June 24, 2013
Posted by on
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.