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The Louisiana Department of Revenue (“LDR”) recently promulgated rules to implement the Fresh Start Proper Worker Classification Initiative, and also published guidance to explain when and how businesses should file non-employee information returns (Forms 1099-NEC) directly with the LDR. These developments are potentially interrelated and may facilitate the LDR’s efforts to monitor the classification and taxation of workers as employees or independent contractors.

Fresh Start Proper Worker Classification Initiative

In 2021, Louisiana introduced its Fresh Start Proper Worker Classification Initiative and Voluntary Disclosure Program that included tax amnesties for businesses looking to voluntarily properly classify workers previously classified as non-employees (i.e., independent contractors), as employees.[1] That law was due to take effect from January 1, 2022, but was suspended because certain provisions were not in conformity with federal law.[2]

The law was reintroduced in 2022 after modifications that brought it into conformity with federal law.[3] The Voluntary Disclosure Program provides for a waiver of interest for eligible employers who opt to make a disclosure and pay unemployment taxes and penalties[4] for workers who should have been classified as employees but were not over an agreed look-back period.[5] The Louisiana Workforce Commission is authorized to promulgate rules and regulations for the implementation of the Voluntary Disclosure Program.[6]

The Fresh Start Proper Worker Classification Initiative on the other hand allows an eligible taxpayer to voluntarily reclassify a worker as an employee for future tax periods without being liable for any withholding tax or related interest and penalties on past amounts paid to such workers.[7] The LDR is authorized to promulgate rules and regulations for the implementation of the Fresh Start Proper Worker Classification Initiative.[8]

The LDR has now adopted rules to implement the Fresh Start Proper Worker Classification Initiative. The rules provide that applications are to be submitted electronically between January 1, 2023 and December 31, 2023 and must be accompanied by documentation that includes details regarding the workers for whom reclassification is sought and copies of related IRS Forms 1099-NEC and 1099-MISC for the past three years. If the LDR determines that the taxpayer is ineligible for the Program, written notice will be sent within thirty (30) days of the determination. The acceptance of an application constitutes a joint closing agreement with the LDR which is deemed to include conditions requiring the taxpayer to timely report and remit withholding taxes and unemployment insurance contributions for the reclassified employees. The closing agreement can be voided by the LDR if the taxpayer fails to comply with the prescribed conditions.[9]

State Filing of Forms 1099-NEC

The LDR recently issued Revenue Information Bulletin 23-006 dated January 12, 2023 requiring businesses to directly file with the LDR any Forms 1099-NEC for services provided in Louisiana or for services performed by an individual residing in Louisiana at the time the services were performed, but only under certain circumstances. This requirement applies from the 2022 tax year onwards. The deadline for the direct filing with the LDR is February 28 of each year.

When do Businesses Need to File Forms 1099-NEC with LDR

The direct filing requirement is triggered only if a business has not timely filed Forms 1099-NEC with the Internal Revenue Service (“IRS”) electronically. It does not apply where the business has either (i) timely filed Forms 1099-NEC with the IRS through their FIRE system after opting into the Combined Federal/State Filing Program (CF/SF) and identifying the data by the Louisiana state code of 22, or (ii) timely filed Forms 1099-NEC through commercial third-party software and authorized the IRS to share the information with LDR.

The requirement will apply where only a paper filing of Forms 1099-NEC has been made with the IRS, whether or not an electronic filing is mandated.

How do Businesses File their Forms 1099-NEC with LDR  

If the state filing requirement is triggered, businesses filing fifty (50) or more Forms 1099-NEC with LDR must do so electronically using LDR’s LaWage application.[10] For paper filings, businesses may use Form R-91001, Annual Summary and Transmittal of Form 1099-NEC.

Businesses with an LDR account number must use that number when filing, otherwise the Federal Employer Identification Number (“FEIN”) must be included. Sole proprietors who are not required to obtain a FEIN and have not been issued an LDR account number may use their Social Security Number.

Implications

The direct filing requirement was initially introduced in 2021, in the same legislative session as the worker classification amendment, and was to similarly apply from January 1, 2022.[11] However, due to the state of emergency on account of Hurricane Ida recovery efforts and COVID-19, the requirement was administratively waived for the 2021 tax year by Revenue Information Bulletin No. 22-006 dated January 20, 2022.

At the time that it was enacted, the requirement was introduced in tandem with other amendments[12] that suggest that its intent was to make available information from Louisiana-related Forms 1099-NEC to the Department of Children and Family Services in relation to the family and child support program.

Because Forms 1099-NEC are filed for independent contractors but not for employees, it is possible that the direct filing requirement may also have relevance for the LDR to monitor worker classification going forward.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Willie Kolarik at (225) 382-3441, or Divya Jeswant at (504) 293-5766.

[1] Act No. 297 of the 2021 Regular Session.

[2] Revenue Information Bulletin No. 21-031 dated December 1, 2021 and Emergency Rule dated September 9, 2021 issued by the Louisiana Workforce Commission.

[3] Act No. 406 of the 2022 Regular Session and La. Admin. Code 61:III.2301 effective January 20, 2023.

[4] Under La. R.S. 47:1775(F), State Unemployment Tax Act (SUTA) dumping penalties and fraud penalties will not be waived under federal law under any circumstances.

[5] La. R.S. 23:1771, 1773 and 1775. The look-back period must include the three-year experience rating period.

[6] La. R.S. 23:1773(B).

[7] La. R.S. 47:1576.3. In addition, La. R.S. 47:1576.4 provides for a safe harbor under which putative employers meeting all the prescribed requirements will not owe withholding tax, interest or penalties otherwise due for their workers.

[8] La. R.S. 47:1576.3(H).

[9] La. Admin. Code 61:III.2301.

[10] La. Admin. Code 61:I.1515.

[11] Act No. 285 of the 2021 Regular Session, which introduced La. R.S. 47:114.1.

[12] La. R.S. 46:236.14(D)(2) and La. R.S. 47:1508(B)(23).

LLC Operating Agreement

An Operating Agreement is an agreement among the members of a limited liability company that defines the LLC’s management structure and governs the operation of the LLC, including the members’ contractual rights, obligations, and restrictions relating to their membership interests in the LLC.  An LLC with only one member may use a simple short-form Operating Agreement because all the power to control and carry on the operations of the LLC is held by a single person; however, LLCs with multiple members often need more lengthy and complex Operating Agreements because they need to address the many additional issues created by multiple member ownership.  This article summarizes the top 10 considerations in preparing LLC Operating Agreements, focusing on LLCs with multiple members.

1. Management.  An LLC may be managed by its members or by one or more appointed managers.  Managers of an LLC are similar to corporate officers and directors, as they are responsible for strategic decisions and the day-to-day running of the business.  There are many reasons to choose manager management, for example when not all members are meant to have a vote on operational decisions, or when operational decisions are to be made by a non-member.  Managers may be members of the LLC, but they are not required to be members.  It is not uncommon for an LLC to be generally managed by managers, but a member vote is required to take certain actions.  Whatever management structure is chosen, it is very important to clearly set forth in the Operating Agreement how decisions must be made, including when and if meetings are required, the voting percentage required to take certain actions, and whether certain authority may be delegated to others (like officers).  If manager management is chosen, the Operating Agreement should also clearly set forth the procedure for appointing, removing, and replacing managers, and whether the authority of the managers will be limited in any way.  It is also common for an Operating Agreement to limit the liability of managers and to provide managers with indemnity from the LLC, in each case except for certain egregious behavior.

