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Federal and Louisiana Taxes

Category Archives: Louisiana Local Sales Taxes

Orleans Parish Sales Tax Amnesty

Until September 3, 2019, Orleans Parish will entertain applications for tax amnesty on sales tax, parking tax, and occupancy tax, also know as the hotel motel tax. If approved, taxpayers will receive a full penalty and 1/2 interest waiver.  Do not delay!  If you are waiting for audit adjustments before agreeing to pay tax liabilities and half of the interest, you must work quickly to get your audit revisions made in time enough to file your application.  https://www.nola.gov/amnesty-late-fee-forgiveness-program/

Property tax (ad valorem) is not available for amnesty.

Louisiana Sales and Use Tax Consultation

Are You Over or Under Paying?

Louisiana derives 1/3 of its tax revenue from its 4% sales and use tax alone.  Estimates show that an equal amount of tax is avoided through 192 exemptions or exclusions to sales and use tax.  Since the combined state and local rate averages 10%, it is clear that the money involved in sales and use tax can be staggering.   Despite the significant amount of money involved, we find that many of our clients are unable to access sales and use tax expertise to gain affordable advice.  The result is either a surprise hefty tax bill or unclaimed refunds.  Our BSW SALT Team can help.

WHICH BUSINESSES SHOULD CONSIDER A SALES AND USE TAX CONSULTATION?

As a quick test, any business that cannot afford to waste money equal to 10% of expenses or 10% of sales, needs a consultation.  The need for a consultation exists with any business scheduled for a sales and use tax audit.

Businesses selling or leasing tangible personal property (think movable property) must collect the correct sales tax for the correct jurisdiction or else it can be made to pay its customer’s tax out of pocket as a penalty.  Conversely, the same business often enjoys exemptions and exclusions on its own purchases, such as those for raw materials, manufacturing equipment, and purchases for resale.

Business engaged in one of the seven taxable services or leasing movable property must also carefully watch its transactions with customers and venders.  These services can be complicated, but are generally summarized as: rooms for lodging, parking, cold storage, amusements, printing, repair to movables, and laundry.

Businesses selling immovable property, usually contractors, rarely collect any sales tax but must be hyper vigilant in paying sales and use taxes on its purchases to the correct jurisdiction.  Contractors with multi-parish jobsites operating from a centralized storage facility are a particular favorite of local tax auditors these days.

Any business in the following particular industries often receive significant benefit from a consultation:

  1. Healthcare
  2. Nonprofits
  3. Construction
  4. Fabrication
  5. Manufacturing or Farming
  6. Repair services
  7. Any entity with gross sales or expenses over $1M

WHAT ARE THE DELIVERABLES? 

A sales and use tax consultation will deliver training specific to your business based upon its historical transactions and provide peace of mind that your sales and use tax practices are up to snuff.  Some clients have sales personnel join in the consultation along with their payables clerk for greater accuracy in project cost and sales price estimates.

Through sampling methods and then drilling down to individual transactions, Mrs. Gould can identify audit risks, possible exemptions, overpayments, or reporting errors.  Mrs. Gould will provide recommendations at the conclusion of the consultation which may warrant a full reverse audit.  If you are entitled to a refund, you are free to handle it yourself or retain Mrs. Gould and our BSW SALT Team at an hourly or contingency fee for recovery.

WHAT IS THE PROCESS?

The consultation fee is equal to 0.2% of your 3-year IRS Form 1040 gross sales average.  Mrs. Gould will review your basic financial statements, tax returns and the nature of your business before conducting an onsite visit to review specific transactions.  During the onsite visit, valuable sales and use tax training occurs as part of her transaction investigation with your payables clerk.  At the conclusion of the visit, Mrs. Gould will deliver a confidential written report identifying areas of reporting error and potential exemptions and overpayments that may generate a refund or future tax savings.  Every consultation has delivered bottom-line results that have surprised our clients.

