BY: Jaye Calhoun, Jill Gautreaux and Willie Kolarik

Sales Tax Changes:

The Louisiana Legislature has simplified the effective state tax rates for most taxable transactions, eliminating the previous five potential tax rates (as applicable to various exemptions) to two possible rates: either fully exempt from state tax or  4.45% for most purchases (down from 5%).  Effective July 1, 2018, House Bill (“HB”) 10 of the 2018 Third Extraordinary Session of the Louisiana Legislature has amended La. R.S. 47:321.1(A), (B), and (C) reducing the Louisiana state sales tax rate from 1 % to 0.45%. Accordingly, Louisiana sales at retail, taxable use and rentals of tangible personal, as well as taxable services will be subject to tax at this rate.  Accordingly, sellers qualifying as “dealers” under state law should collect state taxes at the 4.45% rate as of the effective date of July 1, 2018.  The Louisiana Department of Revenue quickly issued guidance, Revenue Information Bulletin No. 18-016 (June 24, 2018), providing that, if a dealer mistakenly collects at the 5 percent (5%) rate on or after July 1, 2018, then the dealer must remit the excess sales tax collected to the Louisiana Department of Revenue, and that any excess sales taxes collected should be reported on Line 8 of the Sales Tax Return Form R-1029.

With respect to hotel or room rentals in Orleans or Jefferson parish, the sales tax collected by LDR on room rentals decreased to 9.45% (Column D of the applicable return decreased to 2.45%). For lodging facilities with less than 10 rooms, the rate is now 4.45%.

Also, beginning July 1, 2018, the overall state sales tax rate for business utilities will be 2% under La. R.S. 47:302. The rate remains 4% through June 30, 2018 (the rate had previously been scheduled to be reduced to 1% on July 1 through March 31, 2019).   Residential uses remain exempted.  Both the new additional tax rate of 0.45% pursuant to La. R.S. 47:321.1 and the sales tax rate of 2% on business utilities under La. R.S. 47:302 are set to sunset on June 30, 2025, unless the Legislature decides at some point to make additional changes.

The bill also removes various exemptions by listing those items that remain exempt, or will become exempt, which include but are not limited to:

  • Other constructions permanently attached to the ground (2% –> 0%)
  • Sales of electricity for chlor-alkali manufacturing (3% –> 0%)
  • Rentals or leases of oilfield property for re-lease or re-rental (3% –> 0%)
  • Labor, materials, services and supplies used for repair, renovation or conversion of drilling rig machinery and equipment (3% –> 0%)
  • Repairs and materials used on drilling rigs and equipment (3% –> 0%)
  • Installation charges on tangible personal property (0% –> 0%)
  • Tangible personal property intended for resale (0% –> 0%)
  • Sale of property for lease or rental (2% –> 0%)
  • Sales of materials for further processing (0% –> 0%)

For the full list of changes in tax rates set to take effect on July 1, 2018 see Louisiana Department of Revenue’s publication, R-1002(07-18).

Beer League Decision – Gallonage Tax

Are retailers off the hook when it comes to the City of New Orleans gallonage tax? On June 27, 2018, the Louisiana Supreme Court handed down its decision in Beer Industry League of Louisiana, et al. v. The City of New Orleans, et al., which challenged the constitutionality of a recently amended City of New Orleans ordinance that levied a “gallonage tax” upon “dealers” who handle high content alcoholic beverages in the City of New Orleans.  New Orleans City Code Section 10-501 imposes “excise or license taxes” upon “dealers of alcoholic beverages” pursuant to the prices and rates outlined in the ordinance.  New Orleans City Code Section 10-511 states that the taxes are to be collected:

… 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. 

A “dealer” is defined in the New Orleans Code of Ordinances at Section 10-1 as:

… any person who, as a business, manufactures, blends, rectifies, distills, processes, imports, stores, uses, handles, holds, sells, offers for sale, solicits orders for the sale of, distributes, delivers, serves or transports any alcoholic beverage in the city or engages therein in any business transaction relating to any such beverage.

The Beer Industry League of Louisiana, Wine and Spirits Foundation of Louisiana, Inc. and Louisiana Restaurant Association, Inc. (collectively, “Plaintiffs”) claim that the ordinance is unlawful and unconstitutional because it imposes an occupational license tax or excise tax upon wholesale dealers of alcoholic beverages. The City claims that the tax is a lawful occupational tax.  The tax in question has existed for years, but it was not previously enforced or collected.  After the trial court denied Plaintiffs’ request for an injunction prohibiting the collection of the gallonage tax, the City began collecting the gallonage taxes from wholesale dealers last spring.

In considering cross-motions for summary judgment, the trial court held that the ordinance was unlawful and unconstitutional because it was a direct tax on alcoholic beverages as opposed to an occupational tax on a particular activity. The trial court reasoned that the tax was not exclusively imposed upon the wholesale dealer, but could be collected from any dealer in whose possession the alcoholic beverages are found.

The Louisiana Supreme Court focused solely upon the issue of whether the gallonage tax was to be considered an occupational license tax. The Court sided with the City and overruled the trial court, holding that the gallonage tax was an occupational license tax, and that the City was permitted to impose occupational license taxes in an amount not greater than that imposed by the State.  The Court did not discuss the possibility that the tax could be imposed upon a retailer pursuant to New Orleans City Code Section 10-511, which was one of the considerations of the trial court.

The City of New Orleans has been collecting the gallonage tax from wholesalers who have warehouses in or deliver alcoholic beverages of high alcoholic content to the City of New Orleans. However, the definition of dealer found in the New Orleans City Code and the language of Section 10-511 could be read expansively to cause retailers to be responsible for the gallonage tax if the wholesaler does not pay it.  While not explicitly stated, the Louisiana Supreme Court ruling suggests that wholesalers are the only class of dealer that would be responsible for this gallonage tax as an occupational license tax (despite the language of New Orleans City Code Section 10-511), as retailers are already subject to an occupational license tax imposed by City ordinance based upon gross revenues.

If you have questions or are not sure if these changes affect you or your business, please contact Kean Miller attorneys, Jaye Calhoun (504.293.5936), Jill Gautreaux (504.620.3366) or Willie Kolarik (225.620.3197).