2. Transfer Restrictions.  The provisions of an Operating Agreement addressing restrictions on the transfer of membership interests are often the longest and the most difficult to negotiate. There are many common types of restrictions and many ways to draft them.  Many Operating Agreements start off with a general rule that members cannot sell or otherwise transfer their membership interests unless approved in advance (typically by the manager or some percentage of the members) or allowed under another provision of the transfer section, such as a “permitted transfer” provision, a right of first refusal, or right of first offer.  Such “permitted transfers” are often to closely related people, such as immediate family members, affiliates, and controlled entities (such as family trusts).  A right of first refusal requires a member who has received a bona fide third-party offer for a sale of its membership interests to first offer those interests to the LLC and/or the other members before completing the sale to the third party.  Similar to a right of first refusal, a right of first offer requires a member to offer its membership interests to the LLC and/or the other members before offering to sell to third parties.  Drag-along rights protect the majority member(s) of the LLC, allowing it/them to require the minority members to sell their interests in the LLC if doing so aids in the sale of all or a significant portion of the LLC to a third party.  Conversely, tag-along rights protect the minority members in the LLC, requiring controlling members desiring to sell all or some portion of their membership interests to allow the other members to participate in the sale and sell their interests on a pro rata basis.

3. Buy-Sell Provisions.  Buy-sell provisions describe the events and procedures for when members are permitted or required to buy or sell membership interests from each other, and they allow the LLC and its members to plan for certain situations, such as a member’s bankruptcy, death, disability, divorce, or termination of employment, and for members that are entities, change of control and dissolution.  These “triggering events” allow the LLC and/or the other members to elect to buy out such member’s entire membership interest.  It is very important to set forth the procedure for notice of the triggering event, exercising the right to purchase, purchase price and payment, and timing of closing.  A clear procedure for valuing the transferred membership interests should be agreed upon when the parties first enter into the Operating Agreement, as the parties’ interests may not be aligned after that time.

4. Deadlock.  The operations of an LLC can sometimes be halted if an agreement cannot be reached by members holding sufficient authority to take certain company action.  This kind of “deadlock” can be a particularly difficult issue for an LLC owned 50/50 by two partners where decisions simply require a majority vote.  Operating Agreements sometimes provide for one or more methods to resolve these deadlocks, for example: (1) providing for a tie-breaking vote to be made by an agreed upon third party with experience in the LLC’s business, (2) mediation or arbitration, and (3) buy-sell provisions.  One such buy-sell provision that can be useful in a deadlock situation is a “push-pull” provision, which allows either member, in the event of a deadlock, to offer to buy out the other member’s interest at a certain price.  This becomes the terms and conditions under which a buyout will take place.  However, the other member can either agree to the terms and sell its interests or force the offering member to sell on the same terms.  This approach can help to ensure that the offering member will make a reasonable proposal, as the other member will be the one deciding which member is ultimately the buyer and which is the seller.  This approach is particularly helpful when the parties would otherwise not agree on a traditional valuation mechanism.  If the Operating Agreement is silent on resolving these deadlocks, the members must either resolve the matter by themselves or be forced to litigate the matter.

5. Capital Contributions.  A capital contribution is the payment a member makes to the LLC in exchange for its membership interests. This payment can be made in the form of a contribution of new cash or assets or can consist of a rollover of a member’s existing equity in a target company that has been acquired by the LLC (or its subsidiary) in a buyout.  The percentage of membership interests in the LLC that a member receives in exchange for its capital contribution is typically a negotiated matter between the parties.  Operating Agreements also typically address whether members may be required to make additional capital contributions in the future, as well as how such additional capital contributions are called (capital calls), and the consequences of a member failing to make its share of the capital call.  Defaulting members may be subject to dilution, outright buyout, loss of voting rights, lawsuit by the LLC for collection, and other consequences of varying severity.

6. Allocations and Distributions.  This section of the Operating Agreement sets out how the LLC’s economic profits and losses are allocated among the members and how and when company funds are distributed to the members. The company’s tax advisors should review the allocations and distributions section, along with any other section of the Operating Agreement addressing tax matters.  Although the allocations section specifies the way that the LLC allocates profits and losses for tax purposes, the distributions section describes the priority of payments to the members. For this reason, the distribution section usually is the place where the Operating Agreement reflects the members’ economic arrangement.  Distributions can be based simply on a member’s percentage ownership of the LLC (generally calculated by dividing the balance of a member’s capital account by the sum of the capital accounts of all the members) or on more complicated priority-based formulas. For example, certain members may receive the value of their contributed capital, plus a preferred return, before any other members receive distributions. The provision containing these priority-based formulas is often referred to as the waterfall provision, since it sets out, from top to bottom, the order of priorities for distributions among the members.

7. Admission of New Members & Withdrawal.  In some states, including Louisiana, a transferee of an LLC membership interest is only an assignee and not a full member of the LLC unless and until admitted as a member by the LLC’s members, either unanimously or by some other method set forth in the Operating Agreement (or formation document). Such an assignee essentially has only an economic interest (e.g., rights to distributions and sharing in profits and losses) with no voting rights or other right to participate in the management of the LLC.  Operating Agreements sometimes make exceptions to this general rule, for example regarding spouses and immediate family members of transferring members; however, many LLCs prefer that “member” status remains subject to member approval in all cases.  If the LLC allows a new member, whether by transfer of existing membership interests or by issuance of new membership interests, it is important to require new members to “join” the Operating Agreement and sometimes sign on as a personal guarantor (along with the existing members) of certain LLC debt or other obligations.  The Operating Agreement should also address whether a member may withdraw from the LLC, as default state law on the issue may be undesirable.  For example, under Louisiana LLC Law, unless otherwise specified in a written Operating Agreement, a member of an LLC not entered into for a term may resign or withdraw upon not less than thirty days prior written notice to the LLC and to each member and manager, and such member is entitled to receive, within a reasonable time after withdrawal or resignation, the fair market value of such member’s interest as of the date of such member’s withdrawal or resignation.

8. Preemptive Rights.  Preemptive rights allow members to buy their pro rata share of future issuances of membership interests by the LLC, which is designed to protect members against dilution of their membership interests. For example, an LLC offering preemptive rights to its members entitles a member holding 10% of the LLC’s membership interests to buy 10% of that LLC’s future issuances of membership interests. Exercising this right allows the member to maintain a 10% membership percentage after the issuance.

9. Minority Member Protection.  LLC laws do not traditionally provide much protection for minority members, so minority members should use whatever leverage they have to include in the Operating Agreement certain provisions protecting their interests.  Without such protections, they will likely have little or no impact in votes over company decisions, and their membership interests can be subject to dilution or even buyout on less than favorable terms.  One kind of protection sometimes afforded to minority owners is to require their approval for certain “high level” LLC action, for example selling the business, merging, or dissolving the LLC, incurring debt outside the ordinary course of business, issuing new membership interests, or admitting new members.  Another is to allow a minority member to appoint one of the LLC’s managers, which gives that minority member a voice in manager decisions and keeps that member informed of all aspects of company action requiring manager approval, even if that manager’s vote is ultimately no greater than the minority member’s ownership percentage.  Another common protection against dilution is to grant preemptive rights to all members, which allows members to purchase their pro rata portion of any new issuance of membership interests by the LLC.  Finally, a minority member may be able to negotiate enhanced economic rights like distribution and liquidation preferences.

10. Tax Election.  LLCs with multiple members are generally treated as partnerships, or “pass-through” entities, which are not themselves subject to US federal income tax unless they specifically elect otherwise.  This allows them to avoid the entity-level tax that is imposed on corporations.  An LLC can also elect to be treated as a corporation (either C corporation or S corporation) for US federal income tax purposes.  An LLC taxed as a C corporation may have unlimited members (unlike an S corporation) but is subject to double taxation where income is taxed at the LLC level and also at the member level.  An LLC taxed as an S corporation offers pass-through taxation, but there are limits on the number and types of members allowed.  A CPA or tax attorney should be consulted to make sure the most advantageous tax election is made.