La. Supreme Court Protects Taxpayers From Creeping Rental Taxes

“La. Supreme Court Protects Taxpayers From Creeping Rental Taxes”

Breazeale, Sachse & Wilson successfully defended its client, Pot –O-Gold, from the imposition of taxes on services offered in conjunction with the rental of tangible personal property. Pot-O-Gold Rentals, LLC v. City of Baton Rouge, 2014-CA-2154, (La.1/16,/15).

Pot-O-Gold leases various waste collection equipment, in this case, portable toilets and holding tanks. Pot-O-Gold also offers waste removal and equipment cleaning services, which are entirely optional for its rental customers.  For those options which are chosen, a separate charge for the service is made by Pot-O-Gold. Waste removal and cleaning services are not listed among the services subject to tax. La. R.S. 47:301(14).

Louisiana, and its parishes, levy sales tax upon the “gross proceeds” of rentals of tangible personal property. R.S. 47:302B.  The tax laws do not define the phrase “gross proceeds.” In this case the City of Baton Rouge interpreted it to include the amounts charged for the separately stated services and issued an assessment for additional taxes. Pot-O-Gold paid the taxes under protest and filed suit to recover the protested amounts.

The Firm filed a motion for summary judgment which was granted by the trial court. The court found that because the nontaxable services were independent and optional, they did not become part of the taxable “gross proceeds” simply because the services were rendered by the owner of the rental.

The City appealed and the First Circuit reversed with 2 judges dissenting. Pot-O-Gold Rentals, LLC v. City of Baton Rouge, 2013-1323 (La. App. 1 Cir. 9/17/14) (La. Ct. App. Sept. 17, 2014) writ granted, judgment rev’d sub nom. Pot-O-Gold Rentals, L.L.C. v. City of Baton Rouge, 2014-2154 (La. 1/16/15). The appellate court found that while the “true object” of the rental was the rental of the tangible personal property the  “Money collected for ordinarily nontaxable cleaning and sanitation services became taxable gross proceeds of the lease by virtue of the inexorably intertwined relationship between the services and the leased property.” The appellate court went on to state “ It is of no import whether the services were optional for lessees, whether the services could be purchased from another party, whether the services could be rejected, or whether the services could be purchased independently from the plaintiff by others.”

The Firm filed a writ application with the Supreme Court. The Court not only granted Pot-O-Gold’s writ application, but also simultaneously reversed the appellate court’s decision. In so doing, the Court adopted the dissenting judges’ reasoning that “that to hold that providing cleaning services for portable toilets is not a taxable event if the toilet is owned by someone else, but is a taxable service if the toilet is owned by the lessor, creates an absurd result.” The Court also found  “that the “true object” of the transactions is, in the least, debatable, requiring the court to adopt the interpretation urged by the applicant as the least onerous to the taxpayer.”

A rental company which collected taxes on separately stated, optional services may want to notify its customers as to possible refund opportunities.  A rental company currently collecting taxes on such services may want to reconsider its policy.

If you have questions about your sales tax liabilities or duty to collect, do not hesitate to call a member of our SALT Team.

Tax Collector Without a Triable Issue of Fact Ordered to Pay Taxpayer’s Litigation Bill

gavel moneyIn Lucent Techs. Inc. v. State Bd. of Equalization, Cal. Super. Ct., No. BC402036, (4/21/14) the tax collector was ordered to reimburse AT&T, Inc. and Lucent Technologies for $2.6 million in attorney’s fees incurred pursuing a sales tax refund.  The refund claim involved sales taxes on Lucent software for AT&T switches, which was essentially declared exempt in another California case.  Although the tax collector asserted that it was not bound by court decisions in its interpretation of tax, the court stated it was without a triable issue of fact in defense of paying the refund.  Additionally, the court stated it would be poor policy to cause taxpayers to foot the litigation bill alone in the face of clear precedent against the tax collector’s position.  This decision tells the tax collector that s/he may suffer the taxpayer’s consequences if it wishes to further test the waters on a tax issue.

While Louisiana local sales tax laws have only recently included a taxpayer’s right for prevailing party fees, Louisiana taxpayers are already making recoveries from tax collector’s without a substantially justified position.