By Jaye Calhoun, Jason Brown, Angela Adolph, Phyllis Sims, and Willie Kolarik

The Louisiana Legislature has simplified the effective state tax rates for most taxable transactions, eliminating the previous five potential tax rates (as applicable to various exemptions) to two possible rates: either fully exempt from state tax or 4.45% for most purchases. Effective July 1, 2018, House Bill (“HB”) 10 of the 2018 Third Extraordinary Session of the Louisiana Legislature has amended La. R.S. 47:321.1(A), (B), and (C) reducing the Louisiana state sales tax rate from 1% to 0.45%. Accordingly, Louisiana sales at retail, taxable use and rentals of tangible personal, as well as taxable services will be subject to tax at this rate. This bill was sent immediately to, and signed by, Governor Edwards. Accordingly, sellers qualifying as “dealers” under state law should collect state taxes at the 4.45% rate as of the effective date of July 1, 2018. Nevertheless, the Louisiana Department of Revenue has quickly issued guidance, Revenue Information Bulletin No. 18-016 (June 24, 2018), providing that, if a dealer mistakenly collects at the 5% rate on or after July 1, 2018, then the dealer must remit the excess sales tax collected to the Louisiana Department of Revenue, and that any excess sales taxes collected should be reported on Line 8 of the Sales Tax Return Form R-1029.

The Legislature also reduced the reduction in tax on business utilities. That is, business utilities are currently taxed at 4% through June 30, 2018. That rate was scheduled to be reduced to 1% on July 1 through March 31, 2019. As a result of HB 10, the rate on business utilities will be 2% until June 30, 2025. Business utilities include steam, water, electric power or energy, natural gas, or other energy sources for non-residential use. The exemptions for steam, water, electric power or energy, natural gas, or other energy sources for non-residential use in La. R.S. 47:305(D)(1)(b), (c), (g), and (h) will continue to apply to the sales tax levies under La. R.S. 47:321, 321.1, and 331 and residential uses remain exempted.

Both the new additional tax rate of 0.45% pursuant to La. R.S. 47:321.1 and the sales tax rate of 2% on business utilities under La. R.S. 47:302 are set to sunset on June 30, 2025, unless the Legislature decides at some point to extend the additional tax or to make it permanent.

The bill also removes various exemptions by listing those items that remain exempt, or will become exempt, which include but are not limited to:

  • Other constructions permanently attached to the ground (2% –> 0%)
  • Sales of electricity for chlor-alkali manufacturing (3% –> 0%)
  • Rentals or leases of oilfield property for re-lease or re-rental (3% –> 0%)
  • Labor, materials, services and supplies used for repair, renovation or conversion of drilling rig machinery and equipment (3% –> 0%)
  • Repairs and materials used on drilling rigs and equipment (3% –> 0%)
  • Installation charges on tangible personal property (0% –> 0%)
  • Tangible personal property intended for resale (0% –> 0%)
  • Sale of property for lease or rental (2% –> 0%)
  • Sales of materials for further processing (0% –> 0%)

Food for home consumption, natural gas, electricity, water, prescription drugs, articles traded in on new articles, and gasoline remain nontaxable under the Louisiana Constitution.

The rate of state tax on purchases of manufacturing machinery and equipment was scheduled to be is currently 1% but is now fully exempt.

For the full list of changes in tax rates set to take effect on July 1, 2018 see Louisiana Department of Revenue’s publication, R-1002(07-18).

If you have questions or are not sure if these changes affect you or your business, please contact Kean Miller tax attorneys, Jaye Calhoun (504.293.5936), Jason Brown (225.389.3733), Angela Adolph (225.382.3437), Phyllis Sims (225.389.3717) or Willie Kolarik (225.382.3441).

 

 

By Michael J. O’Brien

Punitive damages are designed to punish a tortfeasor. They are available as a remedy in general maritime actions where a tortfeasor’s intentional or wanton and reckless conduct amounted to a conscious disregard for the rights of others. The punitive damage standard requires a much higher degree of fault than simple negligence. The amount of a punitive damage award must be considered on a case-by-case basis; however, prior punitive damage awards can provide insight as to what is appropriate.  In the matter of Warren v. Shelter Mutual Ins. Co., et al., 233 So 3d 568 (La. 2017) the Louisiana Supreme Court provided guidance as to when a jury’s punitive damage award was grossly excessive.

The Warren case centered around the wrongful death of Derrick Hebert in a recreational boating accident.  The facts surrounding Derrick Hebert’s death are tragic.  In May 2005, Hebert was a passenger in a boat that suddenly, and without warning, turned violently when the hydraulic steering system failed.  Hebert and four of the other passengers were ejected from the boat. The boat continued to spin around (the kill switch had not been engaged) and its propeller struck Hebert 19 times. Hebert died at the scene. The decedent’s family and estate sought to recover damages under the General Maritime Law and Louisiana Products Liability. Included in the Warren Plaintiffs’ demand was a punitive damage claim under the General Maritime Law.

Nine years after Warren’s untimely death later, the case was tried.  At the close of the 2014 litigation, the jury returning a finding of no liability on the part of the Defendants.  However, the trial court granted the Warren Plaintiffs a new trial based on what it believed to be prejudicial error during the first trial. The second trial resulted in a jury verdict in favor of the Warren Plaintiffs.  The jury awarded compensatory damages of $125,000 and punitive damages of $23,000,000. The Louisiana Third Circuit later affirmed the punitive damage award. A full discussion of the Third Circuit’s decision can be found here.

