Louisiana: Louisiana Enacts Legislation to Address Budgetary Shortfalls

Governor Edwards called the legislature into a special session to address the crisis in Louisiana’s budgets for Fiscal Years (FY) 2016 and 2017. This administration has inherited an estimated $750 million shortfall in the current fiscal year and a shortfall of up to $1.9 billion in FY 2017.

As a result of the special session, Gov. Edwards has signed into law various tax bills that will help address the budgetary shortfalls. The taxes impacted by these new laws will be the sales and use, corporate net income, and franchise taxes, as follows:

• H.B. 19 – Beginning with taxable periods on and after January 1, 2017, the corporate franchise tax will now apply to partnerships, joint ventures, and limited liability corporations that elect to be treated as corporations for federal tax purposes, with the exception of LLCs that elect to be treated as S-corporations. Additionally, the bill increases the initial franchise tax from $10 to $110.
• H.B. 30, effective Apr. 1, 2016, expands the definition of “dealer” to include a remote seller with more than $50,000 in Louisiana receipts in a year that enters into an affiliate arrangement to solicit business with an in-state an independent contractor or other representative.
• H.B. 43, effective Apr. 1, 2016, limits a vendor’s compensation for the collection and remittance of sales taxes to $1,500 per month.
• H.B. 55, effective Jan. 1, 2016, creates an add-back requirement for intercompany intangible, interest, and management expenses for corporate income tax purposes. The bill includes “subject to tax,” “tax treaty,” “economic substance and business purpose,” and “conduit” exceptions that may be used to reduce the add-back amount.
• H.B. 59, effective July 1, 2016, expands the definition of “hotel” for state sales and use tax purposes to include short term rentals, such as those provided by Airbnb.
• H.B. 61, which limits the applicability of certain sales and use tax exemptions between either Apr. 1, 2016 and July 1, 2016, or Apr. 1, 2016 and June 30, 2018.
• H.B. 62, effective from Apr. 1, 2016, through June 30, 2018, applies an additional 1 percent sales tax to all sale’s currently subject to the state’s tax, as well as a number of transactions not subject to the state’s 4 percent sales tax, including medical devices, freight charges, custom software, repairs to offshore drilling rigs, and vehicle rentals.
• H.B. 71, effective Mar. 10, 2016, reduces benefit of certain tax credits provided under the state’s Enterprise Zone program. Additionally, the bill removes eligibility for certain hotels.

In summary, Louisiana has enacted affiliate nexus standard for sales tax purposes, temporary increase in the sales tax rate, and expansion of the types of entities subject to the state’s franchise tax.

For questions about these law changes or other state and local tax matters, please contact us.