With the Corporate Transparency Act (CTA) set to take effect on January 1, 2024, an estimated 32 million entities will soon be required to report personal information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. While the law is aimed at curbing money laundering, terrorist financing, and other financial crimes, its broad regulations will have a sweeping impact on many companies doing business in the U.S.

Companies subject to the CTA will need to file with FinCEN a Beneficial Ownership Information Report containing the full legal name, date of birth, current residential or business street address, and an image of an acceptable identification document for each beneficial owner. More information about the CTA’s reporting requirements can be found here.

Here are some steps that companies can take to prepare for the implementation of the new regulations:

1. Review Your Corporate Structure

Review your corporate structure and identify who the beneficial owners of your company are. Generally, a beneficial owner is anyone who owns 25% or more of a company’s equity or voting rights or has substantial control over the company.

For corporations, beneficial owners can include shareholders, directors, and officers. For LLCs, beneficial owners can include members and managers.

2. Create a Beneficial Ownership Register

Once you have identified the beneficial owners, create a beneficial ownership register. The register should include the name, address, date of birth, and copy of a government-issued photo ID (such as a passport or driver’s license) of each beneficial owner.

It’s important to keep the register up to date and accurate, as inaccurate or incomplete information could result in fines or other penalties.

3. Develop a Compliance Program

Companies should consider developing a compliance program to ensure they are in compliance with the CTA. The program should include policies and procedures for identifying and verifying beneficial owners, maintaining the beneficial ownership register, reporting beneficial ownership information to FinCEN, and safeguarding the beneficial owners’ personal information collected by the company.

4. Ask for Help if Necessary

Companies may need to work with law firms to help them comply with the CTA. An attorney can help identify beneficial owners, create and maintain the beneficial ownership register, and report beneficial ownership information to FinCEN.

5. Stay Up to Date on Changes

U.S. companies should stay up to date on any changes to the CTA or FinCEN regulations. The CTA is a new law, and it’s possible that there could be changes or clarifications to the law in the future.

In conclusion, the Corporate Transparency Act represents a significant change in U.S. corporate law, and companies should soon start preparing for its implementation. By following these steps, companies can ensure they are prepared to comply with the CTA when it becomes effective in 2024.

The Louisiana Supreme Court answered the question of when general damages are recoverable for mental anguish by tort plaintiffs who suffer no physical injury in Spencer v. Valero Refining Meraux, LLC. In this action which involved the claims of four plaintiffs, an accident, fire, and explosion occurred at the Valero refinery in Meraux, Louisiana at 12:45 a.m.[1] Nearly 32 hours later, at 10:00 a.m. on April 11, 2020, the fire was extinguished. Although no significant levels of chemicals were detected as a result of the explosion, multiple residents who lived in the vicinity of the refinery filed suit for negligent infliction of emotional distress.[2]

In their complaints, each plaintiff alleged hearing loud sounds at the time of the explosion and feeling nervous or anxious after the explosion. The plaintiffs also alleged disturbances to their sleep, but each were able to return to normal sleep schedules and resume their daily activities in the days and weeks after the explosion.[3] The court noted that none of the plaintiffs received medical treatment or experienced any physical symptoms, and the damages sought by the plaintiffs were only for general fear and anxiety resulting from the explosion.

In determining whether Valero was liable for negligent infliction of emotional distress, the court considered the jurisprudence relied on by the parties. In Moresi v. Department of Wildlife and Fisheries, the Louisiana Supreme Court considered whether a trial court properly awarded plaintiffs damages for negligent infliction of emotional distress.[4] The plaintiffs had not alleged that they suffered any bodily harm or property damage as a result of the Louisiana Department of Wildlife and Fisheries agents’ negligence. Instead, the plaintiffs alleged that the agents’ ordinary negligence caused them mental disturbance.

