State and Local Taxation


By Jill Gautreaux

The City of New Orleans (“the City”) has amended and re-enacted a gallonage tax on alcoholic beverages of low and high alcoholic content. A “gallonage tax” is a tax on alcoholic beverages based upon the amount, calculated in gallons, of alcoholic beverages sold. The current ordinance became effective on January 1, 2017, but industry members have sought to enjoin the implementation of this “new” tax. The ordinance closely follows the wording of the State gallonage tax statutes, which causes the tax to apply to wholesalers or Louisiana manufacturers because they are the first parties to come into possession of the alcoholic beverages in the State of Louisiana. The City ordinance does not have the effect that it apparently intended, and is worded as follows:

Section 10-511 – Who is liable for tax.

The taxes levied in sections 10-501 and 10-502 of this division shall be collected, as far as practicable, from the dealer who first handles the alcoholic beverages in the city. If for any reason the dealer who first handled the taxable alcoholic beverages has escaped payment of the taxes, those taxes shall be collected from any dealer in whose hands the taxable beverages are found.

On February 9, 2017, the City Council introduced an ordinance to amend Section 10-511, which qualified the word “dealer” in the first sentence and the first phrase of the second sentence with “wholesale”. Nevertheless, according to the current wording of the ordinance, if the wholesale dealer has “escaped” the tax, the retailer will be responsible for paying the tax to the City.

There is a strong likelihood that New Orleans alcoholic beverage retailers will end up having to pay some of this tax if the ordinance is enacted and enforced as currently written. Several large wholesale companies, including Southern Glazers, Southern Eagle, and Republic, do not have any physical presence within the City of New Orleans, and therefore should not be subject to the tax.

A few trade organizations have challenged the enforceability of the ordinance in Orleans Parish Civil District Court. The plaintiffs were successful in obtaining a temporary restraining order, but were denied a preliminary injunction. The temporary restraining order has lapsed, but, as of this date, the City has indicated that it will not collect the tax until the litigation has concluded. One City official has suggested that if the City prevails, that the tax due will be retroactive to January 1, 2017.



By William Kolarik

The New Jersey Tax Court’s opinion in Elan Pharmaceuticals, Inc. v. Director, Division of Taxation, Dkt. No. 010589-2010 (Tax Ct. of N.J. February 6, 2017) highlights the potential constitutional concerns related to the application of Louisiana’s recently enacted throw-out rule.

On June 28, 2016, Louisiana Governor Edwards signed H.B. 20 (Act 8) (effective June 28, 2016) into law. In addition to changing the apportionment rules for certain industries and enacting market-based sourcing for sales of services, Act 8 also contains a throw-out rule. Specifically, Act 8 amends the Louisiana apportionment rules to provide that “[i]f the taxpayer is not taxable in a state to which a sale is assigned or if the state of assignment cannot be determined or reasonably approximated pursuant to [the Louisiana apportionment rules contained in La. R.S. 47:287.95 and its related regulations], the sale shall be excluded from the numerator and the denominator of the sales factor.”[1] The throw-out rule applies to all taxable periods beginning on or after January 1, 2016.

A throw-out rule is an, oftentimes controversial, alternative to a “throw-back” rule. A throw-back rule is a rule that sources a taxpayer’s sales that are not taxable in the state of destination to the state of origin. From a policy perspective, the proponents of throw-back rules assert that it is appropriate to redistribute non-taxed sales to the state of origin because the state of origin is ostensibly connected to the non-taxed sales in some manner. In contrast, a throw-out rule redistributes income derived from sales made to a state where a taxpayer is not subject to tax to another state where a taxpayer is subject to tax by removing the non-taxable sales from both the numerator and the denominator of the taxpayer’s sales factor. The proponents of throw-out rules justify the rule by asserting that a taxpayer’s entire taxable income should be subject to state income tax. As Elan Pharmaceuticals and its related cases demonstrate, a throw-out rule becomes problematic and raises constitutional concerns when a tax administrator attempts to apply the rule in a manner that taxes income earned in another state that the other state’s legislature has jurisdiction to tax but chooses not to tax.

Elan Pharmaceuticals is the latest in a series of New Jersey cases in which the New Jersey Courts prohibited the New Jersey Division of Taxation (the “Division”) from applying New Jersey’s, now repealed, throw-out rule in an unconstitutional manner. Elan Pharmaceuticals (“Elan”), the taxpayer, was a Delaware company headquartered in California. Elan had property in 39 states, inventory in seven states, and payroll in 48 states. Elan only filed tax returns in six states because the other states in which it did business chose not to tax Elan’s in-state business activity. In at least 17 of the states in which Elan did not file a corporate income tax return, Elan was not subject to state income tax by virtue of Public Law 86-272 (“PL 86-272”), a federal law that prohibits a state from levying a state income tax if a taxpayer limits its in-state business activity to the solicitation of sales orders that are accepted and filled from inventory located outside the state.[2]

On audit, the Division applied New Jersey’s throw-out rule to reduce the denominator of Elan’s sales factor to include only amounts included in the sales factor numerators of the six states in which Elan reported a sales factor numerator. Elan challenged the Division’s application of the throw-out rule and asserted that the exclusion of receipts from its sales factor denominator was arbitrary and improper because it excluded receipts that were (1) allocable to other states where Elan was taxable pursuant to a throw-back rule; or (2) allocable to states where Elan stored its inventory, an activity which is a constitutional basis for asserting nexus; and (3) allocable to California, where Elan was headquartered. In contrast, the Division asserted that its application of the throw-out rule was proper because it excluded receipts from states that lacked jurisdiction to tax due to PL 86-272.

