defendant.” Thus, a State can only invoke specific personal jurisdiction over claims that arise from the defendant’s activities within the forum state. This jurisdiction does not extend to claims arising from defendants’ identical activities in other states. California’s “sliding scale approach,” the Court wrote, “resembles a loose and spurious form of general jurisdiction” that does not comport with the Due Process Clause of the Fourteenth Amendment.

The Court further found that the Due Process Clause protects interstate federalism by divesting the state court’s power to hear claims that do not “arise out of or relate to” the defendant’s forum contacts. While the burden placed on the defendant remains the primary focus, a related concern is the “territorial limitations on the power of the respective States.” The “sovereignty of each state … implies a limitation on the sovereignty of other states.” Therefore, the facts that the defendant suffers no additional burden by litigating in the forum and that the forum state has a strong interest in applying its law to the controversy or is the most convenient forum does not circumvent the protections of the Due Process Clause.

By Tyler Moore Kostal

The Texas Supreme Court recently handed down a decision in Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 14-0979, 2017 WL 1541086 (Tex. Apr. 28, 2017), that at first glance, is reminiscent of the landmark Louisiana legacy cases Corbello and Magnolia Coal. Forest Oil, like Corbello, supports the landowner’s right to a judicial setting to resolve its claims while minimizing the role of the relevant state agency. And like Magnolia Coal, Forest Oil dispenses with the presumed exclusive or primary jurisdiction of the Texas Railroad Commission (RRC) over oilfield contamination claims by landowners. However, what is still to be considered by Texas courts is the viability of the claim and certain Louisiana legacy defenses. Since Corbello, the Louisiana Supreme Court has issued rulings on prescription (Marin) and subsequent purchaser (Eagle Pipe) that have reduced the force of legacy litigation. Further, similar to Louisiana’s Act 312, the Texas legislature will have an opportunity to enact legislative and regulatory changes. The bottom line is that the long-term impact of Forest Oil and the future of Texas oilfield litigation are far from certain.

In this case, Forest Oil (now known as Sabine Oil & Gas) produced natural gas on a 27,000-acre ranch in Hidalgo County, Texas, for over 30 years. Forest’s oil and gas leases covered about 1,500 acres, and Forest operated a gas processing plant on a 5-acre tract. In 2004, one of the landowners learned (from a former Forest employee) that Forest had contaminated the property. In 2005, the landowners filed suit alleging soil and groundwater contamination from various oilfield wastes, including naturally occurring radioactive material (NORM). One of the landowners also alleged that tubing, donated by Forest and used in the construction of rhinoceros pens, contained NORM that caused a cancerous growth resulting in amputation of his leg.

Forest eventually compelled arbitration pursuant to a 1999 settlement agreement signed by the landowners in a separate lawsuit over oil and gas royalties. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (holding that the arbitration clause in the settlement agreement was enforceable). That agreement also provided for the ongoing care and remediation of the surface estate by Forest. After a 17-day hearing, the arbitration panel awarded the landowners $15 million in property damages, $500,000 in personal injury damages (NORM cancer claim), $500,000 in punitive damages, and $5 million in attorney fees. The panel also granted declaratory relief for remediation under the 1999 agreement and ordered Forest to provide the landowners with a $10 million bond to assure its performance of a prior remediation agreement.

The landowners filed a motion to confirm the award in state court. Forest moved to vacate the award on several grounds, namely on the basis that the RRC had exclusive or primary jurisdiction over the landowners’ claims. Forest also argued that the damage awards violated Texas law. The trial court vacated the panel’s $10 million bond requirement but otherwise denied Forest’s motion. See Forest Oil Corp. v. EL Rucio Land, 2012 WL 10170451 (Tex. 55th Dist.). In confirming the award, the trial court incorporated the actual and punitive damages and awarded the landowners $6.7 million in attorney fees. The appellate court affirmed. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58 (Tex. App. 1st Dist. 2014). The Texas Supreme Court granted Forest’s petition for review.

First, the court considered whether the RRC has exclusive jurisdiction over the landowners’ claims. Forest argued that the legislature intended the RRC to have exclusive jurisdiction over environmental oilfield disputes, such that the arbitration panel lacked jurisdiction to enter the award and the trial court lacked jurisdiction to confirm it. The court disagreed concluding that the legislature did not express a clear intent to abrogate a landowner’s common-law rights in favor of a statutory remedy.

