UPDATES ON STATE LAW & TAX POLICY

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1 UPDATES ON STATE LAW & TAX POLICY KIMBERLY LEWIS ROBINSON, SECRETARY LOUISIANA DEPARTMENT OF REVENUE T U L A N E TA X I N S T I T U T E N O V E M B E R 1 0,

2 LDR Administration & Department Updates

3 LDR Leadership Kimberly Lewis Robinson, Secretary of Revenue Press Secretary Public Affairs Internal Audit Kevin Richard, Deputy Secretary Business Services Office of Legal Affairs Litigation Policy Services

4 LDR Leadership Andrew Perilloux, Undersecretary Office of Management and Finance Revenue Processing Center Budget and Financial Services Human Resources Velecial Rodman, Assistant Secretary Group 1 Collections Customer Service Business Tax Enforcement

5 LDR Leadership Danell Gerchow, Assistant Secretary Group 2 Agency Compliance Criminal Investigations Taxpayer Compliance Income Taxpayer Compliance Sales, Severance, Excise, Withholding Tax Administration Raymond Jay Frost, Assistant Secretary-Group 3 Audit Intelligence Audit Review & Appeals Field Audit Income Tax Field Audit Sales Tax Field Audit Excise Tax

6 Midyear Governor Edwards term began at the midpoint of the state s fiscal year. General projections placed the state s historic midyear budget deficit at an estimated $700 million. The Revenue Estimating Conference met on February 10, 2016, and recognized deficits of: $940 million for the remaining months of the 2016 fiscal year. $2 billion for the fiscal year.

7 Resolving the FYE 2016 deficit: First Extraordinary Session of 2016 Governor Edwards administration and the Legislature closed the FYE 2016 midyear deficit through a combination of: Use of Rainy Day Funds from the Budget Stabilization Trust Clean Penny Act 26 Reallocation of settlement monies from the BP Oil Spill Suspension of sales tax exemptions Act 25 Reductions to agencies: Cap on Net Operating Loss equal to 72% of Louisiana income Act 6 General Fund Reduction of vendor s compensation Act 15 Statutory Dedications Fees & Self Generated Revenues Increased excise tax on alcohol & reduced dealer discounts Acts 7 & 13 Increased excise tax on cigarettes and reduced dealer discounts Acts 4 and 5 Renewed sales tax on automobile rentals and telecommunications Acts 9 and 14

8 During the First Extraordinary Session, the Legislature also voted to: Propose a constitutional amendment that will allow voters to decide whether to repeal the corporate deduction for federal income tax paid. Act 31 will appear on the November 8 th ballot as CA No. 3. Act 30 is the statutory companion to the constitutional amendment. If voters approve CA No. 3, Act 30 will become effective January 1, 2017 and apply to tax years beginning on and after January 1, Propose a single corporate income tax rate. Act 8 establishes a flat rate of 6.5% for corporate income tax. If voters approve CA No. 3, Act 8 will become effective January 1, 2017 and apply to tax years beginning on and after January 1, 2017.

9 During the First Extraordinary Session, the Legislature also voted to: Remove the 72% maximum cap imposed upon the deduction allowed for dividends of banking income. (Act 1) Require corporate add-backs of otherwise deductible expenses, when those expenses occur as a result of a transaction with a related member. (Act 16) Require deductions of net operating loss to begin with the loss incurred in the most recent year(s) first. (Act 24)

10 During the First Extraordinary Session, the Legislature also voted to: Expand the corporate franchise tax base to include: Any entity that elects to be taxed at the federal level pursuant to the provisions of Subchapter C of 26 U.S.C., Subtitle A, Chapter 1 Domestic and foreign corporation s direct or indirect ownership or use of any part of its capital, plant, or property in Louisiana Act 12 is applicable to all taxable periods beginning on or after January 1, 2017

11 During the First Extraordinary Session, the Legislature also voted to: Reprioritize how taxpayers must claim credits: Nonrefundable credits with no carryforward Refundable credits (excluding the Inventory Tax Credit) Current year nonrefundable credits, based upon the length of the carryforward period Transferable tax credits Inventory tax credits Estimated payments Act 23 is applicable to all tax years beginning on or after January 1, 2016.