The court began its analysis by explaining that the Division’s arguments overlooked the substance of the New Jersey Supreme Court’s decision in Whirlpool Properties Inc. v. Director, Division of Taxation, 208 N.J. 141 (2011). In Whirlpool, the New Jersey Supreme Court held that New Jersey’s throw-out rule was constitutional as applied only “when the category of receipts that may be thrown out is limited to receipts that are not taxed by another state because the taxpayer does not have the requisite constitutional contacts with the state or because of congressional action such as P.L. 86–272.”[3] In contrast, the throw-out rule violated the dormant Commerce Clause when it excluded receipts that were not taxed by another state because the state chooses not to impose an income tax.[4] Citing Lorillard Licensing Co. v. Director, Division of Taxation, 28 N.J. Tax 590 (Tax 2014), in which the Superior Court of New Jersey held that the phrase “subject to tax” under Whirlpool applied in the context of economic nexus, the court emphasized that the test for determining whether the throw-out rule was constitutionally applied is whether a taxpayer has the requisite constitutional contacts with a state to be subject to the state’s taxing jurisdiction. According to the court, the possibility that PL 86-272 was implicated did not foreclose the limitations on the application of the throw-out rule because PL 86-272 does not bar an origin state from taxing the income generated from sales of goods to a destination state that cannot tax the income.

After explaining the constitutional limitations that applied to the application of New Jersey’s throw-out rule, the court explored the extent to which the states where Elan did not file tax returns had the ability to tax Elan’s operations. The court noted that an origin state had the authority to tax Elan’s sales from that state via a throw-back rule and that several states where Elan did business had throw-back rules. Therefore, the Division could not isolate application of the throw-out rule to New Jersey and deny that other origin states could tax Elan’s sales via a throw-back rule. Next, the court rejected the Division’s contention that Delaware’s choice not to impose an income tax required a conclusion that Elan’s sales of goods shipped from Delaware be removed from Elan’s sales factor denominator. In addition, the court also explained that an origin state or a destination state could impose a business-presence based corporate tax on Elan as long as the state had a basis to assert nexus over Elan, such as Elan’s storage of inventory, ownership of property, or payroll in the state. Because other states could constitutionally tax Elan’s sales, the court reversed the Division’s determination that only receipts reported to six states could be included in Elan’s sales factor denominator.

Louisiana Implications

The Louisiana Department of Revenue (the “Department”) has not issued guidance regarding how it intends to apply Louisiana’s throw-out rule. Nevertheless, it is important to understand that the limitations on the application of a throw-out rule described in the New Jersey cases are constitutional limitations that apply to the application of any throw-out rule by any state, including Louisiana. A taxpayer preparing its 2016 Louisiana corporation income tax return should carefully consider the extent to which the Louisiana throw-out rule applies to its out-of-state business activity in states where it does not file a corporate income tax return. When considering how the Louisiana throw-out rule applies, a taxpayer should give extra scrutiny to any state that has the ability to levy a tax on its sales but that chooses not to do so, e.g., an origin state in which a taxpayer stores inventory that does not adopt a throw-back rule. In addition, a Louisiana taxpayer affected by the throw-out rule should carefully scrutinize any guidance issued by the Department that purports to apply the throw-out rule to sales in destination states that have the ability to levy a tax on the taxpayer.

For additional information, please contact: Christopher J. Dicharry at (225) 382-3492, Jaye Calhoun at (504) 293-5936, or Willie Kolarik at (225) 382-3441.

[1] La. R.S. § 47:287.95(M).

[2] 15 U.S. Code § 381.

[3] Whirlpool Prop. Inc. v. Director, Div. of Taxation, 208 N.J. 141, 172 (2011)

[4] Id. at 172-173.


By Linda Akchin and Chris Dicharry


Louisiana law imposes a sales tax on “sales at retail.”  “Sale at retail” is defined in the sales tax law, and the definition provides that the term does not include “sales of materials for further processing into tangible personal property for sale at retail.”    This provision is commonly referred to as the “further processing exclusion.”[1]  The most recent Louisiana Supreme Court’s decision interpreting this “further processing exclusion,” Bridges v. Nelson Indus. Steam Co., 2015-1439 (La. 5/3/16), 190 So.3d 276 (the “NISCO decision”), recently became final.  The decision is significant for all taxpayer-manufacturers.  It provides an excellent explanation of applicable legal principles relating generally to interpretation of the further processing exclusion and a comprehensive explanation of the three-prong jurisprudential test for application of the exclusion.  In response to the NISCO decision, and before it became final, the Legislature passed an Act amending the further processing exclusion.[2]  The purpose of this writing is to (i) provide some general information regarding applicable rules of law to be gleaned from the NISCO decision; and (ii) identify questions arising from the recent legislative amendment to the law.