Forest also argued that public policy necessitated the RRC’s exclusive jurisdiction over these matters. It argued that if landowners seek remediation both from the RRC and through the courts, they could recover twice for the same injury. Forest further argued that if a landowner does not spend a damage award on remediation, the RRC remains responsible to the public to order cleanup. The court rejected Forest’s policy considerations stating that it was “an argument for the Legislature.” Instead, the court offered a solution for Forest and other defendant operators: “By seeking an RRC determination of contamination allegations and complying with RRC cleanup orders, an operator can reduce or eliminate the landowners’ damages.”

Next, the court considered whether the RRC has primary jurisdiction over the claims. Forest argued that the RRC has primary jurisdiction because only the RRC can determine what the law requires for remediation. Forest argued that the parties’ 1999 settlement agreement, which required that Forest remove hazardous material only “if, as and when required by law,” obligated Forest to remediate only if required by the RRC. The court disagreed and stated: “But while RRC regulations and orders certainly inform the extent to which remediation of contamination is required by law, they do not supplant Forest’s common law duties, which are also required by law.” The court reasoned that the doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in nature,” like trespass, negligence, fraud, and breach of contract—all claims brought by the landowners and all inherently judicial in nature. Because the landowners’ claims are inherently judicial and not dependent on the standards of regulatory compliance, the court concluded that the doctrine of primary jurisdiction does not apply.

Ultimately, the court concluded that the RRC has neither exclusive nor primary jurisdiction over the landowners’ claims. Therefore, the landowners were free to bring common law claims like negligence, trespass, and breach of contract in a judicial forum against Forest.

It is important to note that the Texas Supreme Court did not address the amount of the damages award. However, the appellate court found that, contrary to Forest’s claims, the arbitration panel’s view of the evidence, application of the law to the evidence, and ultimate decision, did not rise to the level of “gross mistake.” The landowners offered expert testimony valuing the ranch, “unimpaired by environmental contamination,” at $65.5 million. That expert determined that the diminished value of the ranch was $45.85 million. Therefore, he claimed that because of the environmental contamination, the value of the ranch had been diminished by $19.65 million. Recall that the arbitration panel awarded the landowners $15 million in property damages, and the appellate court affirmed.

Industrial Strength Graphic Only

By Jaye Calhoun, Phyllis Sims, Willie Kolarik, and McClain Schonekas

Despite consideration of an Ohio-style gross receipts tax, a Michigan-style single business tax and various versions of flat taxes, the 2017 Regular Session of the Louisiana Legislature ended on June 8, 2017, without the enactment of any significant tax reform. Because the Legislature neglected to compromise on the budget issues raised in the Session, Governor John Bel Edwards called a Special Session to convene half an hour after the regular session ended. The issues that could be addressed in the Special Session, however, were limited to budget issues pursuant to the Special Session Call.

Nevertheless, some tax legislation of note squeaked out and will become law if either signed by the Governor or after the expiration of the requisite passage of time if the Governor takes no action (or, in at least one instance below, if the voters approve a Constitutional amendment). Please note that, for those pieces of legislation below identified by Act Number, the Governor has signed the legislation. As of this client alert, the remaining items have not yet been acted upon by the Governor so they are not final. The Governor has, at latest, until June 27, 2017 to act upon (sign or veto) the legislation, or to allow the legislation to go into effect without signature.

In the meantime, here are some relevant tax provisions that made it out of the 2017 Regular Session:

Sales and Use Tax

Establishing the Louisiana Uniform Local Sales Tax Board and the Louisiana Sales and Use Tax Commission for Remote Sellers and creating an optional concurcus proceeding for certain taxpayer’s involved in multi-parish audits

Act No. 274 (HB601), enacted June 16, 2017.

Act No. 274 creates two new entities: the Louisiana Uniform Local Sales Tax Board (the “Board”) and the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”). The Board, consisting of eight members and domiciled in East Baton Rouge Parish, is established for purposes of creating uniformity and efficiency in the imposition, collection, and administration of local sales and use taxes. Among its powers and duties, the Board may issue policy advice and private letter rulings on local sales and use tax issues. The Commission, composed of eight commissioners and domiciled in East Baton Rouge, is established for the administration and collection of sales and use tax imposed by the state and political subdivisions for remote sales. The Commission will have the power, duty, and authority to serve as the single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remotes sales.