Defendants successfully applied for writs to the Louisiana Supreme Court.  The Louisiana Supreme Court addressed several assignments of error proffered by the Defendants; however, this article will only address the punitive damage review. After reviewing the record, the Louisiana Supreme Court held that an award of punitive damages was correct. The tortfeasor knew of the serious risks of its steering system and failed to warn its customers that ejection, severe injury, and death could result. Further, the Louisiana Supreme Court agreed with the Third Circuit that the tortfeasor’s conduct was reprehensible and resulted in great harm to the decedent and his family. However, Plaintiffs failed to prove that Defendant acted maliciously or that its behavior was driven primarily for design or gain. While the compensatory damages of $125,000 were deemed low, the harm caused was great and opened the door to higher awards. Yet, the Louisiana Supreme Court found that the award of punitive damages in the amount of $23,000,000 (a ratio of 184:1) was higher than reasonably required to satisfy the objective of punitive damage awards, namely punishment, general deterrence, and specific deterrence. Indeed, the $23,000,000 in punitive damages awarded by the jury did not, in the eyes of the Louisiana Supreme Court, further the goals of punitive damages. While the Defendant was considered a “wealthy corporation,” wealth should not be a driving factor between a punitive damage award and the absence of a showing that the Defendant’s conduct was motivated by greed or malice.  Accordingly, the Louisiana Supreme Court found that the award of $23,000,000 violated the Defendant’s due process rights.

Thereafter, the Louisiana Supreme Court took it upon itself to set the punitive damage award. In its view, based on the actual harm, it found that a punitive damage award of $4,250,000 (a reduction of $18,750,000) more appropriately furthered the goal of punitive damages while protecting the Defendant’s right to due process. Otherwise, the decision of the Third Circuit was affirmed.

By James R. “Sonny” Chastain, Jr.

On June 21, 2018, the Louisiana First Circuit Court of Appeals addressed the right of publicity and right of privacy in connection with Barry Seal (“Seal”) and the movie titled “American Made”.  In 2014, Universal City Studios, LLC (“Universal”) entered an agreement to purchase the life story of Barry Seal from his surviving spouse and children of his third marriage (“Seal Defendants”). Thereafter, Seal’s daughter from his first marriage, Lisa Seal Frigon (“Frigon”), as the administratrix of the estate of Adler Berriman Seal, filed suit against Universal and the Seal defendants seeking to nullify the agreement and claiming violation of right of privacy, right of publicity and asserting other causes of action.  Frigon claimed the right to control the commercial appropriation of her father’s identify and public image.  In response, Universal and the Seal Defendants filed a peremptory exception of no cause of action seeking dismissal of the claims which was granted by the district court.

On appeal, the First Circuit affirmed the district court ruling concluding that the right of privacy protects the individual.  Seal’s right of privacy was held to be strictly personal, not heritable, and died with Seal.  Moreover, the Court found no right of publicity has been recognized under Louisiana state law.  The court cited Prudhomme v. Procter & Gamble Co., 800 F.Supp. 390 (E.D. La. 1992) in which a federal court noted the possibility of a civil action to enforce a right publicity being recognized in Louisiana. However, the First Circuit said it could not find where such recognition had occurred.  The Court noted that judicial decisions are not intended to be an authoritative source of law in Louisiana, but are secondary.  The Court concluded, “Hence, for us to hold jurisprudentially that a right of publicity exists would constitute an unwarranted intrusion into an area in which the legislature has not seen fit to act”.  It declined to supply a cause of action through jurisprudence that it concluded Louisiana law does not.

We will see if Frigon files for a rehearing or seeks review at the Louisiana Supreme Court.

By Jaye Calhoun, Jason Brown, and Willie Kolarik

The Louisiana Legislature is considering last minute legislation to change the effective date of legislation allowing the State to tax remote sellers but has not acted to make other centralized collection legislation operative.  It may not have to.

Today, in a 5-4 decision with far-reaching implications, the Supreme Court of the United States issued its most significant ruling on the constitutional limits – or expanse, as some may view it – of the states’ rights to impose sales/use tax since its 1992 decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).  Indeed, in today’s South Dakota v. Wayfair, et al., __ U.S. __ (2018) decision, the Court expressly overruled Quill (and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967)), finding that Quill’s “physical presence rule…is unsound and incorrect.”  In overruling the “physical presence” (nexus) test, the Court relied on its long-standing test for whether state taxes meet constitutional scrutiny under the Commerce Clause, as set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)).  The Court abandoned the “physical presence” standard previously applied to the first prong of the Complete Auto test – whether a tax appl[ies] to an activity with a substantial nexus with the taxing State” – in favor a new standard (i.e., whether the taxpayer (or vendor) “avails itself of the substantial privilege of carrying on business in the taxing jurisdiction.”).  The implications of the new, broad test – which seems to overlap even more than before with the Due Process test for state taxation – are not yet fully clear. But there is no question they are significant.

For a full discussion of the Wayfair decision, click here.

States’ Inability to Collect Sales Tax From Online Retailers, Background

Since the advent and, later, explosion of e-commerce, most states have bemoaned the loss of sales/use tax revenues that the Quill decision prevented them from collecting, because an online retailer selling into a state with which it had no physical presence did not have the “substantial nexus” required by Complete Auto.  Attempts at a legislative (Congressional) fix – which the Supreme Court actually invited in 1992 in its Quill decision – have effectively gone nowhere.  Recently, many states, like South Dakota, have enacted laws requiring online retailers selling into their state to register for and collect sales/use taxes if the retailer meets a minimum annualized threshold of sale amounts and/or number of sales.  Many of these laws were enacted specifically to force a showdown at the Supreme Court.  And while several states like South Dakota were in the vanguard of this new fight, states like Louisiana were watching on the periphery and preparing for a favorable decision.

Louisiana’s Remote Seller (Online Retailer) Taxing Regime, Generally

In 2018, the Louisiana Legislature passed a law (Act No. 5, Second Extra. Sess. of 2018) that would expand the definition of “dealer” to include any online retailer having no physical presence in the state, but who, “during the previous or current calendar year,” had either (i) gross revenues from sales or services delivered into Louisiana exceeding one hundred thousand ($100,000) dollars; or (ii) at least two hundred (200) sales into the state.  Online retailers meeting the expanded definition of “dealer” would then be required to register with the State for sales tax purposes and to collect state sales taxes on the transactions.  The law expressly provides, however, that Act No. 5 “shall apply to all taxable periods beginning on or after the date of the final ruling of the United States Supreme Court in [South Dakota v. Wayfair] finding South Dakota 2016 Senate Bill No. 106 constitutional.”  So, before the Wayfair decision was issued, it could not have applied.  While legislation has been introduced to change the effective date (discussed below), arguably, though, the law can still not be applied.  The results of the Legislature’s efforts to create a workable effective date will determine whether there is  a safe harbor economic nexus threshold in Louisiana and all businesses with a sufficient economic and virtual contacts to the state should evaluate whether they are subject to sales and use tax and remain alert to developments in this area.