Taxpayer’s Right to Claim Refund Held Open By Collector’s Suit

Ordinarily, claims for additional taxes or for a refund of taxes paid prescribe within 3 years from the year in which the taxes were due. It is not uncommon, however, for tax collectors and taxpayers to agree, during the course of an audit, to suspend the running of prescription as to potential claims by both parties in order to give them additional time within which to resolve their differences. In a matter handled by our State and Local Tax (SALT) group, the Louisiana Board of Tax Appeals was called upon to review an agreement to suspend prescription and has now rendered a decision which may be of benefit to any taxpayer currently litigating its tax liability.

The taxpayer was audited for corporate income taxes for numerous years. During the audit, the parties executed several of the Department’s stock agreement to suspend the running of prescription. The first agreement was executed in the year the first audit period would have prescribed. Subsequent agreements would include the years included in the prior agreements and any year about to prescribe.

Under the terms of the agreement prescription was suspended as to the claims of both parties until December 31 of the year after the year of execution. The last agreement extended the period of suspension until December 31, 2008. In December of 2008, the Department filed suit against the taxpayer for additional taxes.

While preparing for trial, the taxpayer discovered that its gain on the sale of an asset had been overstated. Under Louisiana law this overpayment could not be raised as a defense in the Department’s suit against the taxpayer. Rather, the only way the overpayment could be recovered was by filing a refund claim. After the trial court’s decision (which abated the assessment) but before it became final, the taxpayer filed its claim with the Department.

The Department failed to act on the claim within a year of its filing, so the taxpayer filed suit at the BTA asking that the Department be ordered to refund the amount claimed. The Department filed an exception of prescription. It was the Department’s position that, under the terms of the agreement, the taxpayer’s claim had to be filed no later than December 31st of 2008. Since the claim wasn’t filed until 2012 it was, according to the Department, untimely. The BTA disagreed.

Ordinarily, the filing of suit by the Department against a taxpayer does not extend the time within which a claim for refund must be filed., The BTA found, however, that under the agreement, the taxpayer agreed to never plead prescription if suit was filed prior to December 31, 2008 and the Department agreed that the period of prescription for claiming a refund was “extended in accordance with the terms of the agreement.” The BTA ruled that what was good for the goose was good for the gander and since the filing of the Department’s suit had interrupted prescription as to its right to seek additional taxes, so too did it interrupt prescription as to the taxpayer’s refund claim.

One can expect the Department to try and effectively overrule this decision by rewriting the agreement to make it more one sided in the goose’s favor. Until then, a taxpayer who is defending a suit filed by a tax collector may have an unexpected opportunity for a refund.

If you have questions please contact one of our attorneys in the Breazeale, Sachse & Wilson, L.L.P. state and local tax controversy team.

Filing A Sales Tax Refund Does Not Interrupt Prescription For Unpaid Taxes

The right to collect unpaid taxes prescribes on December 31, three years from the year the tax was due. La. Const. art. VII, sec. 16. Likewise a taxpayer’s right to claim a refund for taxes paid expires on December 31 three years from the year the taxes were remitted. R.S. 47:337.79. For example, both the right to collect, or obtain a refund of, 2009 sales taxes would prescribe December 31, 2012.

 

The filing of a refund claim before the December 31 prescriptive date, interrupts the running of prescription as to the refund. The Louisiana Third Circuit held the filing of the claim did not, however, interrupt or suspend prescription for the purposes of collecting unpaid taxes. Cajun Industries, LLC v. Vermilion Parish School Board, Court of Appeal of Louisiana, Third Circuit, No. 14-22, May 14, 2014.

 

In Cajun, the taxpayer filed a refund claim for sales taxes in December 2010 for the tax periods 2007, 2009 and 2010. It filed second refund claim in 2011 for the tax periods 2010 – 2011. The collector denied most of the refund claim and the taxpayer appealed the denial in district court in May 2013.

