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Analysis

New Louisiana sales and use tax laws address budget issues

Multistate Tax alert | March 29, 2016

This tax alert summarizes a number of recent tax bills making modifications to Louisiana sales and use tax law.

Overview

In March 2016, Governor John Bel Edwards signed into law a number of tax bills which include the following modifications to Louisiana sales and use tax law:

  • Temporarily increasing the state sales and use tax rate from 4 percent to 5 percent on certain items (this 1 percent tax rate increase is effective from April 1, 2016 through June 30, 2018)
  • Temporarily eliminating many state sales and use tax exemptions and exclusions for certain periods from April 1, 2016 through June 30, 2018
  • Expanding the definition of “dealer” for state sales and use tax purposes to impose additional collection requirements on certain “click-through” Internet sales or affiliate sales in Louisiana
  • Providing a cap on vendor compensation allowed for collecting state sales and use tax
  • Increasing the state sales tax rate on telecommunications services

This tax alert summarizes these law changes that have various enactment dates and effective dates as specified in the discussion that follows.

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Levies an additional 1 percent state sales and use tax

Prior to April 1, 2016, Louisiana imposes a state sales and use tax of 4 percent on sales of tangible personal property and certain services with specific exemptions and exclusions under three separate imposition provisions, with 2 percent imposed under La. Rev. Stat. § 47:302, and an additional 1 percent each imposed under La. Rev. Stat. §§ 47:321 and 331.

House Bill 62,1 which was signed into law by Governor Edwards on March 15, 2016, levies an additional 1 percent state sales and use tax under a fourth provision, La. Rev. Stat. § 47:321.1. This new levy is effective April 1, 2016,2 applicable to transactions beginning on April 1, 2016, through June 30, 2018.3 Items that are subject to this additional 1 percent tax rate include: business utilities, certain trucks/trailers, and purchases during sales tax holidays, among many other items. It should be noted that manufacturing machinery and equipment will be subject to the additional 1 percent levy, but only from April 1, 2016, until June 30, 2016.4 Under this new law, La. Rev. Stat. § 47:321.1.F provides an exclusive list limiting the allowable exclusions and exemptions applicable to the additional 1 percent tax to 65 items. An exemption for manufacturing machinery and equipment is included in the list of allowed exempt items; however, unlike the other items, this exemption only becomes effective beginning July 1, 2016.

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NOL limitations and modifications

House Bill 20,13 which was signed into law by Governor Edwards on March 9, 2016, limits NOL utilization to 72 percent of Louisiana net income for state corporation income tax purposes.14 The law as amended now allows a state corporation income tax deduction equal to 72 percent of NOL carryovers to such year, further limited to 72 percent of Louisiana net income in the carryover year.15 House Bill 20 is effective January 1, 2016.16

House Bill 116,17 which was signed into law by Governor Edwards on March 15, 2016, provides that the ordering of NOL utilization must be on the LIFO method, beginning with the most recent taxable loss year.18 House Bill 116 is effective January 1, 2017.19

Observation: Taxpayers with Louisiana net operating loss carryforwards from multiple years may need to reconsider their ability to utilize such carryovers during the statutory NOL carryover period which remains unchanged.

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Remote dealer nexus

House Bill 30,22 which was signed into law by Governor Edwards on March 14, 2016, expands the definition of “dealer” to include persons who manufacture or produce tangible personal property for sale at retail, for use or consumption, for distribution, or for storage to be used or consumed in a taxing jurisdiction.23 This expansion essentially broadens Louisiana’s sales and use tax levy to account for the expanded tax base provided in House Bill 61, as well as the additional tax levy enacted by House Bill 62, both previously discussed.