The Louisiana Supreme Court noted in Moresi that generally, if a defendant’s conduct is merely negligent and causes only mental disturbances, in the absence of accompanying physical consequences or injuries, the defendant is not liable for such emotional disturbance. Louisiana courts have deviated from the general rule; however, as the court in Moresi noted, where there have been deviations, the cases all fell into categories where there was an “especial likelihood of genuine and serious mental distress, arising from special circumstances. . . .”[5] In Moresi, the court found that the plaintiffs’ mental disturbances were not severe, or “related to personal injury or property damage, and the plaintiffs were not in great fear of their personal safety.” Therefore, the case did not fall into a category that had an especial likelihood of genuine and serious mental distress, and it lacked any elements that would guarantee the genuineness of the injury claimed.[6]

In Spencer, after examining the relevant jurisprudence, the Louisiana Supreme Court noted that for negligent infliction of emotional distress, a plaintiff is required to prove “the especial likelihood of genuine and serious mental distress, arising from the special circumstances, which serves as a guarantee that the claim is not spurious.”[7] This rule must be stringently applied in cases that are inherently speculative in nature, and the defendant’s actions must constitute negligence. Additionally, the plaintiff’s mental disturbance must be “serious.”

The court noted that in analyzing whether a plaintiff’s mental disturbance is serious, evidence of generalized fear or mere inconvenience is insufficient.[8] A plaintiff is not required to present evidence of medical treatment or history, but he or she bears the burden of presenting sufficient evidence on the nature and extent of the mental anguish suffered. Further, emotional distress does not need to be reasonably foreseeable or severe and debilitating, and whether mental distress is serious is a matter of proof. 

These guidelines, the court went on, must be applied with necessary policy considerations, including deterring future harm, economic considerations, and opening the floodgates to unnecessary litigation.[9]  The court considered that the purpose of tort law is “to protect some persons under some risks.”  In applying the policy considerations and guidelines to the facts of this case, the court found that Valero owed a duty to protect those in the surrounding community and that the plaintiffs fell within the class of plaintiffs to whom the duty is owed. The court also found that Valero breached the duty owed, and that breach was the cause-in-fact of the plaintiffs’ generalized fear and anxiety. However, under the stringent application of the rule from Moresi, the plaintiffs failed to prove the “especial likelihood of genuine and serious mental distress, arising from the special circumstances, which serves as a guarantee that the claim is not spurious.” Further, no plaintiff put forth sufficient evidence that their mental disturbances were “serious.” Therefore, the plaintiffs did not prove the element of damages within the parameters of claims for negligent infliction of emotional distress absent physical damage or injury, and there was no factual basis for an award for such claim.

The Louisiana Supreme Court added that recovery for negligent infliction of emotional distress in the absence of physical damage or injury is not precluded. However, because of the nature of such claims, courts must be mindful of the policy goal of preventing spurious claims, and not every harm yields accompanying liability and damages. Here, none of the plaintiffs established that the mental disturbances they suffered were “serious.”

As Justice Crain noted his concurrence, however, one problem with the majority’s decision is that “serious” was not defined; rather, it was left to be defined “in an ad hoc manner.”[10] Crain signaled that he would move in the direction of code-based analysis rather than fact-specific inquiry the court adopted.[11] He then suggested that the “zone of danger test” was applicable in this case, and Valero did not breach its duty to the plaintiffs because there were no chemicals released into the area of their homes. Also in concurrence, Justice Weimer noted that in limiting recovery, he would not impose guidelines which are applied with policy considerations that are not tethered to legislation.[12] Instead, he suggested that the Louisiana Civil Code provides a more appropriate analysis under article 2315.6 which reflects the legislative will of limiting claims for negligent infliction of emotional distress without physical damage or injury. 

The majority opinion in Spencer, written by Justice Genovese, rejected a “direct duty” owed by defendants to plaintiffs as a condition for recovery of negligent infliction of emotional distress in the absence of physical injury or damage. Instead, the court applied guidelines from relevant jurisprudence and policy considerations to come to its conclusion, and it emphasized that these cases are fact intensive. In doing so, the court rejected a code-based analysis and established a fact-specific standard for sufficient proof of damages.

[1] Spencer v. Valero Refining Meraux, L.L.C., 2023 WL 533268, at *1 (La. 2023).

[2] Id. at *2.

[3] Id. at *3–4.

[4] 567 So. 2d 1801 (La. 1990).

[5] Moresi, 567 So. 2d at 1096 (In determining whether the sufficiency of the plaintiff’s claim, the court noted the general rule that the absence of accompanying physical injury, illness, or other physical consequences, a defendant is not liable for such emotional disturbance. However, Louisiana has deviated from the general rule. The court noted circumstances where Louisiana courts have allowed recovery for negligent infliction of emotional distress in the absence of physical injury, including: negligent transmission of a message, especially one announcing death, mishandling of corpses, failure to install, maintain or repair consumer products, failure to develop film, and negligent damage to one’s property while the plaintiffs were present and saw their property damaged).