12 During the First Extraordinary Session, the Legislature also voted to: Modify the Enterprise Zone Program to: Cap the amount of the investment tax credit at $100,000 per net new job. Provide for a credit to eligible projects of $3,500 per net new employee for employees who were recipients of SNAP, WIC, Medicaid, unemployment benefits, or a similar public assistance program within 6 months of hire. Provide for a credit to eligible projects of $1,000 per net new employee who does not meet this criteria. These provisions are applicable to projects whose advance notifications were filed after April 1, 2016.

13 During the First Extraordinary Session, the Legislature also voted to: Expand the definition of dealer to include: 1. Every person who manufactures or produces tangible personal property for sale at retail, or for consumption, distribution, or storage in Louisiana. 2. Any person engaging in business in Louisiana by soliciting sales pursuant to an agreement with a Louisiana resident or business under which the resident or business, for a commission, referral fee, or other consideration directly or indirectly refers potential customers to the seller. Applies to any person whose gross receipts from such an agreement exceed $50,000 during the preceding twelve months. Includes referral by link on an internet website, an in-person oral presentation, telemarketing, or otherwise.

14 During the First Extraordinary Session, the Legislature also voted to: Expand the definition of dealer to include: 3. Any person selling tangible personal property or services, who either: 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 trade names that are the same or substantially similar to those used by the Louisiana retailer; or solicits business and develops and maintains a market in Louisiana through an "affiliated agent", under which the affiliated agent, for a commission, referral fee (or other consideration of any kind) engages in activities in this state that cause the seller to develop or maintain a market for her goods or services in Louisiana. 4. Any person who holds a substantial ownership interest (at least 5%) directly or through a subsidiary, in a retailer maintaining sales locations in Louisiana.

15 During the First Extraordinary Session, the Legislature also voted to: o Expand the definition of dealer to include: 5. Any person who is owned in whole or in substantial part (at least 5%) by a retailer maintaining sales locations in Louisiana, or by a parent or subsidiary thereof. Act 22 is applicable to all tax periods beginning on and after April 1, Expand the definition of hotel to include any business or person in the business of furnishing sleeping rooms at a residential or business location. (Act 17)

16 Tax Law Changes from the 2016 Regular Legislative Session

17 2016 Regular Session Act 569 Requires remote retailers to do each of the following: 1. Notify Louisiana purchasers, at the point of sale, of Louisiana s law requirement that use tax liability be paid annually on the individual income tax return. 2. Notify Louisiana purchasers, annually, of each purchaser s total amount paid for purchases in that preceding calendar year. 3. Annually file a statement to LDR disclosing the total amount paid by each Louisiana purchaser in the preceding calendar year.

18 2016 Regular Session Act 569 Defines remote retailers as those who meet each of the following criteria: 1. Not required by state law to register as a dealer in Louisiana and is not otherwise required to collect Louisiana sales and use taxes. 2. Makes retail sales of tangible personal property or taxable services where the property is delivered into Louisiana or the beneficial use of the service occurs in Louisiana, and the cumulative annual gross receipts for the retailer and its affiliates from those sales exceeds fifty thousand dollars per calendar year. 3. Does not collect and remit Louisiana sales and use tax with respect to their retail sales in this state, including the tax imposed under R.S. 47:302(K). Effective date: July 1, 2017

19 2016 Regular Session Act 661 Changes the date on which corporate income returns must be filed and paid from April 15 th to May 15 th. Establishes May 15 th as the deadline for entities treated as partnerships to file composite returns. Establishes April 15 th as the deadline for filing partnership returns. Changes the date on which corporate franchise tax must be paid: from the 15 th day of the third month after the tax is due to the 15 th day of the fourth month after the tax is due. Applicable to income tax periods beginning on and after January 1, 2016, and to corporation franchise tax periods beginning on and after January 1, 2017.