Dealer is also expanded to mean:

Persons soliciting business through independent contractors or representatives under an agreement with a Louisiana resident or business whereby the resident or business refers potential customers, whether by link on an internet website, an in-person oral presentation, telemarketing, or otherwise to the seller for consideration of any kind.24

Presumption: If total gross receipts from sales of tangible personal property to customers in Louisiana in the previous year through such agreement exceed $50,000, there is a rebuttable presumption that person is a dealer. The presumption may be rebutted if the person can demonstrate to the satisfaction of the secretary that gross receipts cannot reasonably be expected to exceed $50,000 for the succeeding twelve months.25

Finally, the definition of a dealer is expanded via affiliate nexus provisions to include a person selling taxable tangible personal property or services who:

Sells the same or a substantially similar line of products as a Louisiana retailer under the same or substantially similar business name, using the same trademarks, service marks, or using trade names that are the same or substantially similar to those used by the Louisiana retailer;26 or
Solicits business and develops and maintains a market in Louisiana through an “affiliated agent” under which the affiliated agent, for consideration, engages in activities in Louisiana that develop or maintain a market for its goods or services to the extent that those activities are sufficient to satisfy the nexus requirement of the United States Constitution. Activities of the affiliated agent include referral of potential customers, directly or indirectly, by a link on an internet website or otherwise.27

Affiliate nexus also applies to any person:

Who holds a “substantial ownership interest,” directly or through a subsidiary, in a retailer maintaining sales locations in Louisiana; or
Who is owned in whole or in substantial part by a retailer maintaining sales locations in Louisiana; or by a parent or subsidiary thereof.28
For this purpose “substantial ownership interest” means an ownership interest of more than 5 percent, directly or indirectly, or where an ownership interest of more than 5 percent, directly or indirectly, is held by another person or by a group persons which are themselves affiliated.29

House Bill 30 provides that these new remote dealer nexus provisions applicable for state sales and use tax purposes shall not be used in the determination of whether such persons are liable for the payment of state income and franchise taxes.30
House Bill 30 is effective for tax periods beginning on or after April 1, 2016.31 However, if federal legislation is enacted authorizing the states to require remote sellers to collect sales taxes on taxable transactions, such federal legislation preempts these new remote dealer nexus standards.32

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Vendor compensation

House Bill 43,33 which was signed into law by Governor Edwards on March 10, 2016, caps the annual vendor compensation payment at $1,500 per month ($18,000 per year) per dealer with one or more business locations in Louisiana. This compensation is only allowed on the taxes levied pursuant to Louisiana’s original law (i.e. under La. Rev. Stat. §§ 47:302, 321, 331, and La. Rev. Stat. § 51:1286), which generally amounts to the taxes levied at the 4 percent state sales tax rate. Any additional sales tax levied by Louisiana (e.g., La. Rev. Stat. § 47:321.1) will not qualify for a vendor compensation payment.34 This new law is effective April 1, 2016, applicable to transactions occurring on or after April 1, 2016.35

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Increased sales tax on telecommunications services

House Bill 72,36 which was signed into law by Governor Edwards on March, 9, 2016, maintains the total state sales tax rate on interstate telecommunications services at 2 percent. Prior law had authorized a 2 percent sales tax on interstate telecommunications services, with a scheduled tax rate decrease to 1 percent on April 1, 2016.37 House Bill 72 removes the scheduled April 1, 2016, tax rate decrease on interstate telecommunications services, thus leaving the total state sales tax on interstate telecommunications services at the current rate of 2 percent.38 House Bill 72 is effective April 1, 2016.39

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Contacts

If you have questions regarding the tax bills discussed above or other Louisiana indirect tax matters, please contact any of the following Deloitte Tax professionals:


Scott Steinbring, partner, Deloitte Tax LLP, Houston, +1 713 982 3555


Debra Hodges, director, Deloitte Tax LLP, Dallas, +1 214 840 7493


Kristina Scoggins, manager, Deloitte Tax LLP, Dallas, +1 214 840 1141


The authors of this alert would like to acknowledge the contributions of Kristina Scoggins and Jeremy Sharp to the drafting process. Kristina is a manager in the Dallas Multistate Tax practice of Deloitte Tax LLP. Jeremy is a senior in the Washington National Tax—Multistate practice of Deloitte Tax LLP.