[6] Id.

[7] Id. at *8.; see also Moresi, 567 So. 2d at 1096.

[8] Spencer, 2023 WL 533268, at *8.

[9] Id. at *9.

[10] Id. at *16 (Crain, J., concurring).

[11] Id. at *14 (Crain, J., concurring).

[12] Id. at *12 (Weimer, C.J., concurring).

On February 2, 2023, the New Orleans City Council adopted an ordinance modeled after that of the City of Baltimore, Maryland, wherein properties found to be “chronic public nuisances” may be prohibited from holding occupational licenses for a period of up to two years. The ordinance does not apply to residential properties. The so called “padlock” ordinance defines a “chronic nuisance property” as follows:

“Chronic nuisance property” means any property or group of adjoining properties under common ownership that, on three or more separate occasions within a one-year period, were used:

  1. By persons who assemble for the specific purpose of illegally administering or ingesting of a controlled dangerous substance;
  2. For the illegal manufacture or distribution of a controlled dangerous substance or drug paraphernalia;
  3. For the illegal storage or concealment of a controlled dangerous substance or controlled paraphernalia in sufficient quantity to reasonably indicate under all the circumstances an intent to manufacture, distribute, or dispense a controlled dangerous substance or drug paraphernalia;
  4. For storage or possession of stolen property;
  5. For storage or possession of unregistered firearms;
  6. In furtherance of a crime of violence, as defined in La. R.S. 14:2; or
  7. For criminal gang activity.

The Superintendent of the New Orleans Police Department (“NOPD”) will determine whether a property constitutes a chronic nuisance and will notify the “person in charge” of the property accordingly.  The person in charge will be given an opportunity to work with NOPD on strategies to abate the nuisance activities.  If the person fails to respond to the notice, the matter will be referred to the City Attorney for prosecution.  If a court determines that the property is a chronic nuisance property, the court may order the property closed and secured against all unauthorized access, use, and occupancy for a period of up to two years, in addition to civil penalties. 

The Superintendent will report to the City Council twice per year with information regarding all properties found to be chronic nuisances, the reasons for the conclusion, the dates of NOPD service calls and reference numbers, the notice sent to the person in charge, any agreed abatement plan, a status update, penalties assessed, and the demographic information of the person in charge. 

Any judgment finding a property to be a chronic nuisance may be filed in the public records and will run as a covenant with the land.  Such judgments will be effective against third parties.  For good cause shown, if the City believes that the nuisance is not likely to continue, the chronic nuisance judgment may be released.  No particulars were adopted as to the release process.

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UPDATE – On February 15, 2023, the Louisiana Department of Revenue issued Revenue Information Bulletin (“RIB”) No. 23-010 stating that qualifying businesses can submit an application under the Fresh Start Proper Worker Classification Initiative by sending an email to FreshStart.LDR@LA.GOV. RIB No. 23-010 also states that in order to qualify, the employer must have consistently treated the entire class or classes of workers (i.e., providing the same or similar services) as non-employees for the last three years. For instance, if income taxes were withheld or unemployment contributions were made for a worker, that worker was not treated as a non-employee. The Louisiana Department of Revenue will review applications and notify applicants in writing of their eligibility. An applicant who receives notice of the acceptance of their application must treat the class or classes of workers covered by the application as employees beginning on the reclassified date stated in the closing agreement. This blog post was originally published in January 2023 and has been updated to reflect these developments.

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 or Willie Kolarik at (225) 382-3441.

[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).

On February 15, 2023, the Louisiana 4th Circuit Court of Appeal affirmed the trial court’s award of $2.75M each to the two surviving children of a deceased mesothelioma plaintiff and also affirmed the trial court’s award of judicial interest relating back to the date the original petition was filed.