Act. No. 274 also amended La. R.S. 47:337.86 to create an optional concurcus proceeding for a taxpayer that has received a formal notice of assessment from two or more Louisiana local collectors that have a competing or conflicting claim to sales and use tax on a transaction. In that instance, the taxpayer or dealer may file a concurcus proceeding before the Local Tax Division of the Louisiana Board of Tax Appeals. If a concurcus is filed, the taxpayer or dealer, as applicable, shall pay the amount of sales tax collected or, if no tax was collected, the amount of tax due at the highest applicable rate, together with penalty and interest into an escrow account for the registry of the Board of Tax Appeals. The proceeding shall name as defendants all parishes that are parties to the dispute. Special rules for appealing a decision of judgment of the Board of Tax Appeals in the concurcus proceeding are also provided. Any taxpayer involved in a multi-parish audit should consider whether it is appropriate to file a concursus proceeding.

Act No. 274 became effective on June 16, 2017.

You can view the legislation here.

Addition of Certain Construction Contracts Excluded from New Sales and Use Tax

Act No. 209 (HB 264), enacted June 14, 2017.

Act No. 209 amends and reenacts La. R.S. 47:305.11(A) to provide that no new or additional sales or use tax shall be applicable to sales of materials or services involved in fixed fee and guaranteed maximum price construction contracts. The current law excludes any new sales tax levy on materials and services for a lump sum or unit price construction contract.

The provisions of Act No. 209 are applicable for purposes of any additional state sales and use tax enacted on or after July 1, 2017. Therefore, it appears that fixed fee and guaranteed maximum price construction contracts may not be excluded from the levy or a new or additional state or local sales and use tax enacted before July 1, 2017.

Act No. 209 became effective on June 14, 2017.

You can view the legislation here.

Medical Devices Exemption

SB 180, not acted upon by the Governor as of June 22, 2017.

SB 180 creates a sales and use tax exemption, beginning July 1, 2017, for medical devices used by patients under the supervision of a physician.

You can view the legislation here.

Income/Franchise Tax Credits

2015/2016 Reductions to Certain Income & Corporate Franchise Tax Credits Made Permanent & Restoration of Tax Credit for State Insurance Premium Tax Paid

SB79, not acted upon by the Governor as of June 22, 2017.

SB 79 provides that certain tax credit reductions will no longer sunset on June 30, 2018, making the reductions permanent. Specifically the tax credit for employee and depend health insurance coverage, the tax credit for rehab of residential structures, the tax credit for qualified new recycling manufacturing or process equipment and service contracts, the tax credit for donations made to public schools, the angel investor tax credit program, the digital interactive media and software tax credit, the musical and theatrical production income tax credit, the green jobs industries tax credit, the technology commercialization credit, and the modernization tax credit. The majority of the changes are minor, mostly reducing certain income and corporation franchise tax credits. The bill does, however, restore the corporate income tax credit for state insurance premium taxes paid.

You can view the legislation here.

Modifications to Inventory Tax Credit

SB 182, not acted upon by the Governor as of June 22, 2017.

SB 182 changes the limitation on refundability of excess inventory tax credits for local ad valorem taxes paid on inventory to clarify that only taxpayers included on the same consolidated federal income tax return shall be treated as a single taxpayer, i.e., related or affiliated taxpayers that are not included on the same consolidated federal return are not regarded as a single taxpayer.

If enacted, SB 182 would apply to all claims for credits authorized pursuant to La. R.S. 47:6006 on any return filed on or after July 1, 2017, regardless of the taxable year to which the return relates, but would not apply to an amended return filed on or after July 1, 2017, if the credits authorized pursuant to La. R.S. 47:6006 were properly claimed on an original return filed prior to July 1, 2017.

You can view the legislation here.

Goodbye Tax Credits

SB 172, not acted upon by the Governor as of June 22, 2017.

SB 172 terminates certain tax credits such as the tax credit for contributions to education institutions and the tax credit for employment of first-time nonviolent offenders, among others, as of January 1, 2020. The tax credits for expenses incurred for the rehabilitation of historic structures and for the conversion of vehicles to alternative fuel usage would terminate beginning January 1, 2022. The final bill did not impact the inventory tax credit.