The following is prepared by the Kean Miller LLP Utilities Regulation team on important topics affecting consumers of electrical power in Louisiana related to recent and current proceedings of the Louisiana Public Service Commission (“LPSC”). For more information, please contact us at client_services@keanmiller.com

LPSC Rulemaking on Customer-Centered Options: The LPSC has a proceeding underway to research and evaluate customer-centered options. In the proceeding, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”), has proposed an Industrial Customer Market Option that would provide access to off-site CHP generation, the bilateral wholesale power market and the MISO energy, capacity and operating reserve markets. LEUG proposes the option as a means to offset some of the need for Entergy to replace aging generation fleet, and thereby help avoid or reduce costs for all ratepayers, while also helping industrials maintain competitive rates in Louisiana. LEUG has also proposed a Renewable Generation Option, that would allow industrials to negotiate directly with renewable developers for power supply and “sleeve” the transaction through their utility to provide delivery and back-up power if needed. Other stakeholders in the proceeding have presented other customer-centered options for consideration. A Technical Conference was held by the LPSC in December 2022, and next steps in the proceeding are pending determination.

LPSC Rulemaking on Renewable Generation Options: The LPSC has an ongoing rulemaking proceeding to consider customer options to access renewable generation. In the proceeding, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”), has proposed tariff options for industrial customer participation in renewable projects through “sleeve transactions” and “virtual PPAs.” The LPSC Staff has issued a report and recommendation that provides support for utilities to offer a “sleeved PPA” option for new renewable generation in Louisiana, and next steps in the proceeding are pending determination.

Louisiana Task Force on Climate Change: Through participation in the Power Production Committee, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”) is pursuing interests that include long-term reliable and competitive power supply for Louisiana, exploring access to renewable power, and use of cogeneration to increase efficiencies and reduce emissions.

Electric Grid Status / Maintenance: The LPSC has an ongoing proceeding to evaluate the Louisiana electric grid regarding status, maintenance and whether there is more that could have been done and can be done to benefit Louisiana customers. In urging the need for the evaluation, a presentation by an LPSC Commissioner showed Louisiana SAIDI / SAIFI levels at well-above national averages.

Electric Grid Resiliency / Hardening: The LPSC has an ongoing proceeding to conduct an assessment of the Louisiana utility grid infrastructure for resilience and hardening for future storm events.

Entergy Proposal for Future Ready Resilience Plan: Entergy has filed an application with the LPSC presenting a $9.6 Billion plan for accelerated resilience projects over a 10 year period, and seeks approval to implement and recover costs for the initial $5 Billion spending over 5 years beginning in 2024. The application has just recently been filed and deliberations by the LPSC have not yet begun.

Minimum Generation Capacity Obligation: The LPSC has an ongoing rulemaking to consider whether to adopt a Minimum Physical Capacity Threshold obligation for electric generation for jurisdictional electric utilities. Comments have been submitted by stakeholders, and next steps in the proceeding are pending determination.

Energy Efficiency: The LPSC has issued and has under consideration a proposed new Phase II Energy Efficiency Rule that would have the LPSC take-on the implementation of programs in Louisiana rather than the utilities, including retention by the LPSC of an: (a) Administrator, (b) Energy Efficiency Manager, (c) Fiscal Agent, (d) EM&V Contractor, and (e) Fiscal Auditor. Costs of the programs would be funded through a new Public Benefits Fee (“PBF”). Opt-out provisions are included in the proposed rule for certain larger customers.

Entergy Storm Restoration Cost Securitization and Recovery: Entergy has pursued approval from the LPSC for recovery of and securitization financing for approximately $4.8 Billion of Entergy restoration costs for Hurricanes Laura, Delta, Zeta in 2020 and Winter Freeze Uri and Hurricane Ida in 2022. In February 2022, the LPSC approved $3.1 Billion of costs to proceed to securitization financing and recovery from ratepayers including $290 million to replenish reserves for future storms. An additional $1.6 Billion of costs submitted by Entergy for recovery is pending consideration by the LPSC.

LPSC Audit of Additional Fuel Adjustment Costs from Winter Freeze Uri: Audit proceedings are underway at the LPSC to evaluate the prudence of $163 million of additional fuel adjustments costs incurred during the February 2021 freeze event. The $163 million additional costs were recovered from ratepayers through the fuel adjustment, amortized over the months of April-August 2021.

Entergy Integrated Resource Plan (“IRP”): Proceedings are underway at the LPSC on the Entergy 2023 IRP, including a stakeholder process. The draft IRP was filed in October 2022, and the final IRP is due in May 2023. The objective of the IRP process is for the utility to provide its evaluation of a set of potential resource options that offers the most economical and reliable approach to satisfy future load requirements of the utility. However, the IRP process does not result in LPSC approval of the proposed resource plan or approval of construction or acquisition of any particular resources. Rather, LPSC consideration of resource approvals occurs in separate certification proceedings on individual proposals submitted by the utility on a case-by-case basis.

LPSC Rulemaking on Demand Response: In May 2021, the LPSC approved a new rule that emphasizes the importance of Demand Response in Louisiana and requires electric utilities to pursue Demand Response tariffs or justify why they are not.

Entergy Market Value Demand Response (“MVDR”) Tariff: In September 2020, the LPSC approved a new Entergy tariff that allows customers and aggregators to access MISO Demand Response products – although only through Entergy.

Entergy Proposed Experimental Interruptible Option (“EIO”) Tariff: In July 2021, the LPSC approved new Entergy tariffs that provide certain interruptible rate options for industrial customers.

Entergy Proposed Certification of 475 MW Solar Generation and Geaux Green Subscription Tariff: In September 2022, the LPSC approved an Entergy request for certification of three purchase power agreements and a build-own-transfer agreement for 475 MW of new solar generation development projects, plus a new tariff that would allow customers to purchase subscriptions in the projects. Costs of the subscriptions would be incremental to the customer’s existing electric bills, and the subscriptions would be capped initially at 50 MW. Subscribing customers would receive credits for market revenues, and also benefit from associated Renewable Energy Credits (“REC”), relative to their subscribed share.

Entergy Proposed Green Pricing Option (“GPO”): In March 2021, the LPSC approved new Entergy tariffs that provide for sale of Renewable Energy Credits (“REC”).

Entergy Proposal for Distributed Generation: In October 2022, the LPSC approved an Entergy application to deploy 150 MW of utility-owned distributed generation, including a rate schedule to charge host customers for a portion of the generators as back-up power costs.

Entergy Proposal for Increase in Nuclear Decommissioning Cost Funding: Proceedings are underway at the LPSC to consider an Entergy request to increase its funding for nuclear decommissioning costs, based on evaluations for its Waterford and River Bend nuclear generation units.

Formula Rate Plan (“FRP”) Extension: In May 2021, the LPSC approved an extension and modification of Entergy’s FRP for annual filings and rate adjustments in 2021, 2022, and 2023, subject to settlement terms reached by Entergy, LPSC Staff and intervenors. The settlement terms included, among other things: a 9.50% ROE; a $63 million rate reset for 2021; a 9.0-10.0% earnings bandwidth subject to a $70 million cumulative rate cap for 2022/2023; resolution of lost revenue claims from covid and hurricanes; a distribution investment cost recovery rider; and a transmission investment cost recovery rider.

LPSC Rulemaking on New Generation Deactivation Transparency Rule: In October 2018, the LPSC issued a rule which requires electric utilities to report generation unit deactivations and retirements 120 days prior to implementation, including support for the decisions and continuing reports on units that are placed in deactivation status for possible return in the future. The final rule creates more transparency and accountability on the part of utilities.