In December 2021, after a multi-day trial in Civil District Court in Orleans Parish before Judge Rachael Johnson, the jury awarded sisters Jill and Shelley Stauder each $2.75M in wrongful death damages for the death of their father, David Stauder, Jr. (“Mr. Stauder”).[1] This amount is nearly six times higher than the prior approximate $500,000 average wrongful death awards. The jury found that Mr. Stauder was exposed to asbestos while working as a pipefitter for several employers at various industrial sites between the 1960s and the 1980s, which caused him to develop, and later die from, mesothelioma. At the time of trial, premises owner Union Carbide Corporation (“UCC”) was the only remaining defendant. The jury found seven defendants liable, including UCC, and assigned UCC 20% fault on the wrongful death claim. Further, the trial court awarded plaintiffs judicial interest against UCC from the date the original petition was filed in March 2016 even though UCC was not added to the lawsuit until the 6th amended petition filed in July 2018. UCC appealed.

UCC argued on appeal that the jury erred in awarding the Stauders each $2.75M in wrongful death damages, far exceeding any jurisprudential award to adult children in the 4th Circuit, because only generalized testimony was offered in support of the Stauders’ claim. UCC asserted that such testimony is insufficient to support the jury’s large award. At trial, Jill Stauder testified via video regarding her relationship with her father, while Mr. Stauder’s girlfriend testified as to Shelley Stauder’s relationship with her father due to Shelley being unavailable to appear at trial because of a mental disability.

The Appellate Court found that although generalized testimony was offered about the mutual love the Stauders and their father shared, specific testimony was also offered regarding the unique relationship each daughter had with their father and the impact of his death on each. Accordingly, the Court found that the jury’s reliance on this testimony was not an abuse of its vast discretion and affirmed the $2.75M award to each daughter. The Court distinguished the Stauder testimony from the testimony, or lack thereof, in the Lege[2] case relied on by UCC. In Lege, although the decedent’s four children were present at trial, only two testified and the testimony provided was general in nature.

Regarding judicial interest, UCC maintained that it should only be ordered to pay judicial interest from the date UCC was added to the lawsuit (July 2018), and not the date the original petition was filed two years earlier (March 2016). UCC argued that because the Stauders’ claim against UCC does not arise out of a “single tortious occurrence” with the original defendants named in the original petition, UCC should not have to pay judicial interest dating back to the filing of the original petition. The Court found that UCC failed to provide any supporting jurisprudence for its interpretation of “single tortious occurrence.” Further, the Court found that the Louisiana Supreme Court had previously held that prejudgment interest relates back to the date the plaintiff filed suit against the first solidary defendant. Accordingly, the Court affirmed the trial court’s award of judicial interest from the date the original petition was filed.

[1] The jury additionally awarded $4.85M in survival damages, with UCC’s share being $693K. This award was not appealed.

[2] Lege v. Union Carbide Corporation, 20-252 (La.App. 4 Cir. 04/01/2021), 2021 WL 1227137, as clarified on reh’g, 20-252 (La.App. 4 Cir. 05/12/2021), 2021 WL 1917784.

Judge Donald Johnson, of the Louisiana 19th Judicial District Court (“JDC”), granted an appeal of a final order of the Louisiana Pilotage Fee Commission (“PFC”) in Docket No. P20-001, that approved numerous rate increases for the Crescent River Port Pilots’ Association (“CRPPA”). The appeal was jointly filed by the Louisiana Chemical Association (“LCA”) and Louisiana Mid-Continent Oil & Gas Association (“LMOGA”) – – two Louisiana Industry trade associations who participated as Intervenors in the PFC docket to oppose the pilot rate increases that would ultimately be paid by Industry for shipping on the lower Mississippi River. As background, the PFC is authorized by Louisiana statute to regulate the rates charged by the pilot associations for pilotage services in their respective service areas in which they have the exclusive right to operate.

The PFC order granted CRPPA an increase in of $112,000 in target compensation per pilot per year, an additional 15 pilots for inclusion in rates, annual Cost of Living Adjustments and other relief. LCA and LMOGA appealed the PFC’s order to the 19th JDC, arguing that the PFC order violated the PFC’s statutory authority, is not supported by evidence and is arbitrary and capricious and should be reversed.

After briefing and oral argument, the 19th JDC reversed the PFC on all errors of law and evidence argued by LCA-LMGOA. The 19th JDC held:

The PFC authorization of tariff increases to reflect the 24% ($112,000) increase in target compensation, the implementation of a COLA, the fixing of target compensation based on a workload limited to “for 16,151 turns,” and the increase of 15 pilots, violates the PFC statutory authority pursuant to La. R.S. 34:1122, is not supported by the evidentiary record, and is arbitrary, capricious and contrary to law, and is reversed.

