Louisiana unveils commercial activity tax
- Apr 19, 2017 | Gail Cole
Creating a stable and predictable state budget is an important part of Louisiana Gov. John Bel Edwards’s 2017 legislative agenda; the governor has labeled the existing tax system “broken” and “outdated.” Among other changes, his agenda calls for lowering the sales tax rate and taxing more services. It seeks to lower corporate and individual income tax rates and eliminate corporate and individual federal income tax deductions. The governor is also proposing a new commercial activity tax (CAT).
According to a press release issued by Gov. Bell, “more than 90 percent of individual income tax filers will see a tax cut [under his plan], and the 80 percent of corporate income tax filers who paid nothing in 2015 will start to do their part for doing business in Louisiana.” Instead of taxing each transaction, like a sales tax, commercial activity taxes tax the privilege of doing business in a state. In Ohio, for example, businesses with taxable gross receipts of $150,000 or more per calendar year in Ohio are required to register for the commercial activity tax, which also applies to out-of-state businesses that have “enough business contacts with the state.”
Details of Louisiana’s proposed CAT were recently revealed in House Bill 628, which proposes to levy an annual CAT for taxable years beginning January 1, 2018. The rate of tax would be based on the amount of gross receipts a business has from all sources in Louisiana. For example:
- $250 when gross receipts are between $150,000 and $500,000
- $500 when gross receipts are greater than $500,000 but no more than $1 million
- $750 when gross receipts are greater than $1 million but no more than $1,500,000
Different rates and rules would apply to entities that are treated and taxed as corporations for federal income tax purposes. Additionally, certain entities, including nonprofit organizations and those with less than $150,000 in gross receipts, would be exempt from the CAT.
Ohio’s commercial activity tax was challenged by three businesses that lack a physical presence in Ohio but are required to collect and remit it. Late last year, the Ohio Supreme Court ruled that a physical presence is not a necessary condition for imposing the Ohio commercial activity tax.
The Louisiana measure does not specifically address out-of-state companies lacking a physical presence in the state. However, an earlier summary of the tax described it as applying to “most businesses, including retail,” that do business and earn taxable gross receipts in the state. For sales and use tax, doing business can include establishing and maintaining a market in Louisiana through relationships with affiliates or referrals from website links (Louisiana internet sales tax starts April 2016). The state’s use tax notification requirement for noncollecting remote vendors takes effect July 1, 2017.
Introduced on April 17, HB 628 has been referred to the Committee on Ways and Means. To pass, it will need approval by two-thirds of the Louisiana Legislature.
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