 

In response to the taxpayer’s suit, the collector asserted that it had the right to offset any unpaid taxes against the refund and asked that it be allowed to audit the taxpayer to see if, in fact, there were any unpaid taxes for the years 2007 – 2011. The Third Circuit affirmed the trial court’s ruling that the taxpayer’s refund claim did not interrupt the running of prescription as to the collector’s right to collect taxes. The filing of a suit did, however, interrupt the running of such prescription pursuant to R.S.47:337.67. Accordingly at the time the suit was filed May 2013, any right to collect unpaid taxes for the years 2007, 2008 and 2009 had already prescribed while the 2010 and 2011 tax periods were still open.

 

While this holding will affect taxpayers with pending refund claims, its effect may be short lived since there is a bill pending in the Legislature, which would amend the law such that the filing of a refund claim would suspend the running of prescription. See H.B. 863, pg. 11. H.B. 863 is scheduled for floor debate on May 21, 2014.

Sell a Business and Did Not Get La. Capital Gains Tax Exemption?

If you paid Louisiana individual income tax as a resident or nonresident on the capital gain on the sale of an equity interest in or substantially all of the assets of a pass-through entity (nonpublicly traded corporation, partnership, LLC, or other business entity type), you may qualify for a tax refund.

In 2009, in an effort to stimulate Louisiana business activities, the Louisiana Legislature passed Act 106, effective January 1, 2010, which granted an exemption from individual income tax for the net capital gain on sale of an equity interest or substantially all of the assets of a pass through entity. The exemption is limited to those business entities having a Louisiana commercial domicile. There are several factors considered in determining the commercial domicile, but it can be generally described as the location from which the business is directed or managed. For Louisiana income tax year 2012, $55,004,383 was claimed in tax savings under this exemption.

A similar exemption has been recently struck down in another state because it was found to violate the US Constitution and the court granted the exemption to those taxpayers previously excluded based on the location of commercial domicile.
The Louisiana exemption could also be unconstitutional such that anyone who was precluded from claiming the exemption because the business had a non-Louisiana commercial domicile would be entitled to a refund. Of course to get this refund the statute would have to be challenged in court, which has not yet been done to our knowledge. If you questions about this potential refund, please contact Nicole Gould, one of our attorneys in the Breazeale Sachse & Wilson LLP state and local tax controversy team.

Louisiana to Repeal Income Tax? LDR Tax Facts January 2013 Building A Case For It.

http://taxtopics.revenue.louisiana.gov/2013/01/17/know-the-facts-sales-taxes-income-taxes/

Know the Facts: Sales Taxes & Income Taxes

January 17, 2013 at 10:59 am · Filed under LDR News Release · Tagged , , , , ,

BATON ROUGE – With news outlets continuing to report on the Governor’s goal of eliminating personal and corporate income taxes, some comparisons have been made between the sales tax and the income tax, and what it means for individuals and the state. Here are some facts and figures to keep in mind: 

1. Sales tax is a MORE STABLE form of revenue compared to the personal income tax. According to the Louisiana Revenue Estimating Conference (REC) and the Louisiana Department of Revenue (LDR), sales tax collections have historically been MORE STABLE than personal income tax collections.  (REC Historical Data; LDR Annual Reports). Additionally, according to R. Alison Felix, who authored “The Growth and Volatility of State Tax Revenue Sources in the Tenth District,” state sales taxes have proven to be a more stable source of revenue for year-to-year budgetary expenditures.”

2. Over a 30-year period, the nonpartisan Tax Foundation used 26 different economic studies to determine sales taxes were MORE BENEFICIAL for economic growth than both personal and corporate income tax. (Tax Foundation Special Report No. 207 December 18, 2012)

3. Eliminating personal income tax will create a business climate that encourages MORE BUSINESS INVESTMENT and MORE JOBS. According to the nonpartisan Tax Policy Center, America’s economy would steadily grow by “0.6 percent larger than otherwise after two years; 1.8 percent larger after ten years; and 3.6 percent larger in the very long run” if the nation switched to a tax system that relied on sales tax, not income tax. (Tax Policy Center)

4. Sales tax grows with the economy. When compared to other sources of revenue, sales tax is relatively stable during economic downturns resulting in more revenue as the need arises.