The further processing provision applies to byproducts.

The NISCO decision is the first in which the Supreme Court directly addresses the question of whether the further processing exclusion from tax applies to purchases of materials that are further processed into a byproduct of a manufacturing process.  The Supreme Court held that it does.  Noting that the exclusion applies to “tangible personal property,” and the sales tax regulation interpreting the exclusion provides that whether materials are further processed or simply used in the processing activity will depend entirely upon an analysis of the “end product,” the court reasoned that it found nothing in the law that requires the “end product” be the enterprise’s primary product, explaining:

“The plain language of the statute makes the exclusion applicable to articles of tangible personal property.  There simply is no distinction between primary products and secondary products. . . . At the end of the day, the ash [NISCO’s byproduct] is produced and sold . . . making it an ‘article of tangible personal property for sale at retail.’”[3]

The NISCO decision applies and interprets the long-established three-pronged test for application of the exclusion.

The Court applied the jurisprudentially-established three-pronged test for application of the further processing exclusion as it related to NISCO’s ash byproduct:  The test is:

(1) the raw materials become recognizable and identifiable components of the end products;

(2) the raw materials are beneficial to the end products; and

(3) the raw materials are materials for further processing, and as such, are purchased with the purpose of inclusion in the end products.[4]

In applying the test the Court clarifies and reinforces aspects of the application of the test that all taxpayers would be well-served to keep in mind.   Those clarifications include:

(1)       The further processing provision constitutes an “exclusion” not an “exemption” from tax, and as such, must be liberally construed in favor of the taxpayer;[5]

(2)       When the material purchased is processed into less than all of the end products produced, the analysis involves only consideration of the end product(s) into which the material is further processed, without regard to other end products.[6]

(3)       In order to satisfy the “benefit” prong of the test it is not necessary to conduct tests to determine the qualities of the material purchased or its beneficial impact on the end product.  It is sufficient that elemental components of the material purchased become integral components of the molecular makeup of the end product.  That “integration” is in and of itself of some benefit to the end product.[7]

(4)       The “purpose” prong of the test does not involve a primary purpose test; and the “purpose” test involves a “manufacturing purpose” inquiry, not a “business purpose” or “economic purpose” inquiry.  Only the manufacturing process and the physical and chemical components and the materials involved in the process are germane to the “purpose” test.[8]

(5)       There is no legal basis for an “apportionment” approach to the further processing exclusion, whether based upon the percentage of the material or some assigned value of the components that actually end up in the end product, and any such approach is impractical in application.[9]

The New Law

The 2016 Legislative amendment, effective June 23, 2016, amends the law to provide that “[t]he term ‘sale at retail’ does  not include sale of materials for further processing into articles of tangible personal property for sale at retail when all of the criteria in Subsubitem (I) of this Section are met.[10]  Those criteria consist of a re-statement of the three-pronged test:  (1) the raw materials become a recognizable and identifiable component of the end product; (2) the raw materials are beneficial to the end product; and (3) the raw materials are material for further process, and as such are purchased for the purpose of inclusion into the end product.

The amendment goes further, however, and adds a “Subitem II” to the definition of “sale at retail.”  This addition represents new law and provides, in short, that “[i]f the materials are further processed into a byproduct for sale, such purchases of materials shall not be deemed to be sales for further processing and shall be taxable.”  The term “byproduct” is defined to mean “any incidental product that is sold for a sales price less than the cost of the materials.”


Did the Legislature intend to overrule the NISCO decision?

The first question that arises is whether the clarifications to the three-prong jurisprudential test that are set forth in the NISCO decision may be applied under the amended law’s verbatim codification of the three-prong jurisprudential test.  It is a well-accepted rule of statutory construction that those who enact statutory provisions are presumed to act deliberately and with full knowledge of existing laws on the same subject, with awareness of court cases and well-established principles of statutory construction, with knowledge of the effect of their acts and a purpose in view; and that when the Legislature changes the wording of a statute, it is presumed to have intended a change in the law. [11]  Thus, legislative language will be interpreted based upon assumption that the Legislature was aware of judicial decisions interpreting those statutes, including among others, the NISCO decision.[12]  Because the amended law adopts the three-prong judicial test verbatim, we believe a strong argument may be made that there is no legislative intent to vary from the Supreme Court’s interpretations of that test, except to the extent the language of the amended law expressly varies from the Supreme Court’s prior interpretations.  The Legislature has never hesitated to expressly state its intent to legislatively overrule a Louisiana Supreme Court decision, when that is indeed its intent.  Here, no express statement of such intent was made, and we do not believe that the Louisiana Supreme Court will infer intent to overrule any aspect of the NISCO decision, except to the extent the language of the amendment is inconsistent with the court’s interpretation in NISCO.

What constitutes a “byproduct” for purposes of the new law?