20 2016 Regular Session Act 662 Changes the deadline by which employers who withhold employee taxes must file an annual report: from the 1 st business day after February 27 th of the year following the calendar year to on or before January 31 st of the following calendar year. Subjects payments received in exchange for the performance of services on a production, for purposes of the motion picture investor tax credit, to state and federal withholding requirements. Applicable to all taxable years beginning on and after January 1, 2016.

21 2016 Regular Session Act 446 Requires electronic filing of claims for refund of sales tax if the overpayment is in excess of $25,000 or submitted by a tax preparer. Provides a hardship exception. Applicable for taxable years beginning on and after January 1, Act 568 Creates the Louisiana Tax Institute within the Department of Revenue Effective June 17, 2016

22 Tax Law Changes From the Second Extraordinary Session of 2016

23 Sales Tax Law after the Second Extraordinary Session During the First Extraordinary Session, the Legislature levied a new one cent of sales tax that exempted 65 of the existing exclusions and exemptions. The Legislature also enacted Act 25 to suspend several different exemptions and exclusions on the original 4 cents of sales tax. During the Second Extraordinary Session, the Legislature enacted Act 12 to restore certain exemptions and exclusions. The Legislature also enacted Act 6 during the 2 nd Extraordinary Session to require that gross sales of certain items exempt from state sales tax be reported to LDR.

24 Sales Tax Law after the Second Extraordinary Session Among the exemptions restored by Act 12 are: Sales of admission charges to: athletic and entertainment events for elementary and secondary schools and membership fees or dues of nonprofit, civic associations musical performances sponsored by nonprofit organizations entertainment events sponsored by domestic nonprofit charitable, religious, and educational organizations events sponsored by domestic, civic, educational, historical, charitable, fraternal, or religious nonprofit organizations (this exemption includes sales of admissions, parking fees, and tangible personal property) fairs and festivals sponsored by nonprofit organizations (this exemption includes sales of parking fees) Sales or use of meals by educational institutions, medical facilities, mental institutions, and occasional meals furnished by educational, religious, or medical organizations.

25 Sales Tax Law after the Second Extraordinary Session Act 3 Clarifies the definition of raw material, for purposes of the sales tax exclusion allowed for raw materials. Items purchased for processing into a byproduct do not constitute raw material and are taxable. The Act is intended to be interpretative and, as such, applies retroactively to all refund claims submitted and assessments of additional tax due filed on and after June 23, Act 13 Modifies the state and local sales tax exemptions allowed for sales at domed facilities or baseball facilities owned by the state or a political subdivision Applicable to all taxable periods beginning on or after September 1, 2016.

26 During the Second Extraordinary Session, the Legislature also voted to: Limit the amount of inventory tax credits that taxpayers may receive as a refund (as opposed to a carryforward), based on the taxpayer s ad valorem tax liability. (Act 4) Restrict manufacturers who have received an industrial tax exemption from receiving a refund (as opposed to a carryforward) of inventory tax credit.(act 5)

27 During the Second Extraordinary Session, the Legislature also voted to: Require apportionment of corporate income (excluding the oil and gas industry) using a single sales factor (Act 8) For corporate income tax purposes: require sourcing of sales other than sales of tangible personal property to Louisiana if the taxpayer s market for the sale is in Louisiana (Act 8) Phase in the individual income tax deduction allowed for net capital gains, based upon the length of in-state business residence (Act 11) Reduce the value of the income tax credit awarded for payment of the Louisiana Citizens Property Insurance Corporation Assessment to 25% (Act 9) Require interest accrued on refunds paid by LDR to begin to accrue at 90 days(act 10)

28 After the Sessions: LDR s Role in Legislative Task Forces and Commissions

29 HCR 11 Task Force on Structural Budget and Tax Reform Representative John Schroder introduced HCR 11 of the First Extraordinary Legislative Session of 2016 to create the Task Force on Structural Changes in Budget and Tax Policy. o The Task Force has conducted weekly meetings since March 18, o Weekly meetings last an average of 6 hours. Since July, the Task Force has conducted multi-weekly Small Group Meetings Meetings are conducted in accordance with Louisiana Public Meeting Laws Preliminary recommendations of the Task Force include: Broadening the sales tax base to include services taxed by neighboring states Lowering the sales tax rate Modifying the individual income tax brackets Lowering the individual income tax rates Proposal to modify the ad valorem tax system by proposing legislation to place local control over Industrial Tax exemption approvals into statute o The Task Force will submit its report to the Legislature by November 1, 2016.

