Louisiana Income, Franchise Tax Alert

As a result of Louisiana’s 2016 Second Extraordinary Legislative Session, the Governor signed the following new income and franchise tax laws to address the state’s budgetary needs: 

• Single sales factor apportionment regime for most industries
• Double-weighted sales factor apportionment for certain oil and gas taxpayers
• Market-based sourcing for services and certain other revenues
• Sales factor apportionment “throw-out” rule
• Limited refunds on the inventory tax credit
• Other administrative updates

Apportionment Factors (as of January 1, 2016) 

• Sales factor
  • Corporate taxpayers (e.g., aircraft transportation, pipeline transportation, other transportation, service, manufacturing and all other businesses outside the oil and gas industry) will now utilize single sales factor.
  • The oil and gas industry (including integrated oil and gas companies and taxpayers whose income is primarily derived from the production and sale of unrefined oil and gas) will now use a double-weighted sales factor apportionment formula.
• Sales sourcing other than sales of tangible personal property will now use market-base sourcing.
• “Throw-out” rule for sales sourced to a state in which the taxpayer is not taxable or sales where the proper state assignment cannot be determined or reasonably approximated under the law; such sales must be excluded from the sales factor (i.e., thrown out of the denominator).

Limited Refunds on Inventory Tax Credit 

This new rule applies to returns filed after July 1, 2016, regardless of the taxable year to which the return relates. The law will not apply to an amended return filed on or after July 1, 2016, for any credit properly claimed on an original return filed prior to July 1, 2016.

The new law no longer necessarily permits full refunds on the portion of the tax credit for ad valorem taxes paid on inventory that exceeds the tax liability. Instead, it establishes three groupings of taxpayers, each with different refundability rules and limitations.

• Taxpayers whose inventory credit earned during the year is less than $500,000 may refund their entire excess credit.
• Taxpayers whose inventory credit earned during the year is more than $500,000 but less than $1,000,000 may refund 75 percent of their excess credit; the remainder is carried forward for up to five years.
• Taxpayers whose inventory credit earned during the year is more than $1,000,000 may refund 75 percent of their first $1,000,000 of excess credit; the remainder is carried forward for up to five years.

These law changes are effective for any return filed on or after July 1, 2016, regardless of the taxable year to which the return relates.

The new law revises certain underlying confidentiality requirements so that the Louisiana Department of Revenue is able to confirm the inventory credit. This legislation also makes the portion of the inventory tax credit that exceeds the tax liability nonrefundable for manufacturers exempt from property taxation under Louisiana’s “Industrial Tax Exemption Program” (ITEP). Instead, any excess credit may now be carried forward for up to five years to offset future tax liabilities.

Other Administrative Changes

• Due dates
  • The new law revises the due date for filing and paying Louisiana corporate income and franchise tax returns from April 15 to May 15 for calendar year filers and from the 15th day of the fourth month to the 15th day of the fifth month following the close of the fiscal year for fiscal year filers.
  • For filing partnership non-composite returns, this new law revises the date from May 15 to April 15 for calendar year filers and from the 15th day of the fifth month to the 15th day of the fourth month following the close of the fiscal year for fiscal year filers.
  • For filing partnership composite returns, the due date is May 15 for calendar year filers or the 15th day of the fifth month following the filer’s fiscal year.
  • These changes are applicable for corporate and partnership income tax periods beginning on and after January 1, 2016, and corporation franchise tax periods beginning on and after January 1, 2017.
• Net operating loss deduction clarification (effective on June 22, 2016)
  • The new law clarifies that the state corporate income tax net operating loss deduction limitations from Act No. 123 of the 2015 Regular Session and Act No. 6 of the 2016 First Extraordinary Session do not apply to amended returns filed on or after July 1, 2015, relating to a claim for a net operating loss deduction properly claimed on an original return filed prior to July 1, 2015.
• Interest on refunds (effective for any refunds claimed on or after July 1, 2016, regardless of the tax period to which the claim relates)
  • The new law provides that interest on refunds be computed starting 90 days after the filing date of an original or amended return or the due date, whichever was later, for all tax types.

For questions about this regulation or other state and local tax matters, please contact us.