In cases where a product is sold for a sales price less than the cost of its materials, questions will likely arise as to whether the product is an “incidental product.”  Because the term “incidental product” is not statutorily defined by the legislature, we must give the words their commonly-accepted meaning.  The word “incidental” means “being likely to ensue as a chance or minor consequence,” or “occurring merely by chance or without intention or calculation.”[13]  Many products sold for a sales price less than the cost of their materials are intentionally manufactured and sold.  They are not manufactured by accident; and they are not the result of chance.  Instead, a conscious decision is made to choose a process design that will in fact create certain byproducts, with the intention to sell all the products of the process – both “primary products” and “byproducts,” with an overall profit motive.  While any particular byproduct may be of minor consequence economically speaking, when viewed in a vacuum, it may not be of economic “minor consequence” to the overall finances of the taxpayer; or it may not be of minor consequence in terms of volumes manufactured and sold, or investment made to develop, manufacture, market and sell the byproduct.  In our opinion, the Legislature’s amendment – a clear intent to vary from the NISCO decision’s holding that the further processing exclusion applies to all end products – merely creates more uncertainty, resulting in many more sales and use tax disputes and consequent litigation.  The taxing authorities will undoubtedly argue that the intent of the amendment was to create a rule to be applied when a byproduct, viewed in a vacuum, is not profitable; but that is not what the Legislature said.  The Legislature adopted a rule to be applied to “incidental products,” without defining that term.  Thus, we believe a proper interpretation requires that a determination must first be made regarding whether the byproduct is an “incidental product;” and only if it is an incidental product, does the second part of the “test” – whether it is sold for a sales price less than the cost of its material – apply.

May the new law be applied retroactively?

Taxpayers may expect the taxing authorities to impose the new law going forward.  Serious questions arise, however, regarding the applicability of the new law to taxes already reported and paid, or incurred, before the new law became effective.

The new law expressly provides that it “shall not be applicable to any existing claim for refund filed or assessment of additional taxes due issued prior to the effective date of this Act for any tax period prior to July 1, 2016, which is not barred by prescription.”  If a taxpayer’s claim or dispute with the taxing authority falls within the language of this provision, the new law should not be applied by the taxing authorities.  It is not clear what is meant by the terminology “claim for refund filed.”  Does it mean the submission of a refund request or claim with the taxing authority, or a suit for refund, or both?  Likewise, it is not clear what is meant by “assessment of additional taxes due issued” – does it include notices of intent to assess (“proposed assessments”), notices of assessment (“final assessments”), petitions for redetermination of assessments, or suits to collect tax, or all four.  We recommend that taxpayers apply the most liberal interpretation of the language unless and until guidance is provided by regulation or judicial decision.

There will undoubtedly be cases in which no claim for refund has been filed or assessment issued before the effective date of the act, but involving tax periods prior to July 1, 2016.  In such cases, we believe a strong argument may be made that retroactive application of the new law to pre-amendment tax periods is unconstitutional.  The Legislature stated in the Act that it “is intended to clarify and be interpretive of the original intent and application of” the further processing exclusion, and that “[t]herefore, the provisions of this Act shall be retroactive and applicable to all refund claims submitted or assessments of additional tax due which are filed on or after the effective date of this Act.”  Despite this statement by the legislature, we believe that the amendment to the law is not merely clarifying and interpretive.  We believe the changes are substantive in nature.  Generally, substantive laws may be applied prospectively only.  And despite express legislative intent to the contrary, it is uniquely the province of the courts to determine if an Act is substantive, or merely clarifying and interpretive.  And, if the law is substantive, it will not be applied retroactively by the courts because to do so impinges upon the authority of the judiciary in violation of the constitutional doctrine of separation of powers and divests taxpayers of substantive rights and causes of action that accrued and vested in the taxpayer before the effective date of the Act, such that imposition of the new law would constitute a denial of due process.[14]

Was the amendment to the law constitutionally enacted?

In the case of an attempt by a taxing authority to apply the new law retroactively to pre-amendment tax periods, or in the case of a purely prospective application of the new law to post-amendment tax periods, a question still exists regarding the constitutionality of the law’s enactment.  The Louisiana Constitution provides that enactments levying a new tax or increasing an existing tax require a two-thirds vote of both houses of the Legislature to become law.[15]  Here, the Act at issue did not have a two-thirds vote of the House of Representatives.  A viable legal argument exists that because the law amends definitions in a manner that makes previously non-taxable transactions taxable, it constitutes either a “new tax” or an “increase in an existing tax,” thus requiring a two-thirds vote of both houses of the Legislature. [16]  Unless and until this issue is resolved in the courts, a taxpayer would be wise to seek legal counsel and consider its options before voluntarily paying tax on materials purchased for further processing into a byproduct.


[1] La. R.S. 47:301(10)(c)(i)(aa), before amendment effective June 23, 2016; see La. Act No. 3 (2nd Extra. Sess. 2016) (“Act 3 of 2016”).

[2] Act 3 of 2016, supra.

[3] NISCO, pp. 8-9, 190 So.3d at 282.

[4] Id. at pp. 7-8, 190 So.3d at 281, quoting International Paper, Inc. v. Bridges, 2007-1151, p. 19 (La. 1/16/08), 972 So.2d 1121, 1134.

[5] Id. at pp. 5-6, 190 So.3d at 280-281.

[6] Id. at pp. 7-9, 190 So.3d at 281-282.

[7] Id. at pp. 9-10, 190 So.3d at 282-283.