Louisiana’s Remote Seller (Online Retailer) Tax Regime, However, is Inoperative Under its Terms, But Nonetheless (if the Effective Date is Fixed) May Not be Constitutional under Wayfair

Justice Kennedy, for the majority in Wayfair, wrote:

The question remains whether some other principal in the Court’s Commerce Clause doctrine might invalidate the Act. Because the Quill physical presence rule was an obvious barrier to the Act’s validity, these issues have not yet been litigated or briefed, and so the Court need not resolve them here.

Justice Kennedy went on to write that “[a]ny remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.”  So, while the Court ruled on the “physical presence” issue, it did not definitively rule that the South Dakota law was constitutional.

Act No. 5 is specific – it will only apply to taxable periods “beginning on or after the date of the final ruling by the United States Supreme Court in [Wayfair] finding [the South Dakota law] constitutional.”  As of this writing, that has not happened.  And unless and until the U.S. Supreme Court specifically rules that the South Dakota law is constitutional, Act No. 5’s provisions will never be triggered.  Without that trigger, the definition of “dealer” will not include online retailers (as described in the Act) and the current taxing regime in Louisiana will remain.

As noted above, late last evening (June 21, 2018) a bill (SB 1) was introduced in the Louisiana Senate that would remove the quoted language and replace it with “beginning on or after August 1, 2018,” which seems designed to correct the limitation in current law.  The late-filed bill is nevertheless constitutionally dubious, because, under the Louisiana constitution, bills that raise revenues must originate in the Louisiana House of Representatives.  SB 1 appears designed to raise revenues because it’s intent could be interpreted as ensuring that Louisiana’s existing sales tax regime survives Commerce Clause scrutiny with respect to remote sellers. If SB 1 is passed by the Louisiana Legislature, it will be subject to court challenge.  Unless and until the Senate bill is passed, current law holding Act No. 5’s application until the United States Supreme Court declares in Wayfair that the South Dakota law is constitutional remains in effect.  As a result, the U.S. Constitution appears to be the only limit on the state’s powers to impose the tax on remote sellers.

If SB 1 does not pass the Legislature (or passes and is met with a court challenge), but the United States Supreme Court makes a definitive ruling that the South Dakota law is constitutional, thereby triggering Act No. 5, Louisiana’s proposed remote seller tax regime will nevertheless be subject to challenge, because its system of centralized administration, collection and enforcement cannot be implemented under current law.

La. R.S. 47:339 establishes the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”) within the Department of Revenue “for the administration and collection of the sales and use tax imposed by the state and political subdivisions with respect to remote sales.” La. R.S. 47:339(A)(2) provides, further:

The Commission shall…[w]ith respect to any federal law as may be enacted by the United States Congress authorizing states to require remote sellers, except those remote sellers who qualify for the small seller exceptions as may be provided by federal law, serve as the single entity in Louisiana to require remote sellers and their designated agents to collect from customers and remit to the commission sales and use taxes on remote sales sourced to Louisiana on the uniform Louisiana state and local sales and use tax base established by Louisiana law. (emphasis supplied)

Should the Supreme Court ultimately rule in the Wayfair case (on later writ of certiorari) that the South Dakota law is constitutional, remote sellers qualifying as “dealers” under Act No. 5 would then be subject to the Louisiana’s registration and reporting/collecting/remitting requirements.  But unless and until the Congress enacts a federal law dealing with sales tax reporting and remitting requirements for remote sellers, the Commission, by the express terms of La. R.S. 47:339, will have no authority to implement the centralized system the Legislature envisioned.  Such a system appears essential under Wayfair, however, for the state to constitutionally impose its proposed remote seller tax regime on nonresident businesses with no physical presence in the state.

Justice Kennedy made clear that the South Dakota law would likely survive Commerce Clause scrutiny because (i) it has a safe harbor provision; and (ii) that the taxes would not be applied retroactively. But his ultimate conclusion rested in no small part on South Dakota’s centralized system.  He wrote:

South Dakota is one of more than 20 States that have adopted the Streamline Sales and Use Tax Agreement.  This system standardizes taxes to reduce administrative and compliance costs.  It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State.

Under current Louisiana law, unless and until (i) the United States Supreme Court expressly finds the South Dakota law constitutional (at the very least by denying certiorari from a lower court decision ruling the same); and (ii) the Congress passes a federal law specifically providing for taxation of remote sellers (as unambiguously required by La. R.S. 47:339(A)(2), Louisiana’s proposed centralized system (for so-called remote sales) will have no statutory basis for implementation and administration. The Wayfair decision suggests that the lack of such a centralized system would not withstand Commerce Clause scrutiny in the remote seller context because such a scenario may present discrimination against or undue burdens on interstate commerce.

All that being said, and despite the fact that neither of these two Louisiana statutes are (yet) effective according to their terms, remote vendors must nonetheless understand that the Supreme Court’s decision in the Wayfair case changes the landscape dramatically.  The Supreme Court in Wayfair introduced a new “substantial nexus” test under the Commerce Clause.  Undoubtedly the Louisiana Department of Revenue and each one of the sixty-three Louisiana parishes that impose sales and use tax are evaluating this new test and considering the possibilities.

The majority opinion leaves open that “[c]omplex state tax systems could have the effect of discriminating against interstate commerce.” There may be issues with undue burdens or outright discrimination. So conceivably the same nexus thresholds that on balance justify South Dakota’s sales and use tax collection obligation might not apply in a more complex state like Louisiana or Colorado.  Vendors should be on notice, however, that there is a high probability that neither the State nor the Parishes will feel constrained by these concerns.