You can view the legislation here.

Say Goodbye to Even More Tax Credits

Act No. 323 (SB 178) effective June 22, 2017

Act No. 323 sets termination dates for various tax credits and incentive programs, including programs administered by the Louisiana Department of Economic Development, specifically: the Corporate Tax Apportionment Program (July 1, 2017), the Angel Investor Tax Credit Program (July 1, 2021), the Sound Recording Investor Tax Credit (July 1, 2021), and the tax credit for “Green Job Industries” (July 1, 2017). At this time, the termination dates are not intended to be hard dates for termination, but are intended to be review dates for these programs, such that the programs should be up for review at the Legislature prior to being terminated. These programs will be up for review prior to their sunset and could be legislatively renewed.

You can view the legislation here.

Extension of Enterprise Zone Tax Exemption

Act No. 206 (HB 237) , enacted June 14, 2017.

Act No. 206 extends the sunset for the Enterprise Zone Tax Exemption Program from July 1, 2017 to July 1, 2021.

Act No. 206 became effective on June 14, 2017.

You can view the legislation here.

Modifications, Terminations, and Extensions of Various Tax Incentives & Rebates

SB 183, not acted upon by the Governor as of June 22, 2017.

SB 183 modifies, terminates, and extends various tax incentives and rebates. Some of the highlights include the following:

  • University Research and Development Parks: No new contracts to be entered after July 1, 2017.
  • Enterprise Zone Program: No new advance notifications shall be accepted after July 1, 2021.
  • Mega-Project Energy Assistance Rebate: No cooperative endeavor agreements shall be entered into after July 1, 2017.
  • Quality Jobs Program: No new advance notifications shall be accepted after July 1, 2022.
  • Competitive Projects Payroll Incentive Program: No new contracts shall be approved after July 1, 2022.
  • Quality Jobs Program: Minimum benefit rate was lowered to 4% from 5% and per-hour compensation required by employers to receive benefit was increased to $18.00 per hour from $14.50 per hour; per-hour compensation to receive 6% benefit rate is now $21.66 per hour; employer must be located in parish within the lowest 25% of parishes based on income; added to the list of professions and services not eligible for the rebate; and increased gross payroll to $625,000 and new direct jobs to 15 for the third year rebate for large employers.

You can view the legislation here.

Changes to Solar Tax Credit

HBHB 187, not acted upon by the Governor as of June 22, 2017.

HBHB 187 reduces the eligible time period for tax credit claims paid for solar energy systems purchased and installed in a new home from before January 1, 2018 to January 1, 2016. It also adds a three-year structured payout provision that authorizes tax credit claims on systems purchased on or before December 31, 2015 and caps the maximum amount of credits paid out at $5M each fiscal year, exclusive of interest. HB 187 also increases the amount of tax credits for leased solar energy systems installed on or after January 1, 2014 and before July 1, 2015 to 38% of the first $25,000 of the cost of purchase, from 30% of the first $20,000 of the cost of purchase.

You can view the legislation here.

Research and Development Tax Credit Changes

HB 300, not acted upon by the Governor as of June 22, 2017.

HB 300 makes a number of changes to the research and development tax credit program including extending it for three years, reducing the amount of the credits, and allowing for transferability of the Small Business Innovation Research Grant credit.

You can view the legislation here.

Inventory Tax Credit for Movables Held by Persons Engaged in Short-term Rentals

HB 313, not acted upon by the Governor as of June 22, 2017.

HB 313 addresses, in part, the duplicative (triplicative) tax burden on lessors and lessees of heavy equipment, making changes to the tax credit for local inventory taxes paid by expanding the definition of inventory to include any item of tangible personal property owned by a retailer that is available for or subject to a short-term rental that will subsequently or ultimately be sold by the retailer. “Short-term rental” is defined as a rental of an item for a period of “less than three hundred sixty-five days, for an undefined period, or under an open-ended agreement.” The bill also adds to the definition of retailer to include a person engaged in short-term rental of tangible personal property classified under NAICS codes 532412, e.g., a person in the construction, mining, oil field or oil well rental industry, and 532310, e.g., general rental centers and rent-all centers, and that is registered with the Department of Revenue.