[8] Id. at pp. 4, 10-13, 190 So.3d at 279, 283-285/

[9] Id. at pp. 13-15, 190 So.3d at 285-286.

[10] Act 3 of 2016, supra (emphasis added)

[11] Borel v. Young, 2007-0419, pp. 8-9 (La. 11/2/07), 989 So.2d 42, 48 (emphasis added).

[12] State v. Campbell, 2003-3035, pp. 8-9 (La. 7/6/04), 877 So.2d 112, 118.

[13] Merriam-Webster’s Collegiate Dictionary (11th ed. 2012) (emphasis added).

[14] See e.g. Mallard Bay Drilling, Inc. v. Kennedy, 2004-1089 (La. 6/29/05), 914 So.2d 533); Unwired Telecom Corp. v. Parish of Calcasieu, 2003-0732 (La. 1/19/05), 903 So.2d 392; and Bourgeois v. A.P. Green Indus., Inc., 2000-1528 (La. 4/3/01), 783 So.2d 1251; La. Const. Art. II, §§1-2; La. Const. art. I, §2; U.S. Const. Amend. XIV, §1.

[15] La. Const. Art. VII, §2.

[16] See e.g. Dow Hydrocarbons & Resources v. Kennedy, 1996-2471 (La. 5/20/97), 694 So.2d 215.




By Daniel Stanton

By emergency declaration issued August 18, 2016, the Commissioner of the Louisiana Department of Insurance adopted Emergency Rule 27. Emergency Rule 27 allows the Department of Insurance to suspend certain statutes in the Louisiana Insurance Code and the rules and regulations promulgated under those statutes that may affect families and business affected by the current flood crisis in Louisiana.

While Emergency Rule 27 suspends many provisions of the Louisiana Insurance Code, most of the suspended provisions affect the ability of an insurer to cancel, terminate, non-renew, or non-reinstate a policy of insurance. One of its most significant provisions provides that an insurer may not terminate, cancel, or non-renew a policy of insurance as a result of the “inability of an insured . . . from complying with any policy provisions,” this includes non-payment of premiums. Insurers are further forbidden from imposing any interest, penalty, or other charge as a result of the enactment of Emergency Rule 27. Furthermore, the rule extends to September 10, 2016, any deadline for the submission of evidence or the completion of any act related to any claim for coverage under a policy of insurance made prior to August 12, 2016.

Emergency Rule 27 currently applies to policy holders residing in the following parishes: Acadia, Allen, Ascension, Avoyelles, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson Davis, Lafayette, Livingston, Point Coupee, St. Helena, St. James, St. John the Baptist, St. Landry, St. Martin, St. Tammany, Tangipahoa, Vermillion, Washington, West Baton Rouge, and West Feliciana. Emergency Rule 27 applies to any policy of insurance in effect as of 12:01 a.m. on August 12, 2016, and will remain in effect through September 10, 2016.

Additional information and a copy of Emergency Rule 27 may be found on the Louisiana Department of Insurance’s website.

Members of the Louisiana Army National Guard rescue people from rising floodwater near Walker, La., after heavy rains inundated the region, Sunday, Aug. 14, 2016. (AP Photo/Max Becherer)

By Jason R. Brown

If you are one of the many South Louisiana residents directly affected by recent flooding but did not have flood insurance protection for your home and/or assets, be aware that the law provides some limited relief in the form of sales tax refunds.   Under Louisiana law (La. R.S. 47:315.1), residents living in an area determined by the president of the United States to warrant federal assistance can seek a refund of state sales taxes paid on destroyed household items such as furniture, appliances, electronic equipment, etc.  Refunds are not limited to homeowners.  Apartment and other homestead renters are equally eligible.  Eligibility is limited, however, to the actual owner of the property who paid the state sales tax and no refunds are allowed on property for which the purchaser received reimbursement (whether through insurance or other means, including, potentially, assistance from FEMA).

The Louisiana Department of Revenue has issued standard forms for making natural disaster refund claims.  The forms – R-1362 (Claim for Refund); R-1362D (Schedule of Tangible Personal Property Destroyed by a Natural Disaster); and R-1362S (Calculation of States Sales Tax Refund) – must be submitted on or before December 31, 2019.  Form R-1362 must be notarized and form R-1362i should be referenced for instructions on how to complete the three required forms and what documentation must be attached to verify a claim.

Purchases of automobiles/trucks, boats/boat trailers, water/snow skis or similar recreational items generally used away from home are not eligible.  Nor are items that were installed or became component parts of the residence (i.e., lighting and bathroom fixtures, water heaters, hot tubs/spas and wall-to-wall carpeting).  Finally, be aware that eligibility is limited to taxes paid on the destroyed property’s original purchase, not its replacement.

As of today, the President of the United States has declared Acadia, Ascension, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson Davis, Lafayette, Livingston, Pointe Coupee, St. Helena, St. Landry, St. Martin, St. Tammany, Tangipahoa, Vermillion, Washington and West Feliciana Parishes federal disaster areas.  More are expected in the coming days.  Residents who live in one of these parishes, but did not have flood insurance should consider seeking natural disaster refunds on their destroyed household items purchases.

Neighborhood flooded. Sign warns of high water.