Wayfair’s impact on Marketplace Facilitator’s in Louisiana

In March 2018, the Louisiana 24th Judicial District Court issued an unusual opinion that addressed the application of Louisiana’s existing sales and use tax laws to a marketplace facilitator.[1]  Specifically, the district court held that a marketplace facilitator was a dealer for purposes of Louisiana sales and use tax laws solely because it engaged in solicitation of a customer market and despite that fact that it never owned or sold the good at issue.  This case is unusual because it implies that both the remote seller and the marketplace facilitator are dealers and it could be read as standing for the proposition that any third party that plays any role in facilitating a transaction could be a dealer with respect to that transaction.

The Court’s decision in Wayfair, does not directly address how the Wayfair test would apply in the context of a marketplace facilitator.  So it is not clear whether an indirect virtual contact, e.g., a situation where the seller’s only contact is indirect through the marketplace facilitator’s website, could result in substantial nexus for the seller.  Nor is it clear whether a marketplace facilitator can be construed as a dealer for purposes of collecting use tax on a sale made by an unrelated third party using its platform.  This issue will likely continue to be litigated in Louisiana and throughout the country.

Louisiana’s Notice and Information Reporting Law Remains in Place

While it seems like piling on, Louisiana’s notice and information reporting statute remains in place, Louisiana law, specifically, La. R.S. 47.309.1 remains in effect for remote dealers selling $50,000.00 or more into the state.  Assuming, qualifying vendors do not voluntarily register to collect and remit state and local use taxes, they will have to consider the implications of the notice and information reporting statute.

For a more full discussion of the Wayfair decision’s effects on Louisiana state and local tax, contact Jaye Calhoun, Jason Brown, or Willie Kolarik.

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[1] Newell Normand, Sheriff and Ex-Offico Tax Collector For The Parish of Jefferson v. Wal-Mart.com USA, LLC, Dkt. No. 769-149 (La. 24th Judicial Dist. Ct. March 2, 2018).

By Jaye Calhoun, Jason Brown and Willie Kolarik

In Camp v. Robinson, No. 10609D, (La. Bd. Tax App. June 13, 2018), the Louisiana Board of Tax Appeals (the “Board”) held that Louisiana’s Individual Net Capital Gain Exclusion applies to a multi-step transaction.  In so holding, the Board read more broadly the scope of the transactions to which the capital gain exclusion may apply and rejected the Louisiana Department of Revenue’s (the “Department”) narrow construction of the exclusion.

In Camp, the taxpayers sold the assets of their nonpublicly-traded Louisiana-domiciled business to a multi-national conglomerate in 2013.  The sale was structured as a tax-free reorganization under Internal Revenue Code Section 368.  As part of the reorganization, the taxpayers’ business received stock of the acquiring corporation and took a basis in that stock equal to the business’s basis in the assets sold.  As a result, no gain was immediately recognized on the sale of the business’s assets, instead the gain was deferred until the stock received in exchange for the assets was sold.

The acquisition agreement imposed a one-year holding period on the stock received by the taxpayers’ business.  Two years after the reorganization, the taxpayers’ business distributed a portion of the stock to the taxpayers and the individuals subsequently sold that stock and realized a gain on the sale.  On their 2015 individual income tax return, the taxpayers took the position that the gain they realized on the sale of stock qualified for the Net Capital Gain Exclusion, which permits a taxpayer to exclude gains recognized and treated for federal income tax purposes as arising from the sale or exchange of an equity interest in or substantially all of the assets of a nonpublicly traded business organization commercially domiciled in Louisiana.[1]

The premise of the taxpayers’ assertion was that the 2015 sale of the acquirer’s stock was one part of series of steps in a single transaction designed to facilitate the sale of the business.  In contrast, the Department viewed the sale as an isolated transaction and asserted that gain recognized on the subsequent sale of the acquirer’s stock did not “arise” from the sale of a nonpublicly traded Louisiana domiciled business because the acquirer was a publicly traded foreign company.

In ruling for the taxpayers, the Board first reviewed the language of the statute and concluded that if the transaction was viewed in isolation it must find in favor of the Department but if the transaction was viewed as one part of a sequence of steps in a single transaction the taxpayers should prevail.  Because the statute was ambiguous as to whether it applied to a multi-step transaction, the Board then reviewed the statute’s legislative history.  According to the Boardthe Louisiana legislature intended to remove the incentive for a Louisiana business owner to relocate to a state without a capital gains tax before selling a private business.  Accordingly, the Board could not discern a reason why the structure of a transaction as a tax-free reorganization should result in the revival of the incentive (to relocate) that the Legislature sought to eliminate.  For those reasons, the Board concluded that the taxpayers were entitled to claim the exclusion on the subsequent sale of the acquirer’s stock.

Although the Board held in favor of the Taxpayers on the substantive issue, the Board ultimately declined to grant the taxpayers’ motion for summary judgment.  The Board reasoned that f the additional gain attributable to the post-exchange appreciation of the acquirer’s stock was ineligible for the exclusion and the taxpayers did not establish the value of the consideration prior to that appreciation.  As a result, the Board determined there was an unresolved issue of material fact precluding summary judgment in the taxpayers’ favor.

Implications

While the decision may be appealed and while it is not binding on Louisiana courts, the Board’s holding in Camp does indicate how the Board may rule on similar issues and provides early guidance on how to view the capital gain exclusion in multi-step transactions.  The Board’s decision stands for the proposition that a taxpayer should have freedom to structure their affairs in a manner that best accomplishes their goals, while preserving the ability to claim the capital gain exclusion.  The Board’s decision is also significant because it looks to the intent of the legislation to preserve the objectives of the exclusion in the face of the most recent attempt by the Department to narrow the scope of the capital gain exclusion.

A taxpayer considering the sale of a Louisiana domiciled business should nonetheless tread cautiously.  While the Board’s decision in Camp suggests the availability of more freedom in determining the most appropriate structure of a sales transaction, the Department can be expected to continue to aggressively challenge these transactions as it continues to attempt to limit the scope of the capital gain exclusion.  That is, taxpayers considering the sale of a Louisiana business should be aware that the Department may challenge the applicability of the capital gain exclusion in reorganization transactions even if the exclusion clearly should apply.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Jason Brown at (225) 389-3733, or Willie Kolarik at (225) 382-3441.