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Multistate Tax alert archive

The Multistate Tax alert archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

View the list of archived Multistate Tax alerts.

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References

1 Act No. 12, 2016 Extra Sess. (1st Extra. Sess.) HB 19 (March 10, 2016). A copy of HB 19 is available here.
2 Id. at Sec. 2, adding new La. Rev. Stat. § 47:601.C.(1)(b).
3 La Rev. Stat. § 47:601.C.
4 Act No. 12, 2016 Extra Sess. (1st Extra. Sess.) HB 19 (March 10, 2016) at Sec. 2, amending La. Rev. Stat. § 47:601.A.(3).
5 Utelcom, Inc. v. Bridges, 77 So. 3d 39, La. App.1 Cir. 2011 (9/12/2011), review denied, 83 So. 3d 1046 (3/2/2012).
6 Act No. 12, 2016 Extra Sess. (1st Extra. Sess.) HB 19 (March 10, 2016) at Sec. 1, amending La. Rev. Stat. § 12:1368 and at Sec. 2, adding new La. Rev. Stat. § 47:601.C.(1)(b).
7 Id. at Sec. 2, adding new La. Rev. Stat. § 47:602.G.
8 Id. adding new § 47:602.G.(2).
9 Id. adding new § 47:602.G.(3).
10 Id. at Sec. 2, amending La. Rev. Stat. § 47:611.A.
11 Id. at Sec. 3.
12 Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S. Ct. 848 (02/21/1996).
13 Act No. 6, 2016 Extra Sess. (1st Extra. Sess.) HB 20 (March 9, 2016). A copy of HB 20 is available here.
14 Id. at Sec. 1, amending La. Rev. Stat. § 47:287.86(A).
15 La. Rev. Stat. § 47:287.86(A), as amended.
16 Id. at Sec. 4.
17 Act No. 24, 2016 Extra Sess. (1st Extra. Sess.) HB 116 (Mar. 15, 2016). A copy of HB 116 is available here.
18 Id. at Sec. 1, amending La. Rev. Stat. § 47:287.86(C)(2).
19 Id. at Sec. 2.
20 Act No. 16, 2016 Extra Sess. (1st Extra. Sess.) HB 55 (Mar. 10, 2016). A copy of HB 55 is available here.
21 Id. at Sec. 1, adding new La. Rev. Stat. § 47:287.82.
22 Id. adding new La. Rev. Stat. § 47:287.82.A.(1).
23 Id. adding new La. Rev. Stat. § 47:287.82.A.(2).
24 Id. adding new La. Rev. Stat. § 47:287.82.A.(3).
25 Id. at Sec. 2.
26 HB 31, 2016 Extra Sess. (1st Extra. Sess.) (Mar. 8, 2016). A copy of HB 31 is available here.
27 Id. at Sec. 1.
28 La. Const. art. XIII, § 1.(C)
29 HB 31, 2016 Extra Sess. (1st Extra. Sess.) (March 8, 2016) at Sec. 3.
30 HB 95, 2016 Extra Sess. (1st Extra. Sess.). A copy of the enrolled bill is available here.
31 Id. at Secs. 1 and 2.
32 Id. at Sec. 3.
33 Id. at Sec. 4.
34 Act No. 8, 2016 Extra Sess. (1st Extra. Sess.) HB 29 (March 9, 2016). A copy of HB 29 is available here.
35 Id. at Sec. 1.
36 Id. at Sec. 2.
37 Id. at Sec. 3.
38 Act No. 1, 2016 Extra Sess. (1st Extra. Sess.) HB 7 (March 4, 2016). A copy of HB 7 is available here.
39 Id. at Sec. 1.
40 Id. at Secs. 2 and 4.

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