Entergy 980 MW Power Plant in St. Charles Parish: In December 2016, the LPSC approved Entergy’s proposal to construct a 980 MW CCGT unit located in Montz, Louisiana (near New Orleans), at a site adjacent to the existing Little Gypsy generation units. The project was selected as a self-build project in a Request-for-Proposals (“RFP”), was estimated to cost $869 million, and went into service in 2019.

Entergy 994 MW Power Station in Lake Charles, Louisiana: In July 2017, the LPSC approved Entergy’s proposal to construct a 994 MW CCGT unit located in Westlake, Louisiana. The project was selected as a self-build project in a Request-for-Proposals (“RFP”), was estimated to cost $872 million, and went into service in 2020.

Entergy 361 MW Combustion Turbine in Washington Parish: In May 2018, the LPSC approved Entergy’s acquisition of the Washington Parish Energy Center, a new 361 MW simple cycle combustion turbine (“CT”) to be constructed in Bogalusa, Louisiana by a subsidiary of Calpine Corporation (“Calpine”) for a purchase price of approximately $222 million. Calpine had submitted an unsolicited offer to Entergy to construct the CT and sell it to Entergy for a turn-key price. The acquisition and related assets was estimated to cost $261 million, and the unit went into service in 2020.

Kean Miller Regulatory Attorney Contacts:

Randy Young
Partner
II City Plaza
400 Convention Street, Suite 700
Baton Rouge, Louisiana 70802
225.382.3451
randy.young@keanmiller.com

Carrie Tournillon
Partner
BankPlus Tower
909 Poydras Street, Suite 3600
New Orleans, Louisiana 70112
504.585.3056
carrie.tournillon@keanmiller.com

Gordon Polozola
Partner
II City Plaza
400 Convention Street, Suite 700
Baton Rouge, Louisiana 70802
225.389.3729
gordon.polozola@keanmiller.com

ADA Background

In 1990, Congress passed the Americans with Disabilities Act (“ADA or Act”).[1] The purpose of the Act is to provide protection and certain rights for Americans with disabilities. One of Congress’ goals was to ensure that people with disabilities are able to fully participate in all aspects of society.[2]

Title III of the Act provides that “no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases, (or leases to), or operates a place of public accommodation.”[3] There are several ways a person with a disability can be discriminated against with respect to places of public accommodation including no access, limited access due to barriers, or restrictions that impair an individual’s right to enjoy “major life activities” that others enjoy. A place of public accommodation is a privately operated facility whose operations affect commerce, or has one of the twelve enumerated categories that are considered to a place of public accommodation.[4]

Businesses that operate a place of public accommodation (such as retail establishments) must ensure that the portions of their premises open to the public are accessible to persons with disabilities in accordance with detailed accessibility guidelines published by the U.S. Department of Justice, which were last updated in 2010. Compliance with the Act may require a business to make “reasonable modifications in policies, practices, or procedures when such modifications are necessary to afford such goods, services, facilities, privileges, advantages, or accommodations.”[5] And modifications to physical premises may also be required, such as addition of an ADA accessible bathroom or a wheelchair ramp.  These accessibility requirements apply to both new construction as well as to buildings constructed before the effective date of the ADA (i.e., there is no “grandfather” provision that exempts preexisting structures).

Are Websites Places of Public Accommodation?

The ADA has been around for more than 30 years, and by now most business owners are aware of these accessibility requirements for brick-and-mortar establishments.  Over the years there has been an increase in lawsuits pertaining to Title III with respect to the accessibility of physical premises.[6] However, the new frontier in ADA accessibility is not physical places of businesses – it’s cyberspace, and more particularly websites operated by companies that may or may not have physical business premises.

Since the introduction of the internet, the way people and businesses interact has changed with more people engaging in commerce using the internet. In recent years, the question of whether the internet is a place of public accommodation and whether businesses have to provide access to disabled persons have become a controversial ADA issue for the courts to resolve.  Do websites have to be accessible to persons with disabilities – such as individuals with vision or hearing impairments?

The ADA does not provide a clear answer, as Congress did not consider the implications of the internet when the ADA was enacted. In 1990, the internet was not part of people’s daily lives to the extent that it is today. Neither Act nor the DOJ’s accessibility standards address website accessibility or whether the internet is a place of public accommodation. The determining factor of whether a disabled person must be accommodated rests on whether the internet/website is within the ADA’s definition of a “place of public accommodation” which must be made accessible to persons with disabilities.

Given the lack of guidance in the Act, courts have been left to determine this issue. Not surprisingly, courts are divided. The First, Fourth, and Seventh Circuits have concluded that a website is a place of public accommodation.[7] The Third, Sixth, and Ninth Circuits have held that a website is a place of public accommodation, but only if it has a close nexus to a physical place of business.[8] District courts in the Second Circuit have provided contradicting rulings.[9] The Eleventh Circuit recently ruled that a website is not a place of public accommodation, but then later vacated its decision due to a mootness issue in the case before the court.[10] The Fifth Circuit (whose decisions are controlling for Louisiana, Texas and Mississippi) has not decided the issue. So far, the U.S. Supreme Court has declined to give an opinion on the matter.[11]

ADA Website Litigation

Litigation of website accessibility issues has become rampant in California and Florida.  Many of these ADA website accessible claims are brought by repeat litigants, some of whom have filed hundreds or even thousands of lawsuits. Unlike physical barrier claims, it is much easier for plaintiffs to establish a claim without ever leaving the comfort of their home. An ADA website plaintiff only needs a computer and internet connection to “visit” targeted businesses in cyberspace and can generate hundreds or even thousands of claims against businesses large or small. The plaintiff only has to allege that he/she suffered a harm due to an inability to access a feature when visiting the website.

What Is an ADA Accessible Website?

In the meantime, what can companies do to protect themselves from this new wave of ADA claims?  The best practice is to make the businesses website “accessible,” but given the lack of clear standards, this may be easier said than done.

The World Wide Web Consortium (“W3C”), a non-governmental agency, has created guidelines on web content accessibility.[12] W3C updates its standards often to adapt to evolving technology. Currently, there are two acceptable Web Content Accessibility Guidelines (“WCAG”) available for business.[13] WCAG is organized around four guiding principles: perceivable (users must be able to perceive the information being presented), operable (users must be able to operate the interface), understandable, (users must be able to understand the information and the operation of the user interface), and robust (users must be able to access the content as technologies advance).[14] WCAG has recommendations on how to make websites more accessible for people with blindness (low vision), deafness and hearing loss, learning disabilities, cognitive limitations, limited movements, speech disabilities, and photosensitivity. Some courts and the DOJ have often relied on WCAG when determining whether a website violates the ADA.[15] However, WCAG is not binding, and is an ever-evolving work in progress. With no clear direction, it may be helpful for businesses to compare their websites to WCAG. At the very least, it will give businesses an idea of the standard a court may use to determine if a website violates ADA. Conversely, making a website compliant with WCAG can be difficult, expensive, and time consuming. Not to mention, that WCAG updates will continue in the future.

Complicating matters even further is the ongoing debate regarding what it means to make a website WCAG compliant.  The most effective way is to rebuild the entire website from the ground up consistent with these technical standards.  But depending on the complexity of the website, this could cost tens of thousands of dollars.  Enterprising software developers have started to market plug in applications that purport to automatically modify an existing website to make it compliant with WCAG.  These apps are commonly referred to as “overlays.” While these overlay solutions are far less expensive, there is significant debate in the disability advocacy community about whether these programs actually make a website functionally compliant with the WCAG standards.  Some courts have held that overlays do not make a website ADA accessible.