In enacted, HB 313 would be effective retroactively to tax periods beginning on and after January 1, 2016.

You can view the legislation here.

Changes to Rules Regarding Tax Credits Concerning vessels in OCSLA Waters

HB 425, not acted upon by the Governor as of June 22, 2017.

HB 425 takes away the restriction that taxes paid under protest were ineligible for the tax credit for ad valorem taxes paid with respect to vessels in Outer Continental Shelf Lands Act Waters. The bill requires that a taxpayer who pays ad valorem taxes under protest provide notification to the Louisiana Department of Revenue, including copies of the payment under protest and the filed lawsuit and provides a mechanism for the Department to recapture the a credit related to an amount paid under protest if the taxpayer does not prevail. Special rules apply to challenges to the legality, as opposed to the correctness, of the property tax on vessels in Outer Continental Shelf Lands Act Waters.

If enacted, the HB 425 would apply to income tax periods beginning on and after January 1, 2017, and corporation franchise tax periods beginning on and after January 1, 2018.

You can view the legislation here.

Changes to Angel Investor Tax Credit

HB 454, not acted upon by the Governor as of June 22, 2017.

HB 454 extends the sunset for the Angel Investor Tax Credit Program until July 1, 2021. The bill sets the rate of the credit at 25% of the amount of investment divided equally over three years and reduces the overall limit per business to $1.44 million.

If enacted, the effective date for the extended sunset of the Angel Investor Tax Credit Program would become effective on July 1, 2017. The remaining portions of HB 454 would become effective July 1, 2018.

You can view the legislation here.

Oil and Gas Fees/Taxes

Changes to Oilfield Site Restoration Statute

HB 98, not acted upon by the Governor as of June 22, 2017.

HB 98 decouples the definitions of “oil,” “condensate,” and “gas” in the Oil Field Site Restoration Fund fee statute from the severance tax statutes. Currently, in addition to severance taxes, there is a set fee on the production of oil, condensate, and gas. The proceeds of that fee are to be used for the oilfield site restoration program in the Department of Natural Resources. The bill states that the full production rate fee shall include all production from oil and gas wells except for production from reduced rate production wells. The bill also repeals the provision that sets the fee for full-production wells in proportion to the rate of severance tax collected. The bill does not change the proportional fee for reduced rate production wells (i.e, stripper wells and incapable wells).

If enacted, the provisions of HB 98 would become effective on July 1, 2017.

You can view the legislation here.

Changes to Severance Tax Exemptions for Bringing Inactive and Orphan Wells back into Production 

HB 461, not acted upon by the Governor as of June 22, 2017.

HB 461 changes the length and amount of severance tax exemptions for bringing certain inactive and orphan wells back into production. The bill changes the exemption from a 5-year exemption to a 10-year exemption. Bringing back inactive wells will entitle the taxpayer to a 50% rate reduction and bringing back an orphan well will entitle the taxpayer to a 75% reduction on the severance tax. To qualify for the reduced rate, the production must be produced from the same perforated producing interval or from 100 feet above and 100 feet below the perforated producing interval for lease wells, and within the correlative defined interval for unitized reservoirs, that the formerly inactive or orphaned well produced from before being inactive or designated as an orphan well. The bill caps the program at $15 million per fiscal year.

If enacted, the provisions of HB 461 would become effective August 1, 2017.

You can view the legislation here.

Other Tax Updates

Electronic Filing of Tax Returns

Act No. 150 (HB HB 333), enacted June 12, 2017.

Act No. 150 authorizes the Secretary of the Department of Revenue to require that tax payments be made by electronic funds transfer and that returns be filed electronically. It also contains a penalty for failure to comply with electronic filing requirements equal to the greater of $100 or 5% for the tax.

Act No. 150 became effective on June 12, 2017.

You can view the legislation here.

Proposed Constitutional Amendment: Property Tax Exemption for Property Delivered to Construction Site

SB 140

SB 140 is a proposed constitutional amendment to exempt from ad valorem tax all property delivered to a construction project site for the purpose of incorporating the property into any tract of land, building, or other construction as a component part, including the , including the type of property that may be deemed to be a component part once placed on an immovable for its service and improvement. This exemption would apply until the construction project is completed (i.e., occupied and used for its intended purpose). The exemption would not apply to (1) any portion of a construction project that is complete, available for its intended use, or operational on the date that property is assessed; (2) for projects constructed in two or more distinct phases, any phase of the construction project that is complete, available for its intended use, or operational on the date the property is assessed; (3) certain public service property.

