By the Kean Miller Tax Team
The 2019 Regular Session of the Louisiana Legislature ended on June 6, 2019. Important new tax provisions include several legislative acts signed into law by the Governor along with several proposed constitutional amendments that will appear on the ballot this October. In addition to substantive law changes, important remedial legislation was also passed that addressed the ability to appeal a state tax refund denial but left a possible trap for the unwary with respect to local refund claims. The following are some notable legislative enactments that made it out of the 2019 Session.
Income and Franchise Tax Legislation
Act 442 (SB 223), enacted June 22, 2019.
New Pass-Through Rules Impacting the Federal SALT Deduction Cap
Act 442 allows an S corporation or any entity taxed as a partnership for federal income tax purposes to elect to be taxed as a C corporation for Louisiana income tax. The modification allows pass-through owners to pay state and local taxes at the entity level, bypassing the $10,000 SALT cap introduced in the Tax Cut and Jobs Act which only applies to individuals.
Reports emerged on July 23, 2019 that Treasury and the IRS have stepped up meetings with tax practitioners concerning this and similar SALT cap workarounds passed by state legislatures. The IRS included guidance on applying the SALT deduction cap to pass-through entities on its April 2019 Priority Guidance Plan update, and it is likely that new regulations are on the horizon that may limit the usefulness of this type of “workaround.”
Act 442 became effective on June 22, 2019.
Act 304 (HB 263), enacted June 11, 2019.
Net Operating Loss (“NOL”) Carryfowards Revert Back to First-In, First-Out
Act 304 amends R.S. 47:287.86(C)(2) to provide that the net operating loss carryforwards are applied starting with the earliest taxable year of NOLs when calculating taxable income for taxable periods beginning in 2020. This legislation reinstates the pre-2016 NOL carryforward rules (before the unpopular and problematic legislative changes creating the “last-in, first-out” ordering rules introduced during the 2016 budget crisis). Louisiana NOL tracking has now become even more complicated (although this is a welcome change to the law).
Act 304 became effective on June 11, 2019.
Economic Development and Incentive Legislation
Act 203 (SB 237), enacted June 11, 2019.
Authorizes New Tax Increment Financing Projects in Economically Deprived Areas
Act 203 authorizes the creation of new tax increment financing districts in areas with high unemployment. New public entities covering the districts will have the authority to borrow against future increases in sales and property tax collections in order to fund new economic development projects.
Act 203 became effective on June 11, 2019.
Act 251 (HB 585), enacted June 11, 2019.
Property Located Within New Federal Opportunity Zones to Qualify for Restoration Tax Abatement Program
Act 251 amends R.S. 47:4312(3) to add structures located in new federally designated Opportunity Zones to the property eligible to participate in the Restoration Tax Abatement Program. Qualifying property owners renovating or restoring buildings within Opportunity Zones are now eligible to contract with local governing authorities to temporarily freeze property tax assessments for 5 years at the pre-improvement level.
Act 251 became effective on June 11, 2019.
Sales and Use Tax Developments
Act 360 (HB 547), enacted June 17, 2019.
Reenactment of Remote Seller Law
Act 360 amends and reenacts Louisiana’s remote vendor law to more effectively implement a post-Wayfair “remote seller” sales tax registration system through the creation and establishment of the Louisiana Sales and Use Tax Commission for Remote Sellers. A loophole in the drafting of last year’s legislation made its application (including the Commission’s service as the central collector for sales/use taxes on remote sales) contingent on a ruling of the Supreme Court of the United States that the South Dakota sales tax law at issue in Wayfair was constitutional. However, the Supreme Court never technically ruled on the constitutionality of the South Dakota sales tax law, holding only that physical presence was no longer a requirement for “substantial nexus” (under Complete Auto Transit) and remanding to the South Dakota Supreme Court to determine whether the rest of the law was constitutional.
The new legislation sets a hard deadline of July 1, 2020 for the new Commission to start collecting tax. Out-of state sellers with more than $100,000 in sales or 200 transactions in Louisiana are required to file Direct Marketer Returns under R.S. 47:302(K) until the new system is ready.
The Act contains several drafting issues Louisiana courts will undoubtedly be called upon to address, and as a result, its practical scope may be much more limited than anticipated. For example, the definition of “remote seller” under Act 360 is limited to sellers that both lack physical presence in Louisiana and which are not considered “dealers” under R.S. 47:301(4)(a)-(l), greatly restricting the impact of the law. In addition, the Act does not address whether online marketplace facilitators qualify as dealers, an issue currently pending before the Louisiana Supreme Court under Normand v. Wal-Mart.com USA, LLC, 2019-0263 (La. 5/6/19).
Act 360 becomes effective on August 1, 2019.
Act 359 (HB 494), enacted June 17, 2019.
Specifies Sales and Use Taxes for Asphalt
Act 359 provides sourcing rules for sales and use tax on raw materials to be converted into road asphalt.
Act 359 became effective on June 11, 2019.
Property Tax Relief
Act 432 (HB 301), enacted June 22, 2019.
Proposed Constitutional Amendment to Exempt Goods Destined for Outer Continental Shelf From Property Tax
Act 432 would amend R.S. 47:1951.2 and 1951.3 to exempts raw materials, goods, commodities and other property stored in Louisiana and destined for the Outer Continental Shelf from ad valorem tax.
The exemption will take effect subject to approval by the voters of a constitutional amendment on the ballot this October.
Act 385 (HB 493), enacted June 20, 2019.
Authorization for a Homestead Exemption Audit Program in New Orleans
Act 385 allows the city of New Orleans to establish a homestead exemption audit program for Orleans Parish property. The city is authorized to impose a fee up to ten percent on the total amount of taxes, penalties, and interest owed by a taxpayer.
Act 385 becomes effective on August 1, 2019.
Board of Tax Appeals
Act 365 (HB 583), enacted June 19, 2019.
Proposed Constitutional Amendment to Expand Board Jurisdiction
Act 365 would expand the jurisdiction of the Board of Tax Appeals to include challenges to taxes under Federal law or the Constitution of Louisiana.
The change will take effect subject to approval of a constitutional amendment to be set before voters on the ballot this October.
Act 367 (SB 198), enacted June 18, 2019.
Allows State (but not Local) Refund Claims for Illegal Tax Overpayments Without Payment Under Protest
Act 367 legislatively overrules last year’s Louisiana First Circuit Court of Appeal decision in Bannister Properties which held that R.S. 47:1621(F) prohibits refunds arising from the Department of Revenue’s misinterpretation of a law or regulation without a payment under protest. Bannister Properties concerned several taxpayers who had voluntarily paid franchise tax under a Department regulation later ruled invalid. The new legislation repeals R.S. 47:1621(F) in its entirety and allows refund claims for all overpayments due to any unconstitutional law, illegal regulation, or misinterpretation of a law or regulation by the Department of Revenue. The new legislation does not appear, however, to address the appeal of a denial of a local refund tax claim. This means there may be no effective remedy for taxpayers to recover local taxes not paid under protest even if the tax is later determined to be illegal.
Act 385 became effective on June 18, 2019.
Act 169 (HB 43), enacted June 7, 2019.
Authorizes Occupancy Tax on Short-Term Rentals in New Orleans
Act 169 authorizes the City of New Orleans to levy and collect a tax upon the paid occupancy of short-term rentals located within the city. The tax may not exceed six and three-quarters (6.75%) percent of the rent or fee charged for occupancy. The City Council may impose the occupancy tax by ordinance after voter approval.
Act 169 became effective on July 1, 2019.
If you have questions, 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), Willie Kolarik (225.382.3441) or Sanders Colbert (504.585.3021).