The Path Forward on ADA Website Accessibility Issues

The number of ADA website compliance lawsuit suits will likely increase with the consistent changes in technologies. In addition to lawsuits, there have been countless demand letters sent by attorneys (in some cases sent to hundreds or thousands of businesses) threatening litigation unless the business agrees to enter a settlement agreement with the attorney’s client in which it agrees to make the site compliant and pays thousands of dollars in attorney’s fees and compensatory damages.

In Louisiana, there has not been any reported litigation regarding ADA website compliance. However, many businesses are starting to receive ADA website compliance demand letters, so there is no doubt that this new wave of ADA litigation is headed to Louisiana. In the meantime, however, there are many Louisiana businesses who have been named as defendants in lawsuits filed in other states (like California or Florida) based on the fact that a resident of those states browsed the websites from those jurisdictions. 

Recently, the DOJ indicated a strong commitment to increase its focus on federal accessibility laws. Although it has not issued compliance standards, the DOJ has taken the position (in a guidance memorandum issued on March 18, 2022) that a website is a place of public accommodation.   The DOJ is currently working on compliance regulations on the accessibility of federal government websites, and once those regulations are issued, regulations applicable to private sector businesses may soon follow.

In addition to Title III public accommodation issues, these businesses should also be aware that these same accessibility issues can also come into play in the form of possible ADA issues under Title I of the Act concerning employment. To the extent that employees are required to access an employer’s website or intranet in connection with their employment, employers will have to take steps to make these tools accessible in light of the requirement that employers provide “reasonable accommodation” to employees with disabilities.

Although the law of ADA website compliance is far from settled, companies would be well-advised to get ahead of these issues and develop a proactive strategy, rather than waiting for an attorney demand letter or lawsuit to arrive.  It is much easier and less expensive to address these issues on the company’s timetable than it is to scramble in reaction to pending or threatened litigation.  Companies with questions about these developing ADA issues and best practices should consult with qualified legal counsel to develop the most effective strategy for their business.

[1] 42 U.S.C. § 12101.

[2] Id.

[3] 42 U.S.C. § 12182.

[4] 42 U.S.C. § 12181(7).

[5] 42 U.S.C. § 12182 (2).

[6] https://www.adatitleiii.com/2022/03/federal-website-accessibility-lawsuits-increased-in-2021-despite-mid-year-pandemic-ull/#:~:text=This%2014%25%20increase%20in%20the,increases%20are%20still%20very%20significant; https://www.shrm.org/resourcesandtools/hr-topics/behavioral-competencies/global-and-cultural-effectiveness/pages/record-number-of-lawsuits-filed-over-accessibility-for-people-with-disabilities.aspx.

[7] See Mejico v. Alba Web Designs, LLC, 515 F. Supp. 3d 424, 434 (W.D. Va. 2021); Carparts Distribution Ctr., Inc. v. Auto. Wholesaler’s Ass’n of New England, Inc., 37 F.3d 12, 19 (1st Cir. 1994); Morgan v. Joint Admin. Bd., 268 F.3d 456, 459 (7th Cir. 2001).

[8] See Robles v. Domino’s Pizza, LLC, 913 F.3d 898, 905 (9th Cir. 2019); Ford v. Schering-Plough Corp., 145 F.3d 601, 612 (3d Cir. 1998); Parker v. Metro. Life Ins. Co., 121 F.3d 1006, 1010–11 (6th Cir. 1997) (en banc); Weyer v. Twentieth Century Fox Film Corp., 198 F.3d 1104, 1114 (9th Cir. 2000).

[9] Winegard v. Newsday LLC, 2021 WL 3617522 (E.D.N.Y. 2021(holding that the “ADA excludes, by its plain language, the websites of business with no public-facing, physical retail operations from the definition of ‘public accommodations’ ”) ; Tavarez v. Moo Organic Chocolates, LLC, No. 21-CV-9816 (VEC), 2022 WL 3701508, at *2 (S.D.N.Y. Aug. 26, 2022) (“concur[ing] with the vast majority of other judges in this District who have decided the issue that a ‘place of public accommodation’ includes public-facing websites that are not tethered to a physical location” while “not[ing] that at least seven of its colleagues, one of whom has since ascended to the Second Circuit, have found that Title III of the ADA applies to websites”).

[10] Gil v. Winn-Dixie Stores, Inc., 993 F.3d 1266 (11th Cir. Apr. 7, 2021).

[11] Robles v. Domino’s Pizza, LLC, 913 F.3d 898, 908 (9th Cir. 2019), cert. denied, No. 18-1539, 2019 WL 4921438 (U.S. Oct. 7, 2019) (The U.S. Supreme Court denied a petition to review the Ninth Circuit’s decision in Robles v. Domino’s Pizza, LLC, 913 F.3d 898, (9th Cir. 2019)).  

[12] https://www.w3.org/WAI/.

[13] https://www.w3.org/WAI/standards-guidelines/wcag/.

[14] https://www.w3.org/WAI/WCAG21/Understanding/intro#understanding-the-four-principles-of-accessibility.

[15] See Andrews v. Blick Art Materials, LLC, 286 F.Supp.3d 365, 370 (E.D.N.Y. 2017) (concluding that “the Web Content Accessibility Guidelines (WCAG) 2.0 Level AA, [ ] are hereby determined by the court to be an appropriate standard to judge whether Defendant is in compliance with any accessibility requirements of the ADA”); Del-Orden v. Outback Steakhouse of Florida, LLC, Case No. 16-cv-2319 (S.D.N.Y. Sept. 13, 2016) (Oetken, J.) (DE 13) (requiring Outback to bring the websites of “its parents, subsidiaries, and related entities … into substantial conformance with the Web Content Accessibility Guidelines (WCAG) 2.0 Level AA”); Alcazar v. Bubba Gump Shrimp Co. Restaurants, 2020 WL 4601364, at *4 (N.D. Cal. Aug. 11, 2020) (declining, in the Title III context, to adopt WCAG 2.1 standards as the test for determining whether a website violates the ADA);

In 2021, there were more civil cases filed in federal court based on diversity of citizenship than any other jurisdictional basis.[1] That means any changes to the rules affecting diversity cases are bound to affect lots of litigants. On December 1, 2022, one such change took effect.

Federal Rule of Civil Procedure 7.1(a)(2) now requires a new kind of disclosure statement in diversity suits. The amended Rule states:

In an action in which jurisdiction is based on diversity under 28 U.S.C. § 1332(a), a party or intervenor must, unless the court orders otherwise, file a disclosure statement. The statement must name—and identify the citizenship of—every individual or entity whose citizenship is attributed to that party or intervenor:

(A) when the action is filed in or removed to federal court, and

(B) when any later event occurs that could affect the court’s jurisdiction under § 1332(a).

In other words, any party to a diversity case must disclose the citizenship of every individual or entity that is attributed to that party under the legal rules that govern subject-matter jurisdiction. The amendment specifies that the party’s citizenship as it stands when the action is filed in or removed to federal court must be disclosed.

This new diversity disclosure statement is “aimed at facilitating the early determination of whether diversity jurisdiction exists under 28 U.S.C. § 1332(a), or whether complete diversity is defeated by the citizenship of a nonparty individual or entity because that citizenship is attributed to a party.”[2]

It seems reasonable to expect that under this new rule, jurisdictional discovery as to a party’s citizenship may be less likely than before. But the comments to the rule indicate that discovery is still possible when “inquiring into such matters as the completeness of a disclosure’s list of persons or the accuracy of their described citizenships.” In short, expect jurisdictional discovery to decrease but not disappear.

In cases involving parties with simple citizenships, such as individuals and single-member LLCs, the new disclosure statement should prove simple enough. Sometimes, however, a party’s citizenship can be quite complicated. The comments state, “This rule does not address the questions that may arise when a disclosure statement or discovery responses indicate that the party or intervenor cannot ascertain the citizenship of every individual or entity whose citizenship may be attributed to it.” Expect courts to weigh in on this issue in future cases.