By Christopher J. Dicharry

Property taxes in Louisiana are generally based on the status and condition of taxable property on January 1 of each tax year. For Baton Rouge and surrounding areas devastated by the recent flooding that could mean paying property taxes on homes and business property based on the condition of property before the floods.

Fortunately, Louisiana law offers a solution. Historically, Louisiana law had special provisions for the reassessment of flooded property. See La. R.S. 47:1978. In 2005, the Louisiana Legislature expanded this reassessment provision and provided clearer procedures related to the reassessment of damaged or destroyed property. La. R.S. 47:1978.1.

La. R.S. 47:1978.1 requires assessors to modify the assessments of properties that have been damaged or destroyed or that are non-operational or uninhabitable due to an emergency declared by the governor. Gov. Edwards has declared the recent flooding as an emergency. See Proclamation No. 111JBE 2016. Under the law, assessors must recognize damage to land and other property, including buildings, structures, or personal property, such as equipment.

Since the assessment rolls have not yet been certified by the assessors, La. R.S. 47:1978.1 requires the assessors to modify their property tax assessments and delay the certification process, as necessary. The modified rolls will be subject to public inspection for a period of fifteen days once the rolls have been completed. Valuation appeals will have to be filed after shortly after the public inspection period.

It is important that taxpayers with damaged property contact the appropriate assessor’s office so that they can submit evidence of damage, such as pictures and insurance claims. This evidence will then be used by the assessor’s office to determine what adjustments need to be made to the assessment of the damaged property to properly account for the destruction, damage, or other impairment. The assessors in many of the impacted areas have not yet established procedures for requesting and implementing the valuation adjustments required by La. R.S. 47:1978.1. Kean Miller will be monitoring developments related to reassessments and is ready to help taxpayers get adjustments that properly account for all damage from the 2016 floods.

For information or questions about the reassessment law or other tax issues related to the 2016 floods contact the Kean Miller State and Local Tax Team: Chris Dicharry, Jason Brown, Angie Adolph or Phyllis Sims.


By Angela W. Adolph

The statutory and regulatory deadline for appealing an adverse decision of the Louisiana Tax Commission (the “Commission”) is clearly thirty (30) days, but identifying the event that triggers commencement of the deadline has not always been easy. The applicable statute provides that the appeal deadline runs from the date the decision is “entered,” while the applicable administrative rule provides that the deadline runs from the date the decision is “mailed.” A decision from the Fourth Circuit Court of Appeal had previously held that a decision was “entered” on the day that the members of Commission signed the decision. In that case, the decision was signed and mailed on the same day.

The courts have finally clarified when the 30 day appeal period begins to run, hopefully resolving this issue for good.  In Erroll Williams v. Hotel Ambassador NOLA, LLC, No. 2016-CA-0015 (La. App. 4 Cir. 6/15/16), ___ WL _____, the Commission mailed its decision some eight (8) days after the decision was signed by the members of the Commission. In Halliburton Energy Services, Inc. v. Bossier Parish Board of Review, No. 50,734-CA  c/w 50,735-CA (La. App. 2 Cir. 8/10/16), ___ WL ___, the Commission mailed its decision some sixteen (16) days after it was signed.  In both cases, the aggrieved litigant appealed within thirty (30) days of the mailing date, but the district courts in each case found the appeal to be untimely. On appeal, both the Fourth Circuit and the Second Circuit noted that the applicable statute did not provide a specific definition of “entry” of judgment. Surveying the cases, the Courts noted that entry of judgment may be the date of signing, but it may also include the date of distribution or the date of mailing. The Courts gave great weight to the fact that each decision stated that it would become effective upon date of issuance (yet another term that is not defined in the applicable statute or administrative rule), and that each decision bore a “true copy” stamp that suggested that the Commission had entered that decision into its own records on that date.

Accordingly, the Courts concluded that entry of judgment occurs on the date that the decision is mailed.  As such, each appeal was found to have been timely filed.  Both Courts recognized the due process principles that compelled them to hold that entry of judgment cannot occur earlier than the date on which the decision is mailed, noting that to hold otherwise could allow the appeal delay to lapse before the affected party is even sent notice of the decision against it.  In each case, the Court reversed and remanded the case to the district court for further proceedings.



Photo of a hotel entrance and a waiting taxi cab in downtown Cleveland during the winter holidays.

By Victor J. Suane, Jr. and Jason R. Brown

The internet has revolutionized the hospitality and service industry. Online travel companies (OTCs) such as Expedia, Priceline,, Orbitz, and Travelocity allow an internet user to visit a single website to search for all hotel rooms available in a specified area. In a single transaction, a customer can choose a hotel, book a room, and pay for their entire stay. Under what some courts have termed the “merchant model,”[1] a customer pays a lump sum to the OTC, which in turn sends a portion to the hotel to pay for the room and any hotel occupancy taxes. The OTC keeps the remainder as a service fee, which is how they generate a profit.