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[1] La. R.S. Sec. 47:293(9)(a)(xvii) (Note that the legislature placed additional restrictions on the capital gain exclusion during 2016).

By M. Dwayne Johnson

On May 30, 2018, EPA finally promulgated modifications to its 2015 definition of solid waste rule (2018 DSW Rule).[1] EPA promulgated the 2018 DSW Rule in response to the D.C. Circuit’s decision on EPA’s 2015 definition of solid waste rule.[2]

EPA’s revisions to the definition of solid waste rule essentially implement the vacaturs ordered by the D.C. Circuit, as discussed in my prior blog on this issue.[3] That is, EPA deleted the verified recycler exclusion (VRE) and reinstated the transfer based exclusion (TBE); retained the emergency preparedness and response requirements and expanded containment requirements and applied these to the TBE; and removed the mandatory 2015 version of Legitimacy Factor 4[4] and replaced it with the 2008 version of Legitimacy Factor 4, which must be considered but is not mandatory. EPA also removed the prohibition that had made certain spent petroleum catalysts (K171 and K172) ineligible for the TBE.

In addition, EPA provided some clarity on the applicability of rules in states such as Louisiana that have been authorized to administer and enforce the state hazardous waste program in lieu of the federal program and that adopted rules similar to the VRE and the 2015 definition of legitimate recycling but have not yet been authorized for them. According to EPA, the authorization status established prior to the adoption of the state counterpart rules remains in effect and the vacaturs and subsequent reinstatement of various provisions of the prior rules “will result in state provisions that are broader in scope than the federal program as it pertains to the specific vacated provisions.”[5]

Bottom line:  Louisiana’s VRE and mandatory 2015 version of Legitimacy Factor 4 may apply and be enforced by the Louisiana Department of Environmental Quality – but not EPA – within Louisiana.

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[1] 83 Fed. Reg. 24664 (May 30, 2018).

[2] American Petroleum Institute v. EPA, 862 F.3d 50 (D.C. Circuit 2017), as clarified on rehearing, 883 F.3d 918.

[3] See,  https://www.louisianalawblog.com/environmental-litigation-and-regulation/impact-louisiana-d-c-circuits-decision-definition-solid-waste-rule/

[4] The product of the recycling process must be comparable to a legitimate product or intermediate.

[5] 83 Fed. Reg. 24664, 24666. Because the state program provisions are broader in scope than the federal program, they are not part of the federally authorized program and are not federally enforceable. 40 CFR 271.1(i)(2) and RCRA Online Document 14848.

By Jessica C. Engler, CIPP/US

To say that privacy regulations have been in the news lately is a bit of an understatement. The European Union’s new General Data Protection Regulation has had privacy professionals and businesses scrambling to meet the May 25, 2018 deadline for compliance. While the GDPR may be dominating the national news circuits, the EU is not the only one making changes to their privacy laws. The Louisiana Legislature has passed, and Governor Edwards signed on May 20, 2018, amendments to Louisiana’s Database Security Breach Notification Law (Louisiana Revised Statutes 51:3071, et seq.), at Act 382.[i] Act 382 becomes effective on August 1, 2018.

A.  Expansion of “Personal Information”

The first major change is the expansion of the definition of “personal information” under the statute. Louisiana previously defined personal information for the purposes of the breach notification law as an individual’s first name or initial and last name in combination with any of the following additional data elements when the name or data element is not encrypted or redacted: (1) social security number; (2) driver’s license number; or (3) account number, credit or debit card number, in combination with the applicable password, security code, or access code that would allow access to an individual’s financial account. Act 382 adds the following additional pieces of data to this list: state identification card number; passport number; and “biometric data.” “Biometric data” is defined as “data generated by automatic measurements of an individual’s biological characteristics” and includes markers such as fingerprints, voice prints, eye retina or iris, or other unique biological characteristics that are used to authenticate an individual’s identity when accessing a system or account. In this change, Louisiana joins a growing trend of expanding personal data beyond ID numbers and financial accounts into more unique and personal identifiers. At the time of this writing, at least twelve other states have enacted laws that include biometric markers as personal information.[ii]

B.  New Data Protection Requirements

Act 382 imposes new requirements on Louisiana businesses to protect personal information. These changes affect companies that conduct business in the state of Louisiana or own or license computerized data that include personal information of Louisiana residents and for agencies that own or license computerized data that includes Louisiana residents’ personal information (collectively “Subject Entities”). Under Act 382, Subject Entities will be required to implement and maintain “reasonable security procedures and practices appropriate to the nature of the information” to protect the personal information from breaches, destruction, use, modification, or disclosure.

Subject Entities will also be under new requirements for data destruction. Subject Entities will be required to take reasonable steps to destroy or arrange for the destruction of records within its custody or control containing personal information that is no longer to be retained by the Subject Entity by shredding, erasing, or otherwise modifying the personal information to make the information unreadable or undecipherable.

C.  Data Breach Notifications

In the event of a breach, the revisions to Section 51:3073 have now implemented a time limit within which Subject Entities must notify the Louisiana residents’ whose data was affected. Originally, the statute provided that notice must be done “in the most expedient time possible and without unreasonable delay.” The revised statute retains that language, but now includes that notification must be made no later than 60 days from the discovery of the breach. The revisions maintain the original exception to this rule in the case of delay necessitated by the needs of law enforcement or measures necessary to determine the scope of the breach, prevent further disclosures, and restore the reasonable integrity of the data system. However, if a Subject Entity does delay notification for one of these reasons, it must provide written notice to the Louisiana Attorney General of this delay and the reasons for same within the 60 day period. Upon receipt, the Attorney General will grant a reasonable extension of time for notification.

The revisions preserve the ability for a Subject Entity to investigate whether the breach is reasonably likely to cause harm to Louisiana residents, and, if the breach is unlikely to cause harm, the Subject Entity is not required to notify affected Louisiana residents of the breach. This situation commonly arises when the breached data was encrypted, provided the encryption key was not also breached. If the Subject Entity decides not to report under this section, then the entity must document that decision in writing and retain the written decision and supporting documentation for five years from the date of discovery of the breach. The Attorney General can request a copy of this documentation and the written determination, and the Subject Entity must provide the documentation within thirty days of the Attorney General’s request.