SCR 6 Task Force Senator Bret Allain created the SCR 6 Task Force during the First Extraordinary Session of 2016.

30 SCR 6 Task Force Senator Bret Allain created the SCR 6 Task Force during the First Extraordinary Session of o The purpose of the SCR 6 Task Force is to study the state s current method of providing a tax credit for ad valorem tax paid by taxpayers. o SCR 6 appoints the Secretary of Revenue as a member. o SCR 6 requires the Task Force to submit a report of recommendations to the Legislature by February 1, 2017.

Governor s Task Force on Transportation Infrastructure Investment Governor Edwards created the Task Force on Transportation Infrastructure Investment and appointed DOTD Secretary Shawn Wilson as

31 Governor s Task Force on Transportation Infrastructure Investment Governor Edwards created the Task Force on Transportation Infrastructure Investment and appointed DOTD Secretary Shawn Wilson as chairman. This purposes of this Task Force are to: identify methods of recurring funding to address the state s transportation backlog and future infrastructure needs. make specific actionable recommendations to the Legislature to achieve the recurring funding to address these needs. Executive Order JBE appoints the Secretary of Revenue as a member. The Task Force is viewing the gasoline tax as a potential vehicle for funding infrastructure investments. Transportation Task Force members are currently touring the state to share and receive infrastructure concerns and solutions with Louisiana citizens.

32 Louisiana Tax Institute Representative John Schroder s Act 568 of the 2016 Regular Legislative Session created the Louisiana Tax Institute within the Department of Revenue. Act 568 requires the Institute to: o serve as the official advisory tax law revision and reform agency of the state o o promote and encourage the clarification and simplification of tax laws of the state and its political subdivisions submit reports or make recommendations to the Legislature, subject to approval by ¾ of the governing board members

33 Louisiana Tax Institute The Louisiana Tax Institute will be governed by a board of 8 members, as provided by Act 568. In addition to the 8 voting members, a judge and certified tax law specialist from the Board of Tax Appeals will serve as an ex-officio non-voting member. Act 568 provides for a member of the Institute to be appointed by the Dean of the Tulane University Law School. Dean Meyer has appointed Dr. Steve Sheffrin to serve as Tulane s representative on the Louisiana Tax Institute.

34 Louisiana Tax Institute Other offices & institutions with representation on the Institute Board are as follows: LDR Office of the Governor Louisiana Society of Certified Public Accountants Louisiana State University s Paul M. Hebert Law Center Louisiana State Bar Association, Taxation Section Southern University Law Center Loyola University College of Law The first meeting of the Institute Board is expected to take place in November 2016.

Sales Tax Streamlining and Modernization Commission Representative Julie Stokes Act 405 of the 2015 Regular Legislative Session established the Sales Tax Streamlining and Modernization Commission.

35 Sales Tax Streamlining and Modernization Commission Representative Julie Stokes Act 405 of the 2015 Regular Legislative Session established the Sales Tax Streamlining and Modernization Commission. o o The purpose of the Commission is to perform a comprehensive study of Louisiana's state and local sales tax systems, and to make recommendations to the legislature regarding revision of practices. The preliminary recommendations of the Commission include recommendations to: o o Broaden the sales tax base by eliminating certain exemptions and exclusions Create a uniform base for state and local sales tax

36 Questions? Thank you! Kimberly Lewis Robinson Louisiana Department of Revenue, Secretary

SALT Alert! : Louisiana: Special Session Bills Signed Into Law

SALT Alert! : Louisiana: Special Session Bills Signed Into Law SALT Alert! 2016-09: Louisiana: Special Session Bills Signed Into Law On March 9, 2016, Louisiana s special legislative session ended after 25 days. Because revenue measures cannot be introduced in the