Cities and municipalities in 34 states, the District of Columbia, and Puerto Rico have begun suing OTCs claiming that the OTCs are not paying an adequate amount of taxes on the online bookings. These cities all have laws that impose hotel occupancy taxes on rooms rented to transients. They claim the occupancy tax should be paid on the lump sum the customer pays to the OTC, and not merely the amount the OTCs remit to the hotels. Despite the nationwide nature of this issue, court rulings on whether OTC services are indeed taxable under this model have lacked consistency. Part of the inconsistency stems from the differences in each local statute or ordinance, which tax the customer in some cases and the hotel in others.[2] Laws also vary in their definitions of key phrases, some of which are ambiguous, leaving a court to interpret them with little guidance.[3] In many cases, courts have found the OTC was not the “operator” of a hotel or a “vendor” – both of which are taxed under certain statutes or ordinances.[4] Overall, of the currently 49 decisions on the merits, 39 courts have concluded that OTC services were not taxable and 10 have decided that their services were taxable. To date, no federal circuit court has ruled that OTC services are susceptible to hotel occupancy taxes, but appeals in multiple federal district courts are currently pending.

In Louisiana, many cities impose a hotel occupancy tax on the hotel customer (occupant), but require the “dealer” to collect and remit the tax. Generally, tax collectors may seek to collect delinquent taxes (including, for delinquency due to insufficiency of an otherwise timely payment) from either the customer or the dealer. Laws defining “dealer” for purposes of the occupancy tax vary from city to city, however. In some cases, “dealer” is specifically defined as the owner or operator of a hotel. In others, “dealer” is defined in a way tax collectors will contend includes OTCs. Additionally, some cities impose occupancy taxes on the gross amounts charged to a customer, which may be read as including the OTCs service fee. Finally, there may be varying definitions among local laws of key terms, including “transient guest.”

Litigation similar to that in other states has yet to be filed in Louisiana; however, because this state is a tourist destination and a litigation hotbed, OTCs should be prepared. Litigation involving OTCs will surely come at some point as Louisiana cities discover the potential tax revenues available on OTC booking. If you or your client needs assistance evaluating state and local hotel occupancy tax statutes or preparing for what’s to come, Kean Miller is here to help.


[1] In re Transient Occupancy Tax Cases (City of San Diego v., 225 Cal.App.4th 56 (2014), review granted 329 P.3d 192 (Cal. 2014).

[2] See City of Atlanta v., 710 S.E.2d 766 (Ga. 2011); Travelocity v. Wyoming Dept. of Revenue, 329 P.3d 131 (Wyo. 2014); City of Chicago v., 2013 WL 3185061 (Il. Cir. Ct. Cook Cnty. No. 2005-L-051003, Jun. 21, 2013); Village of Rosemont v. Priceline, 2011 WL 4913262 No. 09-C-4438 (E.D. Ill. Oct. 14, 2011) (Finding that the language of the statute charged the amount paid by hotel guests, and thus the total amounts paid by OTC consumers were taxable). See also City of Birmingham v. Orbitz, 93 So.3d 932 (Ala. 2012). (finding that rather than taxing the customer, the statute taxes “every person, firm or corporation engaging in the business of renting or furnishing any room or rooms, lodgings, or accommodations are regularly furnished to transients for a consideration.”).

[3] See Expedia v. District of Columbia, 120 A.3d 623 (D.C. 2015) (defining the term “furnishing” of a hotel room); Louisville/Jefferson county Metro Gov’t v., 590 F.3d 381 (6th Cir. 2009) (defining the phrase “like or similar accommodations businesses” to not include OTCs); City of Houston v., 357 S.W.3d 706 (Tex. App. 14th Dist. 2011) (defining “cost of occupancy” not to include OTC service fees).

[4] See City of Goodlettsville v. Priceline, No. 3:05-cv-00561 (M.D. Tenn. Feb. 21, 2012); Expedia v. City of Anaheim, 2012 WL 5360907 (Cal. App. 2nd Nov. 1, 2012), rev. denied Jan. 23, 2013; In the Matter of Travelocity v. Dir. Of Taxation, 346 P.3d 157 (Haw.2015) (finding OTCs not classified as hotel “operator”); Expedia v. City and County of Denver, 2014 WL 2980979 (Colo. App. Jul. 3, 2014), appeal granted 2015 WL 5215961 (Colo. Sep. 8, 2015) (finding OTCs are not “vendors” under the statute.).

garage sale

By Chris Dicharry and Jason Brown

The Louisiana state and local sales tax laws have historically included an isolated or occasional sale rule. In general, the rule looks at the characteristics of a seller to determine if a sales taxable transaction has occurred. If the seller is not engaged in the business of selling the type of property being sold and does not hold itself out as being engaged in such business (La. R.S. 47:301(1)), the transaction is not subject to sales/use tax regardless of the nature of the buyer. La. R.S. 47:301(10)(c)(ii)(bb)(the “Occasional Sale Rule”). It was the Occasional Sale Rule that not only allowed yard and garage sales without state or local sales tax, but allowed a grocer to sell used computers, a retailer to sell used display cases, and a vessel operator to sell used vessels without sales tax.

In the most recent Special Session that ended in March, the Louisiana Legislature limited the Occasional Sale Rule. Under the revisions, sales qualifying as isolated or occasional sales will be subject to state sales tax at the following rates:

  • 4/1/2016 – 6/30/2016 – 4% state sales tax
  • 7/1/2016 – 6/30/2018 – 2% state sales tax
  • 7/1/2018 and after – 0% state sales tax

The new 5th penny of the state sales tax effective April 1, 2016, recognizes the Occasional Sale Rule. Thus, only a 4% state sales tax from April 1, 2016 through June 30, 2016 and the reduced rate of 2% from July 1, 2016 through June 30, 2018 will apply.

