Review of the Tax Acts of the 2021 Louisiana Legislature
While legislators are prohibited from introducing tax bills in regular sessions held in even numbered years, they are free to do so in regular sessions held in odd numbered years, and they exercised that prerogative in the session that ended June 10. While some of the enactments are limited in scope and application (such as tax credits for some funeral expenses), others are broad and far reaching. For instance, the Legislature took steps, in the words of Gov. John Bel Edwards (D), “to address tax reform through streamlining of the sales tax and remodeling the income and franchise taxes.” Letter from Gov. John Bel Edwards to Speaker of the House Clay J. Schexnayder, “Re: Veto of House Bill 26 of the 2021 Regular Session” (June 29, 2021).
These steps include making some major changes to the calculation of corporate and personal income taxes; simplifying the process for contesting property taxes; and broadening the state’s tax base by authorizing — and taxing — sports wagering.
Some of these changes, however, depend on voter approval, and Louisiana’s voters have traditionally been loath to approve any tax proposition when it isn’t clear that approval won’t increase voters’ taxes. Often, the Legislature’s wording of a proposition is critical to its success, and the Legislature did an artful job with these propositions.
The following is a brief description of some of the changes made by the Legislature.
I. Corporate Income/Franchise Taxes
Act 54 provides an individual and corporate income tax exemption for any federal or state coronavirus benefits received by the taxpayer and included in the taxpayer’s federal gross income. The provision is effective June 4, 2021.
Act 389 would continue the suspension of the franchise tax for corporations with taxable capital of less than $1 million. Beginning January 1, 2023, the tax on the first $300,000 of taxable capital would be eliminated for all corporations, and the tax on taxable capital above that amount would be reduced from $3 per $1,000 to $2.75 per $1,000. This provision is conditioned upon (a) the adoption of the constitutional amendment proposed in Act 134 and (b) the adoption of the amendment proposed in Act 396 (both discussed below). The referendums on those acts will be held October 9.
Act 396 would eliminate the deduction for federal income taxes paid currently allowed to corporations. It also would lower the corporate income tax rates and reduce the income brackets from five to three. This provision is also conditioned upon the adoption of the constitutional amendment proposed in Act 134.
Act 459 amends the corporate income tax provisions governing the carryovers of losses. (With eight amendments in the last eight years, changing net operating loss provisions seems to be one of the Legislature’s favorite pastimes.) Under present law, NOLs can be carried forward 20 years. After January 1, 2022, these losses can be carried forward until exhausted. The change is applicable to NOLs incurred after January 1, 2001, the deduction for which is taken on returns filed after January 1, 2022. The provision is effective June 24, 2021.
II. Personal Income Tax
Act 134 is a proposed constitutional amendment that would reduce the maximum rate of the individual income tax from 6 percent to 4.75 percent. The amendment would also remove the Louisiana Constitution’s mandate that the federal income taxes paid by an individual be allowed as a deduction for state income tax purposes and instead leaves the availability of that deduction to the whims of the Legislature. In other words, that deduction is a gone pecan if the proposition passes. The provision will be effective January 1, 2022, if the voters approve the amendment on October 9.
Act 387 provides an income tax exemption to some “digital nomads.” A digital nomad is a person who, among other things, establishes residency in Louisiana after December 31, 2021, and works full time for a nonresident business while residing in the state. (The term “mobile worker” does not encompass professional athletes, professional entertainers, or “public figures” being paid to give vapid speeches, cut ribbons, or exchange fist bumps with potential donors and contributors.) The exemption is for 50 percent of the nomad’s gross wages not to exceed $150,000. It is available for only two of the nomad’s tax years from 2022 through 2025 and applies only to income received for the nomad’s remote services. Also, the exemption is allowed to only 500 lucky nomads during the life of the program. The provision became effective June 16, 2021.
Act 395 will, if approved, reduce the income tax rates for individuals and fiduciaries. Act 395 also would limit the deduction for federal itemized deductions to medical expenses. To soften the blow to taxpayers, the act would reduce the statutory rates in future years if the total income tax collected by the state reaches specific levels. (A cynic might view the promise to reduce taxes in the future as an empty one since that reduction can be eliminated by a subsequent Legislature.) This provision is conditioned upon the adoption of the constitutional amendment proposed in Act 134, which would eliminate the mandatory income tax deduction for federal income taxes.
III. Property Taxes
Act 133, which would amend the constitution, and Act 390, which would make corresponding statutory changes, could permit tax authorities to collect more tax when the property subject to the tax increases in value. In Louisiana, when the voters approve the levying of a property tax, it is cast in the form of approving a specific millage rate, but practically they are approving the collection of an amount of money based on the then value of the property subject to tax at that time. If in later years the amount collected goes down or up from the approved amount because of changes in the value of the property subject to tax, the governmental authority may adjust the millage rate up (“roll up”) or down (“roll down”) as the case may be. Now, the adjusted rate cannot exceed the rate charged in the previous year. These acts would allow the governing authority to roll the rate up to the original authorized rate, which will result in an increase in the amount of tax collected by the tax authority and the amount of tax owed by the taxpayers.
Since Act 133 would amend the constitution, voter approval is required. Louisiana’s voters rarely approve tax increases or reject tax decreases. Playing on these propensities, the proposition presented to a voter asks if the voter supports “an amendment to allow the levying of a lower millage by a local tax authority while maintaining the authority’s ability to adjust the current authorized millage rate.” The election is set for November 8, 2022, and the provisions will take effect in 2023 if the amendment is approved.
