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July 9, 2018
2018-1361

Louisiana law clarifies applicability of temporary limit on corporate income tax exclusions and deductions

On June 12, 2018, Governor John Bel Edwards signed into law HB 13 (Act 4, 2018 Second Extraordinary Session), which clarifies the applicability of limits on corporate income tax exclusions and deductions enacted in 2015 (Act 123, Laws 2015). Effective July 1, 2015 through June 30, 2018, Act 123 limits the amount of certain deductions and exclusions corporate income taxpayers can exclude or deduct to 72% of their taxable income (from 100%), including deductions for dividends received, among other items. Effective July 1, 2018, these limitations expire and the full 100% exclusion and deduction for all of these items is reinstated. Act 4 makes clear that this limit applies to tax years beginning during calendar years 2015, 2016 and 2017, regardless of the date on which the original or any amended return for these periods is filed.

Act 4 further provides that any portion of an exclusion or deduction disallowed under the Act 123 limitation on a return filed on or after July 1, 2015, cannot be claimed or allowed as an exclusion or deduction under the law that will be in effect on and after July 1, 2018, on an amended return for the same tax period filed on or after July 1, 2018. Based on Act 4, it is clear that the Louisiana dividends received deduction limitation of 72% will apply to amounts deemed received under the commonly known "transition tax" applicable to post-1986 earnings and profits of foreign subsidiaries enacted under the Tax Cuts and Jobs Act (P.L. 115-97) (TCJA) and codified at IRC Section 965(a) (including the corresponding deduction set forth in IRC Section 965(c)) for returns filed for the 2017 year, regardless of when those returns are filed. From the two page text of Act 4, however, it is unclear whether Louisiana corporate taxpayers subject to the federal transaction tax will be able to elect the eight-year installment payment election available under IRC Section 965(h) for Louisiana corporate income tax purposes.

These changes took effect upon becoming law.

Implications

For tax years beginning in calendar year 2018, taxpayers generally will be allowed to claim the full amount of the exclusions and deductions limited by Act 123 (except for the limit on net operating losses, which was made permanent in 2016).

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Contact Information
For additional information concerning this Alert, please contact:
 
State and Local Taxation Group
• Chip Hines(504) 592-4725;
 

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