Louisiana Chemical Association and Louisiana Mid-Continent Oil and Gas Association v. Louisiana Pilotage Fee Commission, Case No. C-715244, Louisiana 19th Judicial District Court, Judgement at 2 (December 9, 2022).

The PFC and CRPPA have appealed the decision of the 19th JDC to the Louisiana First Circuit Court of Appeals.

On January 12, 2023, the Louisiana Board of Tax Appeals (the “Board”) granted a motion for partial summary judgment in Apple, Inc. v. Samuel, Dkt. No. L01283 (January 12, 2023) and held that the Internet Tax Freedom Act (the “ITFA”) prohibited Orleans Parish from imposing sales tax on subscription fees paid for the use of personal storage on Apple’s iCloud. In so holding, the Board also noted that personal electronic storage services are not specifically enumerated as taxable services in La. R.S. 47:301(14) and thus would not be considered taxable services for Louisiana sales and use tax purposes.

Scope of “Internet Access” under the ITFA

The ITFA imposes a moratorium on states (and their political subdivisions) levying taxes on “Internet Access” or imposing discriminatory taxes or multiple taxes on electronic commerce.[1] In 2007, the definition of “Internet Access” was expanded to include several items including “personal electronic storage capacity” when “provided independently or not packaged with Internet access.”

Apple’s iCloud storage offering allows a user to upload personal digital content (including data, photos, music, videos etc.) to remote servers, and retrieve that data, via an internet connection, by using any of their Apple devices or other devices connected to the internet. iCloud comes preloaded on Apple devices with no charge for its use. However, a user seeking to store more than 5 gigabytes of data must pay a monthly subscription fee, with storage plans ranging from $0.99 to $9.99 a month. A user does not receive any additional software upon subscribing to one of these plans, only increased storage on iCloud.

The Orleans Parish Tax Collector (the “Collector”) conducted an audit of Apple and issued a notice of assessment that sought to impose sales tax on the subscription fees Apple received for iCloud storage subscriptions. Apple appealed the assessment to the Board.

In its Motion for Partial Summary Judgment (“MSJ”),[2] Apple asserted that the subscription fees paid for additional iCloud storage qualified as “Internet Access” under ITFA, and that Orleans Parish, as a subdivision of the state of Louisiana, was preempted from imposing a sales tax on those fees under the Supremacy Clause[3] of the United States Constitution. The Collector notified the Board that it would not oppose, nor consent to, Apple’s motion, and did not appear at the hearing.

The Board analyzed the definition of “Internet Access” using dictionary definitions and concluded that the iCloud offering fit within the ordinary meaning of the statutory language under ITFA and that Apple’s prayer for partial summary judgment was therefore supported by the “uncontested facts and the plain language of the statute.”[4]

Taxability under the Louisiana statute

In its holding, the Board also noted an additional ground for granting Apple’s motion, specifically, that iCloud storage is a service that is not among the enumerated taxable services under Louisiana law[5]. As a result, iCloud storage should be treated as a non-taxable service. The Collector also did not oppose the affidavit characterizing iCloud storage as a service.

Implications

Similar proceedings related to the taxation of digital products and services are ongoing in other states. For example, Apple has also asserted that the ITFA operates to prohibit Texas from subjecting its iCloud Storage and iTunes Match services to Texas sales tax as taxable as data processing services.[6] While the Collector did not oppose Apple’s motion in Louisiana, the Texas Comptroller of Public Accounts ( the “Comptroller”) is arguing that the Texas sales tax does not violate the ITFA because the Texas tax did not single out transactions using the internet that would be barred by the ITFA, but instead singled out transactions using a computer. In the alternative, the Comptroller has asserted that the ITFA is itself unconstitutional under the anti-commandeering doctrine that does not permit Congress to issue orders directly to the states.[7]

In Comcast[8], the ITFA was also one of the grounds on which Maryland’s digital services tax (“DST”) on advertising was held by a district court to be unconstitutional. Specifically, in Comcast the court in that case held that the DST violated ITFA because traditional advertising was not equivalently taxed by the state. The Maryland Supreme Court has since granted direct appeal of the trial court’s ruling but denied the state’s motion to stay enforcement pending the appeal.[9]

What makes the Louisiana case unique is that ITFA arguments usually require a demonstration that the state is discriminating between activities carried out through the internet and those that are carried out offline, as in the Texas and Maryland proceedings above. However, in this case the Board highlights certain activities that qualify as “Internet Access” that states cannot tax at all, whether discriminatorily or otherwise.