Under Act 343, on January 1, 2022, the procedure for challenging the legality of a property tax assessment will change. (A “legality” challenge is when a taxpayer disputes the right of an assessor to levy a tax on a particular piece of property.) Currently, those challenges are brought in the district court in the parish where the assessor is located, meaning the taxpayer has to litigate a case concerning local finances before a local judge who is rarely tax wise. Act 343 amends La. Rev. Stat. section 47:2134 to provide that those challenges will be heard by the Board of Tax Appeals, which is a neutral, tax-savvy forum so passage of the Act would be of great benefit to taxpayers.
Act 343 also changes the procedure used for challenging the correctness of an assessment. (A “correctness” challenge disputes the amount of tax being sought.) The basic process, however, remains the same — protest to the assessor followed by an appeal to the local board of review then to the Louisiana Tax Commission and then to the appropriate district court. The biggest changes to correctness challenges are in La. Rev. Stat. section 47:1989, which addresses what evidence can be presented and when it must be presented. The provision is effective January 1, 2022.
IV. Sales/Use/Lease Taxes
Currently, a business that leases tangible personal property to a customer who then leases that property to a third party must collect a lease tax (at a rate of approximately 8 to 12 percent) on the payments made to it by the customer, and the customer must also collect a tax on the payments it receives from the third party. Act 7 amended La. Rev. Stat. section 47:301(m)(i) to remove some leases for re-lease from the definition of lease or rental. The provision is limited to those lessors that have a North American Industry Classification System code of 532412 (bare leasing of heavy equipment used in the construction, mining, and forestry industries) or 532310 (general rental equipment). The provision is effective October 1, 2021.
The sales of some utilities are subject to sales taxes. Act 53 provides an exemption in La. Rev. Stat. section 47:305.4 for utilities used by commercial farmers for on-farm storage. Commercial farmers are those farmers who farm for profit as opposed to those who dabble in farming. The provision is effective June 4, 2021.
Act 131 reflects the Legislature’s continuing efforts to comply with the U.S. Supreme Court’s decision in Wayfair. South Dakota v. Wayfair Inc., 585 U.S. ___ (2018). The act would amend the Louisiana Constitution to create the State and Local Streamlined Sales and Use Tax Commission as a statewide political subdivision. The act requires the commission to provide for streamlined electronic filing, electronic remittance, and the collection of all sales and use taxes levied within the state. The act also requires the commission to issue policy advice and to develop rules, regulations, and guidance to centralize and streamline the audit process for sales and use taxpayers.
Since it is an amendment to the constitution, voter approval is required. The provision has the support of business and industry, but whether that translates into approval by the voters remains to be seen since there is some opposition from local governments. In anticipation of this opposition, the Legislature will give the voters two shots at approving the establishment of the commission — the first in an election to be held October 9, and if the proposition fails , then again in the election scheduled to be held November 8, 2022. If it is approved, it will take a while for the commission to get up and running.
Despite its unofficial state motto of laissez les bon temps rouler, Louisiana, in an effort to protect the morals of its citizens, takes a strong stance against all forms of gambling. Unless, of course, it can be taxed. Thus, before this session, activities such as bookmaking, pitching pennies, and tontines were prohibited, but one was free to play cards, roulette, and craps at the casino; lay a bet on the ponies at the track; test one’s skill on the slots at the local pub; or participate in bingo at church. With the passage of Act 80, which imposes a tax on sports wagering, a bet can be made as a show of support for one’s alma mater, favorite team, or athlete or in the hope of improving one’s liquidity without fear of being arrested — as long as that bet is made at a duly licensed establishment. The tax is 10 percent on the net gaming proceeds of a licensed sports wagering retail establishment in Louisiana and 15 percent on the net gaming proceeds received by an internet operator. Non-licensed neighborhood bookies, however, are still considered a “public nuisance” and will be subject to the full measure of the law’s wrath in the unlikely event they are arrested and prosecuted. The provision became effective July 1, 2021.
Act 285 requires all persons who make payments to a service provider located in Louisiana to report those payments to the Department of Revenue. Compliance consists of filing a copy of IRS Form 1099-NEC. The act is effective as of July 1, 2021.
Act 287 makes extensive changes to partnership reporting requirements. Those changes include that all partnerships are required to file information returns, that a partnership may elect to pay audit adjustments for its partners, and that a partnership with an out-of-state partner is no longer required to pay tax. The provision is effective June 14, 2021.
Act 297 establishes a voluntary program (the Fresh Start Proper Worker Classification Initiative) by which an employer can change a worker’s classification from independent contractor to employee without having to pay any withholding tax, unemployment tax, interest, or penalties regarding any workers before the date on which the taxpayer is accepted for participation in the program. To be eligible, an employer must have consistently treated the workers for the previous three years as non-employees, had a reasonable basis for not treating the workers as employees, and filed any required Form 1099-MISC or -NEC with the IRS regarding those workers, consistent with the non-employee treatment. This change in status will apply only to future tax periods, and the employer is not responsible for back taxes or penalties. The window is open from January 1, 2022, to December 31, 2022.
The act also establishes a Louisiana voluntary disclosure program for withholding and unemployment taxes that should have been withheld but weren’t. Penalties otherwise applicable will be waived when the taxes, with interest, are remitted. This program is not available for taxes collected but not remitted.
Also, the act establishes a safe harbor for a “putative employer” who has consistently treated a worker, and all similar workers, as an independent contractor. That employer will not be liable for any unemployment taxes on that worker if the employer has a reasonable basis for treating the worker as an independent contractor and filed all required federal tax and information returns on the worker. The term “reasonable basis” includes relying on a court case, an opinion from a lawyer or accountant, an audit by the IRS, or that such treatment is common in the employer’s industry. The act is effective January 1, 2022.
The Legislature had a busy session. It made some needed changes and paved the way for additional changes. Whether those additional changes are made is left to the voters and whether those voters can overcome their natural inclination to vote NO on all propositions concerning taxes.