The new rule also recognizes that a court may limit disclosure under the appropriate circumstances. For example, if a party knows that at least part of its citizenship destroys diversity, disclosure may be cut short. Also, if a party can show a substantial interest in privacy, certain disclosures may be avoided, as the comments to the new rule indicate.

Finally, as for the timing of this new disclosure statement, Rule 7.1(b) requires a party to file the statement “with its first appearance, pleading, petition, motion, response, or other request addressed to the court.”

[1] Federal Judicial Caseload Statistics 2022 | United States Courts (uscourts.gov).

[2] Memorandum from Committee on Rules of Practice and Procedure to Scott S. Harris, Clerk, Supreme Court of the United States (Oct. 18, 2021).

UPDATE – On January 20, 2023 the Louisiana Department of Revenue revised the proposed regulations.  The revisions modify the previous Notice of Intent to amend the regulations relating to the new automatic extension. The revisions to the proposed rule no longer contain language requiring the Secretary to grant a “reasonable” extension because the statutory provisions already mandate the length of the extension. The revisions also provide that taxpayers can retain other evidence of their federal filing extension approval, which need not be limited to Form 6513. This blog post was originally published in December 2022 and has been updated to reflect these changes.

Act 410 (SB 54) of the 2022 Regular Session amended Louisiana law[1] and granted an automatic extension to individuals, partnerships, and fiduciaries (estates and trusts) to file state income tax returns for taxable periods beginning on or after January 1, 2022. The extension is automatically granted for six months from the May 15 deadline[2] for filing returns, or until the extended due date of the federal return, whichever is later, to accommodate fiscal year filers. For calendar year filers, the extended due date is November 15 or the first business day thereafter. The legislation does not extend the time to pay any tax due.

For corporations, the amendments provide that the Secretary of the Louisiana Department of Revenue (the “Secretary”) “shall” grant a six-month extension (or until the extended due date of the federal return, whichever is later) for the filing of state corporate income tax returns where the taxpayer has timely requested an extension to file its federal tax return with the Internal Revenue Service (the “IRS”). But it should be noted that the Secretary does not appear to be required to grant a similar extension for corporation franchise tax returns because the relevant franchise tax statute only provides that the Secretary “may” grant an extension of time to file.[3] Since the Louisiana corporation income and franchise tax returns are prepared and filed on the same form (Form CIFT-620), it is likely the Louisiana Department of Revenue (the “Department”) will recognize the same extended due date for each return but it is possible the Department could adopt another policy.

The automatic extensions are contingent on the taxpayer filing the state return on or before the extended due date. If the taxpayer fails to do so, the deadline reverts to the original due date, and delinquent filing penalties are calculated accordingly.

Procedural Changes Under the Rules

The Department has issued a Notice of Intent[4] to amend the applicable regulations[5] in line with the new automatic extension provisions. The proposed amendments to the regulations provide that individuals, partnerships and fiduciaries are not required to submit an extension request for taxable periods beginning on or after January 1, 2022.

For corporations, the proposed amendments to the regulations would require a taxpayer to mark the box on the Corporation Income and Franchise Tax Return indicating that they have timely applied for a federal extension for the same taxable period. If approved for a federal extension, the taxpayer should retain a copy of their approval. If the federal extension is not approved, the state extension is also null and void, and as a result, delinquent filing penalties will be assessed from the original due date for the return.[6]

The proposed amended regulations would also provide that a taxpayer that files a corporation franchise tax return without a corporate income tax return is ineligible for a filing extension.

Implications for Taxpayers

Previously, under these provisions, the Secretary had the discretionary power to grant a reasonable extension of time for filing state returns that could not exceed six months[7], or the extended due date of the federal income tax return, whichever was later. For the purpose of granting the extension, the Secretary could either accept a physical copy of the form filed by the taxpayer with the IRS requesting an extension on their federal tax return, or alternatively, provide for an automatic extension on the state tax returns without requiring the filing of an additional state form.

In practice, taxpayers filed an extension request with the state using one of the following methods: filing an electronic application on the Department’s website, filing an electronic application via the Department’s interactive voice response (“IVR”) phone system, filing a paper request, submitting a copy of the federal paper extension, or using the options in the tax preparation software for an electronically-filed return.[8]

Act 410 changes the law and makes the automatic extension mandatory for taxable periods beginning on or after January 1, 2022, and does not require a taxpayer to file an extension request with the state, or require action on the part of the Secretary. A corporate taxpayer must timely file a request for extension with the IRS for that tax period but need not file a separate state extension request. As noted above, the text of the franchise tax laws do not require the Secretary to grant an extension of time to file. The proposed regulations appear to apply the automatic extension to the common form for filing both corporation income and franchise tax returns but it is possible the Department could adopt a different policy in the future.

As with respect to federal tax extension rules, taxpayers relying on the automatic extension should bear in mind that taxes continue to be due by May 15th[9], and that failure to file returns within the extended period will trigger delinquent filing penalties that will run from the original due date of the return.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Willie Kolarik at (225) 382-3441, or Divya Jeswant at (504) 293-5766.

[1] La. R.S. 47:103(D), 47:287.614(D), 47:612.

[2] La. R.S. 47:103(A), 47:287.614(A), 47:609. Returns for taxpayers that file on a fiscal year basis are usually due on or before the fifteenth day of the fifth month following the close of the fiscal year.

[3] La. R.S. 47:612.

[4] La. Register 48:2689 (October 2022).

[5] La. Admin. Code 61:I.2501, 2503, 2505, 2507.

[6] Proposed amendments to the regulations contain additional requirements if the IRS denies the taxpayer’s request for a federal extension and the taxpayer requests a reconsideration of their denied federal extension.

[7] Seven months, in the case of a corporation. La. R.S. 47:287.614(D)(1).

[8] https://revenue.louisiana.gov/Faq/Details/1000; https://revenue.louisiana.gov/CorporationIncomeAndFranchiseTaxes#Extension.

[9] La. R.S. 47:105(A), La. R.S. 47:287.651(A), La. R.S. 47:609(A). Where the taxpayer files returns on a fiscal year basis, tax is usually due on or before the fifteenth day of the fifth month following the close of the fiscal year.

In Leisure Recreation & Entertainment, Inc. v. First Guaranty Bank, the Louisiana Supreme Court found the voluntary pay doctrine to be in direct conflict with the Civil Code.   In this action, the borrower was to make payments with interest accruing at 6.5% for years one through five of the loan, 7.5% in years six through ten, and then at Citibank prime rate.  Although the rate declined in years eleven through thirty, the borrower continued to pay interest at 7.5%, which exceeded the prime rate during the applicable period.   In response to borrower’s claim, the bank asserted that borrower was estopped from recovering the payments or arguing that the payments were improperly made pursuant to the voluntary payment doctrine.  In a 1902 decision, the Louisiana Supreme Court addressed the voluntary pay doctrine calling it “an established rule of law that if a party with full knowledge of facts, voluntarily pays a demand unjustly made on him and attempted to be enforced by legal proceedings, he cannot recover the money back”.

However, this time the Louisiana Supreme Court concluded that Civil Code article 2299 says nothing about the voluntary pay doctrine.  This article states “a person who has received a payment or a thing not owed to him is bound to restore it to the person from whom he received it.”  The Court found the express and plain language of article 2299 rejects the application of this doctrine and it reversed the Court of Appeal ruling insofar as it held plaintiff is precluded from recovering payments voluntarily made, whether made knowingly or by mistake.  It stated that the knowledge exception applied in the voluntary pay doctrine is contrary to the express mandate of Civil Code article 2299, which the legislature adopted.  Simply put, the article states that a person receiving payment of a thing not owed must return it.  The Court stated, “There is no place in Louisiana law for a common law estoppel doctrine that addresses a subject already encompassed with positive law of the Civil Code.”