The loss of the Occasional Sale Rule affects transactions far beyond yard and garage sales. The Occasional Sale Rule has been used to avoid sales tax (and collection responsibility) in connection with transfers of industrial facilities, even among related parties, and to avoid sales tax in connection with capital contributions of tangible personal property on entity formation. Titled vehicles have not had the benefit of the Occasional Sale Rule and have always been subject to state and local sales tax on the registration of the vehicles, but under the new law transfers of all sorts of corporeal movable (tangible personal) property will be subject to state sales tax. Incorporeal (intangible) and immovable property continue to be excluded from both state and local sales/use tax; however, there will be occasional sales issues related to property identified as movable “other constructions” (tanks, towers, pipelines, etc.) on leased or right of way land. The sales tax provision protecting “other constructions” on leased or right of way land from being subject to sales/use tax, La. R.S. 47:301(l6)(l), has also been limited as follows:

  • 4/1/2016 – 6/30/2016 – 4% state sales tax
  • 7/1/2016 – 6/30/2018 – 2% state sales tax
  • 7/1/2018 and after – 0% state sales tax

The Louisiana Department of Revenue (the “LDR”) is reviewing whether “other constructions” should be treated as taxable.

Under the new law limiting the Occasional Sale Rule, sellers of property are required to register with the LDR, collect state sales tax and remit collected tax on a proper LDR sales tax return. Failure to collect and remit can lead to personal liability for the tax, interest and penalties for the seller. While the LDR may be lenient for lawn and garage sales, it may be less so in connection with facility transfers, capital contributions and when a large non-profit conducts a silent auction or similar event involving the transfer of property.

Kean Miller Industrial Strength Law

By Chris Dicharry and Jason Brown

The Louisiana Corporation Franchise Tax (“CFT”) has historically been imposed only on corporations. Thus, LLCs and partnerships have not been subject to the CFT. In the Special Session that ended last March, the Louisiana Legislature expanded the companies subject to the CFT to include non-corporate entities that elect to be taxed as corporations for federal income tax purposes. See, La. Acts 2016 (1st Ex. Sess.), No. 12 (“Act 12”).  The new law provides a safe harbor for LLC’s “qualified and eligible to make an election to be taxed” as an S-Corporation. Yet, while Act 12’s plain language does not appear to require that an LLC actually make the S-Corporation election to qualify for the safe harbor, the Louisiana Department of Revenue (“LDR”) has informed Kean Miller that LDR policy may require that an LLC actually make the election to avoid the CFT.

The expanded CFT law also legislatively overrules the taxpayer-favorable UTELCOM case. UTELCOM, Inc. v. Bridges, 2010-0654 (La. App. 1 Cir. 9/12/11), 77 So.3d 39. Under UTELCOM, a corporation was found not to be doing business in the state of Louisiana so as to be subject to the CFT, when its only activity in Louisiana was as a limited partner in a partnership doing business in Louisiana. The court found that the law did not extend to corporations that were not directly (and only passively, through ownership) engaged in business in Louisiana. The new law expands the activities that will subject an entity to the CFT by including the following as one of the taxable incidents in Louisiana:

“The owning or using any part or all of its capital, plant, or other property in this state whether owned directly or indirectly by or through a partnership, joint venture, or any other business organization of which the domestic or foreign corporation is a related party as defined in R.S. 47:605.1.”

Thus, owning an interest in an entity with operations in Louisiana may subject the owner to the CFT. Unfortunately, the CFT may end up being tiered under these circumstances. The entity operating directly in Louisiana may be subject to the CFT depending on how it is taxed for federal income tax purposes and its ability to elect S-Corporation treatment; and the interest owner may also be subject to CFT based on its investment in the entity with Louisiana operations.

For example: If Alligator Energy Corporation has no operations in Louisiana, but holds a 60% ownership interest in Alligator Pipeline, LLC, a Louisiana LLC that operates exclusively in Louisiana, Alligator Pipeline, LLC will be subject to the CFT if it is taxed as a corporation for federal tax purposes and is not eligible to be taxed as an S-Corporation. Alligator Energy Corporation will also pay CFT based on its investment in Alligator Pipeline, LLC. In essence, the activities of Alligator Pipeline, LLC will be taxed twice – once at the operating entity level and once at the parent level.

Act 12 does add a new holding company deduction; however, the deduction is only available if the parent has at least 80% of the voting and nonvoting power of all classes of stock, membership, partnership, or other ownership interests in the “subsidiary.”

Act 12 is applicable to tax periods beginning on or after January 1, 2017; however, this effective date could be misleading. Historically, a corporation subject to the CFT paid an initial CFT of $10 for its first year of operation. Under Act 12, an existing entity that becomes subject to the CFT because it is taxed as a corporation for federal income tax purposes (and cannot use the S-Corporation safe harbor) will be subject to full CFT liability based upon its books and records for the prior year.