Act 26: The Clean Penny Act
As a result of the recently concluded special legislative session, the Louisiana state sales and use tax rate on sales and leases of tangible personal property and sales of certain services will increase by 1% − from 4% to 5% − for the 27-month period of April 1, 2016, through June 30, 2018. A new provision lists 65 items that are exempt or excluded from the 1% additional tax, including food for home consumption; prescription drugs; and gasoline, other motor fuels, and materials for further processing. Act 26 is often referred to as the “Clean Penny” act.
Act 25: The Cleaned Pennies Act
Act 25 eliminates most of the exemptions and exclusions from the 4% sales tax effective from April 1 through July 1, 2016. The tax drops to 2% on existing sales from July 2, 2016, through July 1, 2018 – effectively sunsetting the exemptions and exclusions as of that date. Act 25 is often referred to as the “Cleaned Pennies” act.
You can find a full list of all of the eliminated exclusions and exemptions here. Of note, on this list are the following transactions that will now be subject to tax − occasional sales, machinery and equipment for manufacturers, custom software, sales of other permanent structures (immovables), and sales for lease (meaning a tax will be imposed on the purchase of the equipment by the lessor and again on the subsequent lease to the lessee).
It should be noted, however, that the transactions that are exempt from the 1% additional tax (the Clean Penny) do not completely match the transactions that are exempt from the current 4% tax (the Cleaned Pennies).
Industry-specific Considerations
Contractors should take note that professional organizations weighing in believe that the increase in the sales tax rates should not affect current construction projects pursuant to Louisiana Revised Statute §47:305.11. That statute states that no new sales or use taxes can apply to sales of materials or services involved in lump sum contracts or unit pricing construction contracts entered into and reduced to writing prior to the effective date of the statute (in this case, April 1, 2016). New sales or use taxes also cannot apply to sales or services involved in such contracts entered into and reduced to writing within 90 days of the effective date of the statute, if such contracts involve contractual obligations undertaken prior to the effective date and were computed and bid on the basis of the sales tax rates existing before the effective date. However, to date, the Department of Revenue has not stated whether it would adhere to this statute.
As for offshore transactions, there are potential changes that may impact the taxability of these transactions. People conducting business related to these transactions should contact their tax advisor for additional information.
For More Information
In an effort to help explain the changes the Louisiana Department of Revenue has issued a Revenue Information Bulletin (RIB), which discusses the statutes in detail and provides a list of exemptions and exclusions that will continue to be operative and in effect. Certain tax exemptions and exclusions not listed in the Act will be subject to respective sales tax rates levied under each statute (2% pursuant to LA R.S. § 47:302; 1% pursuant to LA R.S. §47:321; and 0.97% pursuant to LA R.S. § 47:331). You can find a redacted version of the list of transactions LaPorte finds pertinent here (last updated 3/30/2016), and the full list can be accessed here. Once on the Publications page, click the link for R-1002A for the most recent version of this publication.
Fluid Legislative Landscape
Information regarding the new legislation continues to change, as does the guidance released by the Louisiana Department of Revenue. As a result, LaPorte will continue to monitor the information as it is released and carefully consider the implications and relevance to taxpayers. We strongly advise all taxpayers to contact their advisors with any questions they may have regarding the latest legislation, taking into consideration this rapidly changing landscape.