4872-5866-6014 v1

On Monday, October 24, the United States Department of Justice (the “DOJ”) confirmed that it did not appeal the Court of Appeals for the Fifth Circuit’s decision in Trafigura Trading LLC v. United States, No. 21-20127, 29 F.4th 286 (5th Cir. 2022). The Fifth Circuit invalidated the federal tax on domestic crude oil exported from the United States as unconstitutional. The DOJ also provided a letter to House Speaker Nancy Pelosi explaining its decision and reaffirming its commitment to defending the oil export tax in other circuits. The Fifth Circuit’s finding that the oil export tax is unconstitutional and the DOJ’s decision not to appeal create both a refund opportunity and considerable uncertainty for taxpayers. In Trafigura Trading, the Fifth Circuit found that the oil export tax violated the Export Clause under Article I, section 9, Clause 5 of the United States Constitution, which bans taxes or duties on articles exported from any state. Any taxpayer that previously paid the tax should consider filing refund claims on a timely basis before the statute of limitations on refunds prevents recovery of these amounts.

Tax on Exported Crude Oil Held Unconstitutional

The tax on exported crude oil is imposed by Internal Revenue Code (“IRC”) Section 4611(b) as one of the “Environmental Taxes” under Subtitle D (Miscellaneous Excise Taxes). The tax was originally imposed in 1980 but exports of crude oil were heavily restricted by the Bureau of Industry and Security until 2016.[1] The tax applies to domestic crude oil that is exported from the United States, at a rate of nine cents per barrel (after 2016). The tax is due quarterly, and the return must be filed on the last day of the first calendar month following the quarter for which it is made.[2] Proceeds from the tax go into the Oil Spill Liability Fund (“the Fund”).

Trafigura Trading, the taxpayer, sought a refund of over four million dollars in taxes paid between tax years 2014 and 2017 under IRC Section 4611(b). Trafigura’s argued that the tax was unconstitutional under the Export Clause. The Internal Revenue Service’s (the “IRS”) audit division denied the refund request, and the IRS appeals division denied Trafigura’s protest of the refund claim denial because it “does not consider arguments based on constitutional grounds.”

When Trafigura challenged the denial, the government argued that the levy was not a prohibited tax on exports but a “user fee,” citing United States v. U.S. Shoe, 523 U.S. 360 (1998), and Pace v. Burgess, 92 U.S. 372 (1875) in support of that proposition. The United States District Court for the Southern District of Texas disagreed and granted Trafigura Trading’s motion for summary judgment.

In considering the government’s appeal, the Fifth Circuit looked to the historical context of the Export Clause and noted that delegates to the constitutional convention from the southern states (the nation’s then primary exporters) considered the Export Clause so important that there would have been no Constitution without it. The Appeals Court therefore determined that the ban on export taxes was meant to be unqualified and absolute. Hence, the government’s only defense was to show that the “tax” was, despite its name, a “user fee.”

In order to qualify as a “user fee,” however, the charge contained in IRC Section 4611(b) would have to satisfy a two-part test articulated by the United States Supreme Court in U.S. Shoe and Pace. First, the charge must not be based on the quantity or value of the exported oil – if it was, it was more likely a tax. Second, the charge must “fairly match” or “correlate reliability” with the Fund’s services to exporters.

As to the first part of the test, the government admitted that the charge was based on the volume of oil exported. The tax failed the second part of the test because, as noted by the Appeals Court, the Fund is mainly used to provide reimbursement for oil spill cleanup costs above a statutory cap, to cover costs incurred by federal, state, and Indian tribe trustees for natural resource damage assessment and restoration, and to support research and development on oil pollution. The Appeals Court held that these were not services provided to exporters in return for the charge as a “value-for-value transaction” but were instead “a mishmash of anti-pollution measures for the general benefit of society.” Even if exporters benefitted indirectly from these measures, the same could be said for any tax. For those reasons, the Court held that the charge under IRC Section 4611(b) was a tax and not a “user fee.” As a result, the Appeals Court affirmed the decision of the District Court, and ruled that the tax under IRC Section 4611(b) violated the Export Clause and could not be enforced by the government.

Refund Implications for Taxpayers

Of immediate concern to taxpayers is that the statute of limitations for filing a refund claim expires the later of three years from the date the return was filed or two years from the date the tax was paid.[3] As a result, taxpayers are running out of time to file potential refund claims for recovery of taxes paid in prior years under IRC Section 4611(b). For those who missed the opportunity when the decision came out in March, there is still a limited window in which to file claims by October 31 for taxes paid during the third quarter of 2019. Until the issue is ultimately resolved, taxpayers should consider continuing to file refund claims for open periods.

The DOJ’s decision not to appeal the Fifth Circuit’s decision, highlights one of the longstanding issues with our system of judicial review of tax matters – that authoritative rules to resolve a tax controversy may not be determined for a protracted period of time.[4] In this case, the DOJ’s decision not to appeal causes considerable uncertainty for taxpayers because, absent a legislative fix, taxpayer’s with materially similar facts may have different tax consequences based solely on whether their challenge to the tax would be subject to the jurisdiction of the Fifth Circuit. This uncertainty will persist until the statute is amended in a manner that renders it constitutional or the United States Supreme Court definitively rules on the issue.

In addition to considering whether to file refund claims related to past tax periods, a taxpayer subject to the tax should also retain necessary documentation necessary and consider filing refund claims on a timely basis with respect to these payments in order to preserve the right to recover these amounts from IRS. Taxpayers outside of the Fifth Circuit should also consider filing timely refund claims to protect their right to recover these amounts as the issue is unresolved and may ultimately be decided in favor of taxpayers. Finally, taxpayers should monitor any proposed amendments to IRC 4611.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Willie Kolarik at (225) 382-3441, or Divya Jeswant at (504) 293-5766.

[1] https://www.bis.doc.gov/index.php/documents/pdfs/1462-crude-oil-final-rule-5-12-1016/file

[2] Treas. Reg. 40.6071(a)-1(a).

[3] IRC Section 6511.

[4] Edwin N. Griswold, The Need for a Court of Tax Appeals, 57 Harv.L.Rev. 1153 (1944) (available at: https://repository.uchastings.edu/cgi/viewcontent.cgi?article=1020&context=tax).

romain-dancre-doplSDELX7E-unsplash

Earlier this year, Governor John Bel Edwards signed into law House Bill No. 515, amending La. R.S. 12:1333 and enacting the new La. R.S. 12:1333.1 of the Louisiana Limited Liability Company Law (the “LLC Law”), which became effective on August 1, 2022. This legislation represents meaningful changes to the nature of membership interests in Louisiana single-member limited liability companies and the rights related to those interests upon the death of a member.

Under Louisiana law, upon the death or declaration of incompetency of a member of a limited liability company, the deceased member’s membership interest in the company automatically terminates.[1] Thereafter, the appropriate representative of the deceased or incompetent member is treated as an assignee of the member’s interest and is entitled only to receive distributions from the company, to share in profits and losses, and to receive allocations of the company’s items of income, gain loss, deductions and credit (“Financial Rights”).[2] Unless and until an assignee is admitted as a member of the company, the assignee is not entitled to exercise any management rights or powers of a member, such as voting rights and inspection of company records (“Management Rights”).

