United States

Louisiana: Let the Good Times Roll; Governor Calls Second Special Session

Jun 06, 2016
From KPMG TaxWatch

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On July 1, 2016, following the end of the regular legislative session, Louisiana legislators will re-convene in Baton Rouge at the request of Governor John Bel Edwards for a second special session to address the state’s ongoing fiscal crisis. A first special session was held in February; however, the Bayou State is still facing an estimated $600 million budget deficit for the fiscal year beginning July 1, 2016. The goals for the special session are three-fold: (1) raise the necessary revenue to fully fund the Fiscal Year 2017 budget without resorting to budgeting “gimmicks” used in the past; (2) “clean up errors” resulting from the handling of legislation at the end of the first special session; and (3) take steps toward broader, stabilizing tax reform as recommended by a Louisiana tax policy task force. The “clean up” includes removing sales and use taxes that were “inadvertently imposed” when legislators suspended a number of exemptions and exclusions during the first special session. Many of these inadvertent taxes were imposed on certain non-profit and/or civic organizations and activities. Most importantly, the governor proposes to amend the law so that Saints, Pelicans, and Zephyrs (New Orleans-based professional athletic teams) tickets are not taxable, as required by contracts with the teams.

The second special session will also address corporate tax bills adopted during the first special session that are dependent on the eventual passage of a constitutional amendment eliminating the corporate income tax deduction for federal taxes paid, and potential changes to the corporate apportionment formula. Finally, it appears more sales tax changes may be on the horizon as the legislature will be looking at the “primary use test” that applies to Louisiana’s sales and use tax exclusion for materials purchased for further processing. Per this exclusion, sales at retail do not include sales of “materials for further processing into articles of tangible personal property for sale at retail.” In a recent Louisiana Supreme Court case, the court held that limestone purchased and used for the dual purpose of inhibiting sulfur in the production of electricity and producing ash for sale qualified for the “further processing exclusion” from sales and use tax. Notably, this case potentially expanded the exclusion as the court held that the primary purpose for the limestone does not need to be for inclusion in the end product.

The second special session is necessary because, under Louisiana’s constitution, revenue raising measures cannot be introduced during the regular session in even-numbered years. Please stay tuned to TWIST for futures update on the second special session.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.