The additional ground noted by the Board in this case also affirms that services are not generally taxable unless specifically covered under the Louisiana sales tax statute. At present, the statute only taxes eight categories of service.[10] The state and its political subdivisions are prohibited from subjecting any service that is not enumerated in the statute to state or local sales or use tax.

At present it is not clear whether Orleans Parish intends to appeal the Board’s decision. However, any business that provides personal data storage services or other services listed in the ITFA should review its Louisiana state or local sales and use taxes and consider whether it is properly classifying its digital services as taxable or non-taxable. Similarly, any customer that has paid a significant amount of Louisiana state or local sales or use taxes on non-taxable digital services should also consider whether it is appropriate to file a refund claim.

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

[1] ITFA Sec. 1101(a)(1) & (2) and 1105(5)(A) & (E).

[2] The MSJ was limited to local sales tax on the subscription fees for iCloud storage, while the remainder of Apple’s petition (Docket No. L01283) included subscription fees paid for Apple Music.

[3] Article VI, Paragraph 2 of the Constitution of the United States.

[4] The Board also referenced J2 Cloud Servs., Inc. (f/k/a J2 Glob., Inc. & J2 Glob. Commc’ns, Inc.) v. Comm’r of Revenue, Docket No. C325426, 2019 WL 1102964, at7 (Mass. App. Tax. Bd. Feb. 27, 2019), in which the Massachusetts Appellate Tax Board rejected an ITFA challenge because any storage services in that case were not provided for independently but were packaged along with an eFax service.

[5] La. R.S. 47:301(14).

[6] Tex. Tax Code Sec. 151.0035.

[7] Apple Inc. v. Glenn Hegar, Comptroller of Public Accounts et al., Case No. D-1-GN-20-004108, District Court of Travis County, Texas, 345th Judicial District.

[8] Comcast v. Comptroller, Case No. C-02-cv-21-000509 (Cir. Ct. for Anne Arundel County, Oct. 20, 2023).

[9] Comcast v. Comptroller, Case No. SCM-REG-0032-2022 (S. Ct. of Md., Jan. 20, 2023).

[10] La. R.S. 47:301(14).

In response to a court ruling finding that New Orleans’ requirement that the holder of a residential short-term rental (“RSTR”) license hold a homestead exemption violated the Constitution’s Commerce Clause, the New Orleans City Planning Commission is making recommendations for changes to the RSTR regulations.  In particular, on January 27, 2023, the City Planning Commission adopted recommendations that there be only one RSTR license issued per person, that only one RSTR could be licensed per block face (with a possible process for an exemption to be determined), that the maximum number of guests in an RSTR be reduced from ten to six, and that the maximum number of bedrooms in an RSTR be reduced from five to three.  The issue will be considered by the New Orleans City Council before the court-imposed March 31, 2023, deadline.

In response to publicity that the 53 affordable housing units planned for the old Brown’s Dairy plant (1300 Baronne Street) were instead allegedly sold to a commercial short-term rental operator, the New Orleans City Council adopted a resolution on February 2, 2023, that created an Interim Zoning District (“IZD”) entitled “Preserving Residential Character Interim Zoning District”, which would cover areas of Central City, the Lower Garden District, and the Irish Channel.  The IZD would temporarily prohibit the issuance of new commercial STR licenses in lots zoned HU-MU (Neighborhood Mixed-Use District), MU-1 (Medium Intensity Mixed-Use District), and MU-2 (High Intensity Mixed District) pending a public hearing before the City Planning Commission to amend the current short term rental regulations.  Existing licenses may be renewed and an appeal of the IZD is permitted for new license applicants.  By law, an IZD is a temporary measure to be effective for a maximum of one year, with subsequent extensions possible.

The City Council also created a city-wide IZD known as the “Bed and Breakfast Interim Zoning District”, which causes all bed and breakfast uses, whether principal or accessory, to be conditional uses in zoning districts where such uses are currently permitted.  This legislation was passed to anticipate any persons now prohibited from applying for a short-term rental license from seeking to circumvent regulations by applying for a bed and breakfast license.

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