A constitutional amendment does not require action by the Governor. This constitutional amendment will be placed on the ballot at the statewide election to be held on October 14, 2017.

You can view the legislation here.

For questions or additional information, please contact: Jaye Calhoun at (504) 293-5936, Phyllis Sims at (225) 389-3717, Jason Brown at (225) 389-3733, Angela Adolph at (225) 382-3437, Willie Kolarik at (225) 382-3441 or McClain Schonekas at (504) 620-3368.

 

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By Jaye Calhoun and David Hamm

It’s time to amend the governing documents of flow-through entities taxed as partnerships to address recent federal legislative changes impacting all such entities.  Failure to amend now could result in unfavorable tax consequences.  Section 1101 of The Bipartisan Budget Act of 2015 (the “BBA”) substantially changes how the Internal Revenue Service may conduct audits of flow through entities taxed as partnerships.  Due to the increased popularity of limited liability companies, most taxed as partnerships, the Internal Revenue Service has been chafing under the relatively restrictive rules governing audits found in the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”).  The BBA eliminates many of the provisions of TEFRA that made IRS’ job of policing compliance by partnerships with the tax laws more difficult and replaces them with new centralized partnership audit rules, effective for returns filed for partnership tax years beginning after Dec. 31, 2017. In order to implement the new rules, IRS has re-released proposed regulations on June 13, 2017 and has invited comments in anticipation of a hearing on the proposed regulations currently scheduled for September 18, 2017.  The proposed regulations were initially released on January 18, 2017, but were withdrawn on January 20, 2017 in light of the Trump Administration’s freeze on all new and proposed federal rule making.

As a result of BBA, and as fleshed out in the proposed regulations, the new partnership audit rules provide that, among other things:

  • Out with the TMP and in with the PR – There is no longer a “tax matters partner/member,” but, instead, partnerships must designate a “partnership representative,” who will have the sole authority to act on behalf of the partnership (including, under certain circumstances, to decide which partners will pay any deficiency) and who is not required to be a partner.  If the partnership fails to designate the partnership representative, the IRS will designate a partnership representative for it.
  • Partnership Itself May be the Taxpayer – Unless certain partnerships makes an election to “push out” additional taxes owed as a result of an audit to the audited (“reviewed”) year partners, such additional taxes will now be paid by the partnership;
  • Annual Election Out Available to Certain Partnerships – The new rules apply to all partnerships except for those that are both qualified to “elect out” (generally partnerships with under 100 partners, none of which can be a disregarded entity or another partnership), and which make an annual election that the new rules do not apply.

The significant changes brought about by the BBA and the proposed regulations (likely to become final in substantially similar form) require substantive amendments to governing documents of all entities taxed as partnerships to address these issues and others. Of note, Louisiana does not currently tax partnerships, as partnerships, and will have to adopt rules to adapt to the federal changes.  In the meantime, the January 1, 2018 effective date of the BBA is approaching. Thus, the time for providing notice and counsel to your clients is quickly running out.

  • This article originally appeared in the New Orleans Bar Associations Tax Law Committee Blog.

A tow is pushing a barge up the Mississippi River. This single barge will be connected with others for a longer haul.

By McClain R. Schonekas

The M/V HANNAH C. SETTOON, owned and operated by Settoon Towing, L.L.C. (“Settoon”), was towing two crude oil tank barges on the Mississippi River when an attempted passage around the M/V LINDSAY ANN ERICKSON and its tow went badly resulting in a spill of 750 barrels of crude oil. The spill closed a 70-mile stretch of the river to vessels for 48 hours for cleanup and recovery. The United States Coast Guard named Settoon the strictly liable Responsible Party under the Oil Pollution Act of 1990 (“OPA 90”) (codified at 33 U.S.C. §§ 2701–2762), requiring it to carry out the cleanup and remediation. Settoon subsequently filed a Limitation of Liability proceeding seeking to limit its civil liability to the total value of the vessel and its freight. Marquette Transportation Company, L.L.C. (“Marquette”), owner of the M/V LINDSAY ANN ERICKSON, filed a claim. Settoon filed a counterclaim against Marquette seeking contribution under the OPA, general maritime law, or both.

