NEW ORLEANS – Tax team associates with McGlinchey Stafford said businesses operating in Louisiana must be aware of critical new information relating to the new sales and use tax exemption and exclusion rules in the state, effective April 1, 2016. There are different rates for state tax (but not local tax) involving a wide range of purchase, sale, and lease transactions.
Changes to Sales/ Use Tax Exemptions in the Special Session
On February 14, 2016, Governor John Bel Edwards convened a special legislative session to focus on cutting spending and generating revenue to aid in resolving Louisiana's budget crisis for fiscal years 2016 and beyond. By the time the session adjourned on March 9, Louisiana's budget was in a better position, but the state of Louisiana's tax code most certainly was not, McGlinchey Stafford reps said.
For large-dollar transactions, the timing of the transaction can result in cost savings, they said. As a result of the session, significant and complicated changes were made to the exemptions and exclusions available under Louisiana's existing sales and use tax laws.
The legislature also added a penny to the tax rate, the new "clean penny" (effective April 1, 2016 – June 30, 2018), which provides fewer exemptions and exclusions than the existing sales tax.
The McGlinchey Stafford reps said the changes to the existing exemptions and exclusions from tax, as well as under the new clean penny, are complicated and have created a quagmire of varying tax rates for a number of critical transactions over the next 27 months. A second special session is anticipated and new legislation coming out of a second special session may impact effective dates or change these rules.
Exemptions/ Exclusions With Varying Effective Dates
While determining your compliance obligations, note that the rate for several important types of transactions now varies during the next 27 months (beginning April 1, 2016).
1 – The statutes underlying the dates above (except the statute imposing the clean penny) extend through July 1, rather than the end of the fiscal year, June 30. This may have been a drafting error and may be corrected in the next special session, if there is one. In the meantime, the statutes refer to July 1.
2 – In addition, the 4% rate is composed of a 2% tax whose limited exemptions/exclusions are effective through July 1, 2018, and the new clean penny, which is only effective through June 30, 2018, and a 1% tax whose exemptions with respect to business utilities remains effective until April 1, 2019. Thus, from July 2, 2018 until April 1, 2019 business utilities will remain taxable at 1%.
3 – In addition, the 3% rate is composed of a 2% tax whose limited exemptions/exclusions are effective through July 1, 2018, and the new clean penny, which is only effective through June 30, 2018. Thus, as currently written, the tax rate for those items which are not exempt under the 2% tax and the clean penny will be 3% through June 30, 2018; 2% on July 1, 2018; and then 0% on July 2, 2018, after the limited exclusions/exemptions expire for both tax statutes. As noted above, this may have been a drafting error that may eventually be corrected.
McGlinchey Stafford reps said these changes do not impact local tax rates as local taxing authorities may have different rules for MM&E purchases and the exemption of custom software. Finally, all local authorities exempt purchases for lease.