Last, violations of these provisions are now deemed an unfair trade practice under R.S. 51:1405(A). During testimony on this bill, the Attorney General’s Office commented that their Office has already been treating violations as an unfair trade practice, so this language only codifies their current practice.

D.  General Comments

Many of the changes made to Louisiana’s data security laws echo similar revisions in other states. Several states have opened their data security laws to expand beyond notification procedures to now requiring “reasonable” security practices and destruction of outdated data. Unlike Alabama’s new data security law, Louisiana’s revised law does not define what security practices qualify as “reasonable”, which may cause some concern amongst Subject Entities looking for guidance when updating their security practices.

It is possible that the new revisions may lead to increased litigation for data breaches. The Attorney General currently is and remains the primary enforcer of the data breach laws; however, private rights of action are permitted. Codifying violations of these statutes as an unfair trade practice may lead to an increase in suits filed under these statutes. However, a potential plaintiff will likely still be required to provide that he or she was injured by the breach, which has been a difficult task for plaintiffs that have not suffered an identity theft.

The new law becomes effective on August 1, 2018. Until that time, Subject Entities that have not recently reviewed their data security policies and practices may want to consider an update.

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[i] Act 382 of the 2018 Regular Session can be found at the following address: https://www.legis.la.gov/legis/ViewDocument.aspx?d=1101149.

[ii] These states include, but are not limited to Arizona, Delaware, Illinois, Iowa, Maryland, Nebraska, New Mexico, North Carolina, Oregon, South Dakota, Wisconsin, and Wyoming.

By Maureen N. Harbourt

Facilities subject to a Part 70 air operating permit are afforded an “affirmative defense” to liability for civil penalties for releases to air that exceed technology-based permit limitations, provided they strictly adhere to both the requirements of the “upset” rule in LAC 33:III.507.J and General Condition N of the Part 70 General Permit Conditions referenced in the permit.  Because the rule puts the burden of proof on the permittee, successfully asserting the upset defense depends on documenting that each aspect of the defense is satisfied.  Subsection 507.J.1 of the rule defines an “upset” as “any situation arising from sudden and reasonably unforeseeable events beyond the control of the owner or operator, including acts of God, which situation requires immediate corrective action to restore normal operation and that causes the source to exceed a technology-based emissions limitation under the permit due to unavoidable increases in emissions attributable to the situation.”  (Emphasis added.) It goes on to provide that “[a]n upset shall not include noncompliance to the extent caused by improperly designed equipment, lack of preventative maintenance, careless or improper operation, or operator error.”

The four essential requirements for documenting that an upset has occurred are stated in Section 507.J.2 as:

  1. an upset occurred and that the owner or operator can identify the cause(s) of the upset;
  2. the permitted facility was at the time being properly operated;
  3. during the period of the upset the operator took all reasonable steps to minimize levels of emissions that exceeded the emissions standards and other requirements in the permit; and
  4. the owner or operator notified the permitting authority in accordance with LAC 33:I.Chapter 39.

Many facilities risk losing the protection of this affirmative upset defense by following only the reporting requirements of LAC 33:I.Ch. 39 (the LDEQ general release reporting rules), while ignoring the reporting requirements of General Condition N of the permit.  The reporting requirements of Chapter 39 require reporting only if the release exceeds a reportable quantity (“RQ”) or causes an emergency condition; however, the upset defense can also apply to releases below an RQ.  Further, Chapter 39 requires a written follow-up report only within 7 calendar days, whereas General Condition N of the permit is more stringent and requires the assertion of the upset defense within 2 working days.  Guidance published by the Louisiana Department of Environmental Quality (“LDEQ”) concerning General Condition N states:

In the event a permittee seeks to reserve a claim of an affirmative defense as provided in LAC 33:III.507.J.2, the required notification shall be submitted in writing within 2 working days of the time when emission limitations were exceeded due to the occurrence of an upset. The written notification may be faxed to meet the deadline. Verbal notification alone is not acceptable.

(Emphasis added.) We believe that an e-mail within 2 days would also meet the General Condition N requirement for written notification. Thus, for releases above an RQ, facilities desiring to preserve the upset defense should either file the written report required by Ch. 39 early (within 2 working days), or should develop a standard upset notification report addressing all Section 507.J requirements to fax or e-mail to LDEQ within 2 working days.  For releases below an RQ that do not require reporting under Ch. 39, an upset notification meeting the Section 507.J should be either faxed or e-mailed to LDEQ.

Another common error that facilities make is related to potential confusion about Ch. 39 requirements.  The provisions of LAC 33:I.3925.B.14 specify that the required written unauthorized discharge report must include “a determination by the discharger of whether or not the discharge was preventable, or if not, an explanation of why the discharge was not preventable.” Some permittees believe that an assertion that the discharge “was not preventable” is the equivalent of asserting the upset defense, but such may not be sufficient to specifically identify the event as an upset.  If the Ch. 39 written report is also going to serve as the General Condition N written assertion of the upset defense, it is recommended that the Ch. 39 report clearly state that the permittee believes the discharge was not preventable and that the event meets the definition of an upset under LAC 33:III.507.J.  The dual Ch. 39/General Condition N report should also include a description of why the event meets the upset defense.

Often initial information is indicative that an event causing excess emissions is an upset, but confirmation of that fact may come only after a root cause analysis or similar investigation.  The Ch. 39 rules allow a facility to state in the initial written report that information is not yet available to answer all of the questions required for the Section 3925 written report and to submit “updates of the status of the ongoing investigation of the unauthorized discharge …every 60 days until the investigation has been completed and the results of the investigation have been submitted.” LAC 33:I.3925.A.3.  However, General Condition N does not afford this leeway.  If an incident is suspected to be an upset, the facility should provide the 2 working day notice required by General Condition N, with an assertion that the event was an upset and a preliminary determination as to the cause.  The facility should also include a statement describing any efforts to minimize the emissions and asserting that the facility was being properly operated at the time of the event. Such General Condition N report can be updated to either confirm or withdraw the assertion of the upset defense when the investigation is completed.