Following a four-day bench trial on liability, the district court found both parties at fault for the collision, apportioning 35% of fault to Settoon and 65% to Marquette. The district court also found that Settoon, the Responsible Party, was entitled to contribution for purely economic damages from Marquette, in proportion to its liability. Marquette appealed, arguing that OPA 90 does not allow a Responsible Party to obtain contribution from a partially-liable third party, and even if it does, the district court clearly erred in its allocation of fault. A unanimous panel anchored by an experienced admiralty jurist affirmed the district court.

Judge Southwick, writing for the panel, methodically analyzed the applicable provisions of OPA 90 and dissected Marquette’s statutory argument, ultimately disposing of it. Simply stated, Marquette argued that the right to contribution from a jointly negligent party did not arise under OPA 90. Instead, Marquette contended that any contribution it owed was based on general maritime law and therefore limited by the Robins Dry Dock bar to purely economic damages.[1]

Highlighting the relevant section of OPA 90, at 33 U.S.C. §§ 2709,[2] the panel held “that contribution is available under the OPA.” Despite its clever argument, the panel rebuffed Marquette’s invitation to apply general maritime law and the Robins Dry Dock bar to purely economic damages. The Court stated,

We conclude that the most reasonable interpretation of the language of the OPA, as confirmed by the Act’s legislative history, grants to an OPA Responsible Party the right to receive contribution from other entities who were partially at fault for a discharge of oil. Specifically, a Responsible Party may recover from a jointly liable third party any damages it paid to claimants, including those arising out of purely economic losses.[3]

Unsurprisingly, the panel also quickly disposed of Marquette’s argument that the district court clearly erred in its allocation of fault. AFFIRMED.

*******************************

[1] In Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303 (1927), a time-charterer of a steamship brought an action against the Dry Dock Company to recover for loss of use of the steamer whose delivery was delayed by the Dry Dock Company’s negligence. The Court found that the time-charter had no cause of action against the Dry Dock Company for the loss of use of the vessel because, among other reasons, the docking contract between the vessel owner and the Dry Dock Company was not for the time-charterer’s direct benefit.

[2] This Section states, “A person may bring a civil action for contribution against any other person who is liable or potentially liable under this Act or another law. The action shall be brought in accordance with section 2717 of this title.”

[3] In re Settoon Towing, L.L.C., No. 16-30459, 2017 WL 2486018, at *10 (5th Cir. June 9, 2017).

Offshore oil rig drilling platform in the gulf of Thailand 2015.

By Daniel B. Stanton

In the recent U.S. Fifth Circuit case of In re Larry Doiron, Inc., 849 F.3d 602 (5th Cir. 2017), the Court considered an often pivotal question in many offshore personal injury cases: is the contract governing the relationship of the parties a maritime contract?

While this issue is not new to the offshore oil and gas industry, it is often one that is hotly contested because of the impacts that follow the determination that a contract is maritime in nature or not. One of the most significant issues resting on this determination is the enforceability of the indemnity provisions which are often included in service contracts. Under general maritime law, indemnity provisions are generally enforceable; under Louisiana law, indemnity provisions are often unenforceable as a result of the Louisiana Oilfield Indemnity Act (“LOIA”). Thus the determination that a contract is maritime in nature, and therefore governed by general maritime law, can have a significant impact on the relationship between the parties to an offshore personal injury action.

In this case, Plaintiff Peter Savoie, an employee of Specialty Rental Tools & Supply (“STS”), was injured while performing flow-back services on an offshore natural-gas well owned by Apache. Savoie’s services were provided under a master services contract (“MSC”) between Apache and STS which contained a common indemnity provision that required STS to defend and indemnify Apache and its “Company Group” from all claims for bodily injury made by STS employees. Like most service contracts, the MSC operated as a broad blanket agreement that did not describe individual tasks, but contemplated their performance under subsequent oral and written work orders.

