During the 2016 Second Extraordinary Session the Louisiana Legislature approved, and Governor Edwards signed into law, various changes to the state's corporate and individual income tax and sales and use tax laws. This Alert discusses the sales and use tax changes. For a discussion on the corporate and individual income tax changes, see Tax Alert 2016-1204{}.

Sales and use tax changes

Act 3¹ (HB 27) adds criteria necessary to qualify for the further processing exemption, and prohibits "byproducts" from qualifying for the exemption. In order to qualify for the exemption: (1) the raw materials produced must become a recognizable and identifiable component of the end product; (2) the raw materials must be beneficial to the end product; and (3) the raw materials must be materials for further processing and, as such, be purchased for the purpose of inclusion into the end product. Raw materials purchased for processing into a byproduct for sale cannot be deemed to be a sale for further processing and are thus taxable. If the byproduct is sold at retail, and sales and use tax has been paid by the seller on the cost of the base or raw materials, a credit is authorized in an amount equal to the sales tax collected by the seller on the taxable retail side of the byproduct. This law change is intended to clarify the original intent of the prior law and, therefore, will be applied retroactively to all claims for refund after June 23, 2016, the effective date of this Act. The changes will not be applicable to any existing claim for refund filed or assessment of additional taxes due issued prior to the effective date of this Act for any tax period prior to July 1, 2016, which is not barred by prescription.

Act 12² (HB 51) reinstates certain exemptions and exclusions that were repealed during the 2016 First Extraordinary Session. Highlights of exemptions and exclusions reinstated includes isolated and occasional sales, sales of meals made to institutions, blood and tissue products, admissions to certain entertainment events, and butane, propane, or other liquefied petroleum gases for private residential consumption. The exemption for certain medical equipment has also been reinstated. The items listed in this Act are exempt as of July 1, 2016.

Act 6³ (SB 15) requires certain non-profit entities receiving state sales tax exclusions or exemptions to electronically provide an annual report (due September 30th of each year) to the Louisiana Department of Revenue containing (1) the name of the organization; (2) its federal and state tax identification numbers; (3) the annual gross sales of tangible personal property or services that are not subject to the sales and use taxes; (4) any other information the Secretary requires to determine the revenue loss to the state to comply with Tax Exemption Budget reporting. These reporting requirements do not apply to nonprofit entities and their affiliates that are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. This legislation is effective July 1, 2016.

Act 13⁴ (HB 53) addresses state and local sales tax exemptions on sales, services or other transactions related to athletic events in certain facilities. Act 13 is applicable to taxable periods beginning on or after September 1, 2016.

Implications

Taxpayers, especially those taxpayers that were affected by Acts 25 and 26 of the 2016 First Extraordinary Session (see Tax Alert 2016-562{}), should consider whether these provisions result in additional changes to their Louisiana sales and use tax collection and remittance responsibility.

Further, although Act 12 reinstates medical exemptions as of July 1, 2016 on certain medical devices, such as apheresis kits, prosthetics, and ileostomy devices, EY believes there is a potential Louisiana state refund on all medical devices purchased for single patient use. The Louisiana Constitution prohibits prescription drugs from being subject to state sales and use tax, and prescription drugs are broadly defined under Louisiana statute to include "all pharmaceuticals and medical devices" used in the treatment of any medical disease. Thus, a refund opportunity may exist for state sales and use taxes paid on all medical devices from April 1, 2016 forward.

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ENDNOTES

¹ Act 3 was signed by the governor on June 23, 2016.

² Act 12 was signed by the governor on June 28, 2016.

³ Act 6 was signed by the governor on June 28, 2016.

⁴ Act 13 was signed by the governor on June 28, 2016.