5. Governor Jindal’s proposal will KEEP the Constitutional protections for the exemptions of food for home consumption, prescription medicine, and residential utilities. These exemptions result in the average individual or family with income under $30,000 per year having almost half of their annual purchases exempt from state sales tax. These progressive provisions lessen the impact of the sales tax on lower income individuals and families.

6. In order to offset unfair impacts to low income groups, Governor Jindal’s proposal will set aside funding to operate an Earned Income Tax Credit or a similar mechanism.

Top Ten SALT Blunders

SALT

1)      Certified Mail Handling – No Protocol’s Whatsoever.  Why should our client’s be concerned?

a)      Notice of Assessment is to last address used by taxpayer on last report filed, or if no report ever filed, any address Collector can find by private entity free of charge. La. R.S. 47:1565 and 337.51.  (LDR 60 Day Letter” or “Local 30 Day Letter”).  b)      Jeopardy Assessment Notices must be sent within 2 days of assessment.  Note: distraint is allowed with the assessment. La. R.S. 47:337.53 and  1566.  c)      Ad valorem tax sale can occur 20 days after delinquency notice.  d)      Local refund request denial triggers the 30-day period to request internal appeal, 90-day period to appeal in district court.  La. R.S. 47:337.81.  e)      Notice of Tobacco Stamp liability begins tolling the 10-day deadline before Collector proceeds against Dealer’s bond.  La. R.S. 47:843.  f)       Notice of individual income tax refund seized for benefit another agency provides a 45-day contest period.  La. R.S. 47:299.9.  g)      Notice of property distrained (seized) by local sales tax collector guarantees only 15-day period to act before property is sold.  La.R.S. 47:337.58.

2)      Not Opening Your Mail From Your Friendly Tax Collector

a)      Audit Requests:  i)        Jeopardy Assessment – Collector can estimate tax and without notice begin distraint. La. 47.337.53 and 1566.  ii)      Collector can estimate by any means.  See certified mail handling protocol’s. La. 47:337.48 and 1562.

b)      Refund Request Denial by LDR– have 60 days from notice, or must wait for one year after filing refund request if LDR fails to respond, to appeal in BTA . La. R.S. 47:1625. But see TIN, Inc. v. Washington Parish Sheriff’s Office, 2012-0156 (La. App. 1st. Cir., 7/2/12).

c)      Notice of ad valorem tax sale and redemption period.  La. R.S. 47:2156.

3)      3. Allowing Assessment Finality

a)      Assessment is unreviewable.  b)      Officer’s Liability  La. 47:1561.1.  c)      Cease and Desist Order.  d)      The Lovely People of DCS.  e)      10% Attorney’s Fee for Court Proceeding.  f)       Criminal Liability for sales taxes per La. R.S. 47:337.82 and 83 for any person required to collect, account for, or pay over or for any person who willfully fails to file or files a fraudulent return.  g)      Suspended licenses for individual income taxes, excluding P&I and other charges, in excess of $500 (hunting and fishing) or if in excess of  $1,000 (driver’s).

4)      Not Minding Your P’s and Q’s…. And Your Calendar

a)      Jeopardy assessment is appealable for only 60 days from payment or posting bond.  La. 47:337.53 and  47:1566.  b)      Local collector internal hearing request regarding proposed assessment is allowed within 15 days, if no return was filed, within 30 days if a return was filed. La. 47.337.49 .  c)      LDR internal hearing request valid for 30 days from notice of proposed tax due.  La.R.S. 47:1563.  d)      Local collector’s notice of final assessment provides only 30 days to pay under protest and file suit in district court, request mandatory arbitration, or appeal to district court. La. 47.337.51.  e)      LDR notice of final assessment demarks 60-day deadline to appeal to the BTA or pay under protest and file suit in district court.  f)       December 31 marks another year prescribed from collection, arguably.  See Elevating Boats, Inc. v. St. Bernard Parish, 2000-3518 (La. 9/5/01), 795 So.2d 1153.  g)      Refund must be requested before December 31, 3 years from the year the tax was due or within 1 year from payment if later.  La. R.S. 47:1623.