The written report for any upset, in order to satisfy General Condition N, should also specify the technology-based permit limit that is subject to the upset defense.  Section 507.J does not allow an affirmative defense for permit limits based on ambient standards or any basis other than technology.  Technology-based limits are those established as Maximum Achievable Control Technology (“MACT”) under a National Emissions Standard for Hazardous Air Pollutants (“NESHAP”); Best Available Control Technology (“BACT”) under a Prevention of Significant Deterioration Permit; New Source Performance Standards (“NSPS”); Reasonably Available Control Technology (“RACT”) under a State Implementation Plan (such as the waste gas disposal rule in LAC 33:III.2115) and the like.  Pound per hour and ton per year emission limits in the permit designed to meet these technology-based standards should be considered as technology-based limits.  Section 507.J does state that the “upset defense” is not applicable to acid rain emission limitations (from 40 C.F.R. Parts 72-75).

Finally, Section 507.J.4 states that the upset defense is “in addition to any emergency or upset provisions contained in any applicable requirement.”  However, certain applicable requirements may preclude the upset defense, such as a NESHAP rule that specifically states that the requirement applies even during a malfunction (which term is described in the General Provisions of 40 C.F.R. Part 63, Subpart A, almost identically to the definition of “upset” in 507.J).  Thus, a facility should be aware that the upset defense may not be available in such circumstances.  In other cases, a NESHAP rule will provide that it is not applicable to malfunction events, but there may be additional requirements under such NESHAP rule for demonstrating that the event was caused by a malfunction (such as following a startup, shutdown, malfunction plan and/or properly reporting the malfunction under the NESHAP rule).  These NESHAP provisions are not superseded by the Louisiana upset defense rule in Section 507.J.

by Stephen C. Hanemann

Increasingly common in coastal Louisiana – and even more so during a depressed, offshore, oilfield-services market – is the strained relationship between a marine lender and a vessel owner secondary to the lender asserting creditor’s rights against the vessel through a pre-existing security instrument. In one such dispute, lender, South Lafourche Bank & Trust Co. filed an action to enforce a Promissory Note secured by a Preferred Ship Mortgage against Guilbeau Boat Rentals, owner of the marine vessel NOONIE G.[1]

Conforming to the vessel finance protocol, Gilbeau’s authorized representative executed a Preferred Ship Mortgage encumbering the NOONIE G, pledging the vessel as collateral for the loan made by the Bank. A note, also executed by Gilbeau, was issued with and further secured by the Preferred Ship Mortgage. After several months of alleged non-payment on the note, the Bank instituted legal action to collect the debt owed. The Bank filed a Motion for Summary Judgment seeking a declaration that its mortgage was valid under the Ship Mortgage Act. Guilbeau filed a Motion to Dismiss the Bank’s action, alleging that the mortgage was invalid under Louisiana law and therefore not valid under the Act. Guilbeau claimed that the Act did not provide a valid basis for the Court to exercise subject matter jurisdiction over Guilbeau because the Bank’s financing documents were structured in the form of a Louisiana collateral chattel mortgage, and that such instrument was no longer valid for mortgaging immovable property under Louisiana law.

In its analysis, the Court examined the origin of the Ship Mortgage Act and determined that it was passed by Congress so that vessel-mortgage liens could be enforced in federal courts under admiralty jurisdiction. The Court examined the historically-ineffective nature of state court enforcement of ship mortgages. The Court found that state courts were not permitted to affect maritime liens and ship mortgages executed before the Act, and found that those instruments executed before the Act provided unsatisfactory protection of a ship mortgagee’s security interest.

Thus, the Act was designed to stimulate private investment in U.S. shipping and to protect the United States as the principal source of credit for shipping activities. Further, the Act aimed to induce private-investment capital in shipping projects and to create certainty in financing U.S. vessels. In passing the Act, Congress recognized the need for exclusive admiralty court jurisdiction in vessel foreclosure proceedings. And while state law may serve to supplement maritime law, it must yield when it interferes with a determination made under the Act.

In the matter of the NOONIE G, the Court considered the vessel owner’s argument that a mortgage held to be invalid under state law disqualifies the instrument as valid under the Act. The Court found that the Act itself included no requirement that a mortgage on a U.S. vessel be valid under the laws of the particular state to be an enforceable Preferred Ship Mortgage. The Act actually contains six (6) principal requirements, which are conditions precedent for a valid Preferred Ship Mortgage.[2] The Guilbeau Court found that the Bank’s mortgage met each of the six (6) requirements of the Act and was, therefore, a valid ship mortgage. The Court decided that it need not determine whether the mortgage would have been a valid collateral chattel mortgage under Louisiana law. But the Court did recognize the maxim that state law may otherwise be instructive to resolve mortgage disputes when the Act does not provide sufficient guidance.[3]

In conclusion, notwithstanding the validity of a Preferred Ship Mortgage under the laws of a particular state, if a vessel mortgage meets the six (6) basic requirements under the Act, it shall be a valid Preferred Ship Mortgage. Accordingly, a federal court determining the question of enforcement of a valid Preferred Ship Mortgage shall enjoy federal question admiralty jurisdiction over the subject dispute.[4] The Court, consequently, denied Guilbeau’s motion to dismiss for lack of subject-matter jurisdiction, and granted the Bank’s motion seeking a declaration of its mortgage validity.

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[1] S. Lafourche Bank & Trust Co. v. M/V NOONIE G, No. 16-2880, 2017 WL 2634204 (E.D. La. June 19, 2017).

[2] 46 U.S.C. § 31301 (2017).

[3] The Court determined that it need not address the validity of the collateral mortgages on movable property under state law secondary to Louisiana’s adoption of the Uniform Commercial Code Art. 9. But this commentator feels strongly that the concept of the collateral mortgage, as it pertains to vessels, is alive and well in Louisiana, provided that such document meets the requirements of a UCC Art. 9 security instrument.

[4] 46 U.S.C. § 31325(c) (2017).