Prior to his injury, Savoie attempted several different methods to complete the flow-back process on Apache’s well. After these methods proved unsuccessful, Savoie determined that additional equipment would be needed to perform the operation, including a hydraulic choke manifold, a flow-back iron, and a hydraulic gate valve. Because these pieces of equipment were too heavy to manipulate by hand, a crane barge would be required to move them to and from the wellhead. Apache’s on-site representative made arrangements to procure the necessary equipment. The crane barge was supplied by Larry Doiron, Inc. (“LDI”). Savoie was injured during the process of rigging down the LDI crane. When Savoie made a claim against LDI for his injuries, LDI demanded defense and indemnity from STS under the Apache/STS MSC. STS countered that the MSC was governed by Louisiana law, and as a result of the LOIA, the indemnity provisions of the MSC were rendered ineffective. No party disputed that LDI was part of the Apache “Company Group” to which the indemnity obligation flowed, and ruling on cross-motions for summary judgment, the district court found that the contract was maritime in nature and therefore STS was bound to defend and indemnify LDI. STS appealed the district court’s ruling.

The issue before the Fifth Circuit Court of Appeals was simple: what law applied to the indemnity provision of the MSC, maritime law or Louisiana law? But to answer this question, the Court had to examine not only the MSC, but also the oral work order for the use of LDI’s crane barge. First, the Court looked to the MSC and asked the following question: how have contracts for flow-back services historically been treated by courts? Having not previously considered contracts for flow-back services, the Court compared the work to wireline and casing work. Under prior decisions of the Court, contracts for wireline work had traditionally been found to be non-maritime and contracts for casing had traditionally been found to be maritime. The distinction being that wireline services often do not require the use of a vessel, while casing work often does. The Court then considered the task at issue in the present case, flow-back work, and found that the work could be performed either exclusively from a well platform or could require a vessel. Thus based on historical precedent, it was unclear to the Court whether the contract for flow-back services was a maritime or non-maritime contract.

Because the historical treatment of the contract as maritime or non-maritime was unclear, the Court went on to consider the specific facts surrounding the work that produced the Plaintiff’s injury. The Court evaluated the events in light of six factors that were developed by the Court in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990):

1) [W]hat does the specific work order in effect at the time of injury provide? 2) [W]hat work did the crew assigned under the work order actually do? 3) [W]as the crew assigned to work aboard a vessel in navigable waters[?] 4) [T]o what extent did the work being done relate to the mission of that vessel? 5) [W]hat was the principal work of the injured worker? and 6) [W]hat work was the injured worker actually doing at the time of injury?

Under this framework, the Court found 4 of the 6 factors supported a conclusion that the contract at issue was maritime in nature.

Under the first factor, neither party could produce any documents describing the work order under which the LDI crane barge was procured, but the Court found that the MSC did have language that contemplated the use of vessels to perform work thereunder. Therefore, because the use of vessels during STS’s work for Apache was contemplated by the parties, imposing a maritime obligation on STS should come as no surprise. Under the second factor, the Court found that because the flow-back operation could not be completed without the use of a vessel; this factor favored maritime status. The fourth and sixth factors likewise counseled towards a maritime contract. The Court found that the mission of the vessel at issue was solely the performance of STS’s flow-back work. Plaintiff was also injured by equipment affixed to the vessel – the crane.

Only the third and fifth factors gravitated towards a finding that the contract was not maritime in nature according to the Court. Under these factors, the Plaintiff was neither assigned to work aboard a vessel in navigation nor employed to perform maritime-related work.

Having worked through the applicable analysis, the Court found that the contract at issue – the specific work order for the performance of back-flow services under the MSC – was a maritime contract. As a result, LDI’s demand for defense and indemnity was valid and enforceable, and the district court properly granted judgment in favor of LDI.

While the contractual issues at play in offshore personal injury cases are often less flavorful than the tort issues, they can have substantial impacts nonetheless. With litigation costs rising and the potential for substantial damage awards, contractual defense and indemnity provisions offer very valuable protections to the parties. And while elsewhere in the world, the distinction between a maritime contract and a non-maritime contract may be inconsequential, in the Louisiana oil patch the determination can result in the nullification of these important and valuable protections. Furthermore, this determination may not be as simple as reading the choice of law provision or evaluating the governing service agreement. Fortunately, the Fifth Circuit continues to provide guidance for navigating the sticky issues that arise on the Outer Continental Shelf where maritime law, state law, vessels, seamen, production platforms, and production personnel all interact.