5)      Never Getting a Checkup

a)      Reverse audits:  i)        Paying sales tax on exempt transactions.  ii)      Changes in law such as the CIFT apportionment percentages.

b)      Having business processes reviewed by a CPA or tax attorney.

c)      Multistate businesses should consult with a multistate tax planner.

6)      Being Too ______ During Audit

a)      Too Friendly:  i)        Having auditor among office operations.  ii)      Having the auditor hear all office discussions.  iii)    Permitting auditor too much access.  iv)    Gifts that are prohibited under state ethics laws.

b)      Too Antagonistic:  i)        Putting the auditor in cold storage with a folding table and chair without any bathrooms.  ii)      No heat/air conditioning.  iii)    Delay providing documents and reports until the last day of the audit.

c)      What to do:  i)        Locate auditor and documents at the lawyer’s or CPA’s office, or conference room away from office functions.  Office Pod?  ii)      If from out of town, provide auditor with a list of recommended restaurants and hotels.  iii)    Provide digital copies of documents requested so work can be done at his/her office.  iv)    Treat them like your mother-in-law.  Never disrespect, and give basic courtesies.

7)       Sourcing Transactions

a)      Sales Taxes, Volume of Business Factor and Sales Factor.  b)      Mileage factor allocation for interstate transportation taxpayers.  La. 47:337.20.1 and 306.1.  c)      Use tax relies upon the “taxable moment” which is generally described as where the property has come to rest, or where it was delivered.  Word of Life Christian Center v. West, 2004-1484 (La., 4/17/06),936 So.2d 1226.

8)      Making Sales Tax Collections a Business Loan

a)      Penalty for absorbing sales tax can become criminal misdemeanor punishable by not more than $2,000 fine or parish jail for up to 2 years. La. R.S. 47:337.18 and 1641.  b)      See consequences of allowing an assessment to become final.

9)      Lumping Fees on the Receipt

a)      Including nontaxable transactions with taxable transactions on one receipt item such as delivery, labor, and operator rentals.

10)  Not Trying to Fix the Problems

a)      Secretary’s discretion to abate final assessment if made upon mistake of fact.

b)      Installment plan.

c)      Request refund:  i)        Only 3 years unless prescription waivers.  ii)      Appeal refund denial with district court or BTA.

d)      Pay under protest and file suit.

e)      Appeal LDR assessment to BTA.

f)       Request mandatory arbitration with local collector.

g)      Appeal AVT assessments with La. Tax Commission.

Tax Collector's Attorney's Fee in Excess of Statutory 10% of Tax, Interest, and Penalty?

Nicole F. Gould, M.B.A., J.D.
State and Local Tax Controversy

Of Counsel—Baton Rouge
Phone:
225.381.3165 nicole.gould@bswllp.com

In Livingston Parish School Board, Through its Sales and Use Tax Division v. Highway 43, LLC, et al, 2012-0103 (La. App. 1st Cir., 5/23/2012) the Louisiana First Circuit Court of Appeal has suggested in dicta that the tax collector’s cause of action for reimbursement of attorney’s fees may be in excess of 10% of the tax, penalty and interest.  La. R.S. 47.337.13.1 provides for the tax collector’s reimbursement of attorney’s fees for any collection action of final and due sales taxes in the amount of 10% of the tax, interest and panalty; however, the fees are to be reviewed for reasonableness.  The Louisiana First Circuit Court of Appeal stated that,

“We believe that the attorney fees can be higher or lower than ten percent if that would be reasonable in the instant case.”

However, this is only dicta.  The appellate court made judgment on other issues we are all well-versed in:  the local sales tax collector may proceed in district court for an injuction against the taxpayer’s pursuit of business when the taxes assessed are “due and final”, that any assessed taxes not appealled become “due and final”, and the taxpayer’s failure to file any defense prior to hearing is a bar to asserting any defenses at the hearing.  To read the full opinion, click here:  http://www.la-fcca.org/opiniongrid/opinionpdf/2012%20CA%200103%20Decision%20Appeal.pdf