The Louisiana Department of Revenue (Department) has issued Revenue Information Bulletin No. 16-034 (July 14, 2016) (RIB) to provide guidance on the sales and use tax treatment of items of tangible personal property (TPP) purchased or leased for use outside of Louisiana. This RIB breaks down the sales tax treatment for TPP purchased for use in federal offshore waters and TPP leased for use outside of Louisiana.

TPP purchased for use in federal offshore waters

La. Rev. Stat. Section 47:305(E) provides that it is not the intention of any taxing authority to levy a tax upon articles of TPP imported into Louisiana, or produced or manufactured in Louisiana, for export. La. Admin. Code Section 61:I.4401(I) provides that specific pieces of property must be clearly labelled for transshipment outside of Louisiana at the time of manufacture or importation into the taxing jurisdiction in order to the meet the requirement of La. Rev. Stat. Section 47:305(E).

Under this RIB, the Department states that the transshipment outside of Louisiana of items clearly labelled for shipment to the offshore area beyond the territorial limits of Louisiana at the time of its purchase are eligible for the interstate commerce exclusion provided by La. Rev. Stat. Section 47:305(E). Items that are stored and awaiting shipment in Louisiana will not be subject to state sales tax if they are clearly labelled for transshipment to a federal offshore area.

TPP leased for use outside of Louisiana

This RIB provides that an item leased for use both in interstate and intrastate commerce may be subject to state sales and lease tax depending upon its usage. If the average operation in intrastate commerce in Louisiana is less than or equal to 10% of the total operational usage of the TPP during a lease payment billing cycle, then the leased property, according to the Department, is being used exclusively in interstate commerce, and no state lease tax will be due. Furthermore, the Department stated that, if a leased item of TPP is used in an offshore area beyond the territorial limits of Louisiana, state sales and lease tax does not apply.

Implications

Under La. Rev. Stat. Section 47:305(E), refund opportunities for taxes paid on offshore purchases are available from April 1, 2016, forward. Although the RIB does not address repairs, it does not appear as though repairs destined for offshore use are exempt, as La. Rev. Stat. Section 47:305(E) only addresses TPP for export.

Louisiana taxpayers should review this RIB, as it provides useful guidance on how invoices should be drafted in order to comply with the applicable interstate commerce exemption from Louisiana sales and lease tax. For example, an invoice issued to the purchaser claiming the exemption should indicate that the item is for use in a federal offshore area and state the federal lease number, area and block number information in the destination area on the invoice. If this information is not available, the invoice should note that the item is being shipped to the purchaser's yard to await shipment to the purchaser's platform in an offshore area beyond the territorial limits of Louisiana. There are additional invoice requirements for when a taxpayer moves its property from a yard in another state to a yard in Louisiana if that property is ultimately destined for use beyond the territorial limits of Louisiana. Finally, taxpayers that lease TPP for use inside and outside Louisiana must carefully track and record the percentage of intrastate and interstate operational use in Louisiana to accurately determine the sales and lease tax consequences and eligibility for the exemption as set forth in the RIB.

———————————————