Senate Bill 6 (SB 6) of the 2016 Louisiana Second Extraordinary Session, if enacted, would change the refundable treatment of inventory tax credits, effective for any return filed on or after July 1, 2016,. The provisions of SB 6 would not apply to amended returns for original returns filed before July 1, 2016, upon which the credits were properly claimed. SB 6 would create three categories of taxpayers based on the amount of credits claimed and require that all taxpayers included in one consolidated federal income tax return be treated as a single taxpayer for purposes of determining the inventory tax credit limitation. SB 6 is expected to be signed by the Governor.

The three categories of taxpayers SB 6 would create and how they would be treated under the new legislation are as follows:

1. Taxpayers with eligible credit of zero to $500,000 would be refunded the entire amount of the excess credit

2. Taxpayers with eligible credit more than $500,000 but less than or equal to $1 million will be refunded 75% of the excess credit and the remaining 25% will be carried forward for five years

3. Taxpayers with eligible credit of more than $1 million will be refunded 75% of the first $1 million of excess credit and the remaining amount of the credit will be carried forward for five years.¹

SB 6 would allow a taxpayer to claim the credit on its separately filed income or corporate franchise tax return but limits the application of the refundability by treating all taxpayers included in one consolidated federal income tax return as a single taxpayer when determining the credit limitation. The Secretary of the Louisiana Department of Revenue must promulgate rules to ensure that taxpayers affiliated with or related to any other entity through common ownership by the same interests or as parent or subsidiary will be considered one taxpayer for the purpose of the limitations on refunds provided in SB 6.

In addition to SB 6, Senate Bill 10 (SB 10) would prohibit certain manufacturers, and all related parties, affiliates, subsidiaries, parent companies, or owners of such manufacturers that claim the industrial property tax exemption from claiming a refund of the inventory tax credit in the same year. SB 10 would not apply to amended returns for original returns filed before July 1, 2016, upon which the credits were properly claimed. SB 10 is expected to be signed by the Governor.

Implications

Taxpayers with inventory tax credits greater than $1 million and manufacturers should consider filing their Louisiana income tax returns before July 1, 2016, in order to be subject to current law that allows for a refund of the credits equal to 75% of all of the excess credit (as opposed to the first $1 million under the new law). Additional Tax Alerts addressing the remainder of the 2016 Louisiana Second Extraordinary Session are forthcoming.

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ENDNOTES

¹ New business entities formed or first registered to do business in Louisiana after April 15, 2016, will not be subject to these rules. For these businesses whose inventory taxes paid amounted to less than $10,000, all of the excess credit will be refunded. For these businesses whose inventory taxes paid amounted to $10,000 or more, but no more than $1 million , shall be refunded 75% of the excess credit and the remaining 25% of the credit shall be carried forward as a credit against subsequent tax liability for a period not to exceed five years.