The designation of a person who assumes the membership interests of a deceased or incompetent member as an assignee is particularly significant in the context of single-member limited liability companies. Prior to the enactment of Section 1333.1, upon the death or incompetence of the sole member, the company’s membership would be reduced to zero. Unlike a partnership entity, which automatically terminates upon the reduction of its membership to one person,[3] the LLC Law is silent as to the effects of a limited liability company’s membership being reduced to zero.[4] Thus, prior to the enactment of Section 1333.1, when the sole member in a single-member LLC died or was declared incompetent, and his or her membership interests transferred to the designated assignee, it was unclear who, if anybody, had the authority to manage the company, or even whether the existence of the company would continue.

The newly enacted Section 1333.1 offers some clarity on this issue by providing an exception to the general rule that the representative of a deceased single member is to be treated as an assignee:

  1. Notwithstanding any provision of law to the contrary, the death of the member of a single-member limited liability company shall not result in the termination of the interest of the deceased single member in that limited liability company or in the termination of that limited liability company, but instead the interest of the member in the single-member limited liability company shall be fully heritable.[5]

Upon the death of the single member, the deceased member’s succession representative “may exercise all of the deceased member’s rights for the purpose of settling or administering the member’s estate, including all financial and management rights related to the single-member limited liability company held by the deceased member at the time of his death.”[6] Once the membership interest is properly transferred, as part of the succession, “the heir or legatee shall have full rights of membership in the limited liability company, including all financial and management rights.”[7]

These changes could result in significant consequences for single-member limited liability company owners that do not adequately plan for the transfer of membership interests upon their death. Unless otherwise provided in the company’s articles of organization or a written operating agreement, the membership interests of a deceased single member are fully heritable and would be transferred to the deceased member’s heirs and legatees, who would then enjoy full rights as a member or members of the company. Now, the owner of a successful single-member LLC will be able to leave his or her membership interest to their non-member children, who can carry on the business following his or her death. Alternatively, consider the sole member that dies intestate whose estranged son inherits full membership rights and is free to manage the company as he chooses. Business owners and practitioners should be cognizant of the effects of these changes and should prepare accordingly in drafting articles of organization and operating agreements of Louisiana single-member limited liability companies.

 

[1] LSA-R.S. 12:1333(A).

[2] LSA-R.S. 12:1330(A).

[3] LSA-C.C. Art. 2826.

[4] The LLC Law defines a “limited liability company” as “an unincorporated association having one or more members” (LSA-R.S. 12:1301(10) (emphasis added), there is no statute providing for express automatic termination of an LLC with no members.

[5] LSA-C.C. 12:1333.1(A).

[6] LSA-R.S. 12:1333.1(B).

[7] LSA-R.S. 12:1333.1(C).

For traditional manufacturers, the Inflation Reduction Act of 2022 (IRA) offers a mixed bag of carrots and sticks to support its green energy goals.

Signed by President Biden on Aug. 16, 2022, the bill includes numerous tax credits and other incentives promoting clean energy investment. One of the IRA’s stated purposes is to incentivize and revitalize domestic manufacturing, and many of its tax credits and incentives are focused on clean energy manufacturing.

The IRA directs some specific tax outcomes, like tax credits for manufacturing green components. Other outcomes may be consequential or indirect, like increased local tax revenues due to higher wages or an expanded property tax base.

First, the Carrots

One of the most significant benefits of the IRA is the expansion of the Advanced Energy Project Tax Credit. This provision credits up to 30 percent of the investment in property used in a “qualifying advanced energy project” that is certified by the Department of Energy, and that is placed in service within two years from certification.

The IRA expands the definition of a qualifying advanced energy project to include initiatives at manufacturing facilities that reduce their greenhouse gas emissions by at least 20 percent. Manufacturers can apply the tax credit to low-carbon industrial heat; carbon capture, transport, utilization and storage systems; and equipment for recycling, waste reduction and energy efficiency. This tax credit is funded at $10 billion for eligible projects.

Similarly, the IRA creates a new, $5.8 billion Advanced Industrial Facilities Deployment Program under the Department of Energy’s Office of Clean Energy Demonstrations to invest in projects aimed at reducing greenhouse gas emissions from energy-intensive industries. Such fields include chemical, paper and pulp, iron, steel and glass manufacturing.

Importantly, companies may use this funding to retrofit or upgrade existing facilities, and the program’s funds may be issued as grants, rebates or loans to eligible manufacturers. Funding selection will give priority to projects with the greatest greenhouse gas emissions reductions and greatest benefit to the largest number of people.

The IRA grants $3 billion to the Environmental Protection Agency to award rebates and grants to port authorities, other local governing bodies and private entities to acquire green equipment and develop climate action plans. The heavy-duty vehicles and equipment used to load and unload cargo often make ports into air quality hot spots. The IRA sets aside $750 million for ports located in non-attainment areas, meaning those with severe air pollution.

The IRA also provides $2 billion to the Department of Energy for Domestic Manufacturing Conversion Grants. Selected applicants can use the grants to retool or retrofit existing automotive facilities for domestic manufacturing of green vehicles such as hybrid, electric, and hydrogen-fueled automobiles.

Finally, the IRA increases the Carbon Capture and Sequestration Tax Credit amount for industrial facilities and decreases the minimum plant size threshold for eligibility. The tax credit, described in Section 45Q of the Internal Revenue Code, incentivizes investment in systems that trap and store carbon emissions, such as in underground geological formations.

Now for the Sticks 

One of the most significant drawbacks in the IRA is the enactment of a corporate minimum book tax. The minimum tax would be 15 percent of book income, which is the amount of income shown on the applicable corporation’s financial statements. Book income is reduced by any corporate alternative minimum foreign tax credit and can be adjusted for certain depreciation.

As a condition for being subject to the corporate minimum book tax for a tax year, the applicable corporation must have average book income in excess of $1 billion over three years prior to the tax year. A lower threshold of $100 million applies for a foreign patented multinational group.

The tax applies to a corporation that must be aggregated with other trades or businesses that are component members of a commonly controlled group, whether or not incorporated. Only the corporate partner’s distribution share of the partnership’s financial statement income is included. The aggregation standard includes, but is broader than, that required for filing consolidated returns. Also, a predecessor corporation is required to be aggregated.

It is important to note that the final version of the IRA retains a provision allowing for 100 percent bonus depreciation, which allows companies to fully and immediately deduct the cost of capital purchases from their book incomes.

Without the bonus depreciation, capital-intensive companies like manufacturers would report higher incomes and therefore likely incur higher taxes. Unfortunately, this bonus depreciation provision will be phased out between 2023 and 2026.

Another stick imposed by the IRA is an excise tax on the repurchase of shares by a corporation. Public companies with excess cash frequently use these stock buybacks to reduce the number of shares outstanding in order to increase earnings per share, which in turn affects the stock price. The excise tax is imposed at the rate of 1 percent of the amount of the buyback.

Finally, the IRA establishes a maximum annual methane waste emission rate for facilities and imposes escalating penalties for exceeding the limit.

Local Tax Implication

Manufacturers must also consider an unforeseen consequence of all this green investment: the potential for increased local property taxes.

Fortunately, most states already provide some economic development incentives for new or expanding manufacturing facilities, either in the form of property tax exemptions or income tax credits. Most states also provide a specific property tax exemption for pollution control equipment.

Manufacturing site selection is extremely competitive, and corporate tax rates, state and local incentives — as well as tax exemptions — are always among the Top 10 site selection factors identified by manufacturers. No doubt the states with these sorts of incentives will fare better in recruiting new green manufacturers and encouraging traditional manufacturers to implement greener technologies.

The IRA’s clean energy goals are clear, and it does an admirable job of incentivizing and encouraging green manufacturing. But for traditional manufacturers, it remains to be seen whether the IRA’s carrots — or sticks — will have the greater impact.

This article was originally published by REBusinessOnline.