Monday March 14, 2016
As you may be aware the Louisiana Legislature just concluded a special session where it attempted to close a $900M+ deficit for the rest of this fiscal year and over $2B deficit for next fiscal year. The pressure to fix our budget crisis resulted in some radical bills, many of which will negatively affect our clients' operations here in Louisiana. Here is a brief summary of the Bills that will affect Louisiana Incentives:
1. HB 62 & 61 - Additional Sales Tax (Effective April 1, 2016 - June 30, 2018)
a. Imposes a new 1% state sales tax (state rate goes from 4% - 5%) for 27 months
b. Removes numerous exemptions & exclusions from the new 1% for 27 months and 4% until 6/30/16
i. April 1, 2016-June 30, 2016
1. 5-percent state sales tax
2. 5-percent tax on business utilities
3. 5-percent tax on MM&E
ii. July 1, 2016-June 30, 2018
1. 5-percent state sales tax
2. 3-percent tax on business utilities
3. 1-percent tax on MM&E
For purposes of the incentive programs, the additional tax on MM&E will be eligible to be rebated under the Enterprise Zone and Quality Jobs Programs. This will factor into companies' decisions on which rebate method to pursue under these Programs. Often times it much more lucrative for a manufacturer to purse the refundable Investment Tax Credits as opposed to the sales tax rebate. However, now that MM&E will be taxed at 5% (through June 30, 2016) and 1% (thereafter for 24 months), plus, when factoring in any local sales tax rebates, it may be better to pursue the sales tax rebates for projects incurring such costs of the next two years. Unfortunately, the sales tax on business utilities is NOT eligible to be rebated under either the EZ or QJ Programs.
2. HB 71 - Enterprise Zone Program (Effective for all Advance Notifications filed on or after 4/1/16)
a. Eliminates Hotels & Staffing Agencies from participating in the program
b. Revises Jobs Tax Credit Amounts as follows:
i. $3,500 for individuals on SNAP, WIC, Medicaid, Unemployed or any other similar public assistance program OR new hires of facilities located in an Enterprise Zone
ii. $1,000 for all other net new jobs
c. Institutes a STATEWIDE headcount increase requirement, not just increasing headcount at the EZ Project site
d. Limits the sales tax rebates or ITC rebates to $100,000 per net new job AND requires getting LED certification of Jobs created PRIOR to LDR issuing any sales tax rebates or ITC rebates
e. No Enterprise Zone Advance Notifications will be accepted by LED on or after July 1, 2017
We strongly recommend any company considering a project within the next year to file its Advance Notification prior to April 1, 2016 so that these law changes will NOT affect your project. Further, any projects starting after July 1, 2017 should strongly consider filing an Advance Notification prior to July 1, 2017. Lastly, we would encourage our Clients to consider utilizing our Federal Work Opportunity Tax Credit screening software platform. This custom built online software tool allows us to capture information to identify new hires that will qualify a company for the higher $3,500 EZ tax credit. Please contact SumIt Credits (225) 664-2160 today if you aren't already using our WOTC Shark Tool.
3. SB 15 - Re-Ordering Utilization of Tax Credits & Effective date of Purchased Transferrable Tax Credits
a. This bill moves up the ordering of refundable tax such that they are to be used before any non-refundable tax credits that have a carryforward period.
b. This reordering does NOT apply to the refundable Inventory Tax Credit.
c. Purchased transferable tax credits (i.e. Films, Historic, etc...) are effective as of the date of purchase for purposes of offsetting estimated tax payments.
d. To claim a transferrable tax credits on a current year return, the transfer date must be on or before the original due date of the tax return.
e. Utilization of a purchased transferrable tax credit against an outstanding liability is only available to liabilities originating the same tax year as the year the purchase credit was generated, or thereafter.
This bill will result in companies getting less of a tax refund each year that have both refundable and non-refundable tax credits. Additionally, companies that purchase transferrable tax credits to offset tax liabilities should take these new rules into consideration and make sure the purchase dates are prior to estimated tax payment due dates.
4. HB 19 - Franchise Tax Expansion
a. This bill expands Louisiana's franchise tax to LLC's. It applies to Subchapter C entities taxed as corporations under federal law but does not apply to LLC's that elect to be taxed as Subchapter S corporations.
5. HB 20 - Net Operating Loss Limitation
a. Prohibit the amount of the Net Operating Loss deduction from exceeding 72 percent of Louisiana net income, starting January 2016.
These two bills will result in companies paying more Louisiana Income/Franchise Tax. Thus, pursuing and capturing any available Louisiana tax credits previously thought to be unusable become much more meaningful and beneficial. We encourage companies to capture all available tax credits in Louisiana even if they are not able to be fully utilized at first.