The Governor issued this Order one day after the 2016 Second Special Session adjourned, during which the Legislature also passed Senate Bill 10 ("SB10"), which will have substantial impact to companies taking advantage of the ITEP. SB10 was executed by Governor Edwards as Act 5 on June 28, 2016.
The Act converts the inventory tax credit—a credit that companies can take on their state corporate income or franchise tax returns for amounts they paid in local ad valorem taxes levied on their inventory—into a non-refundable credit. Specifically, Act 5 states that manufacturers who take advantage of the inventory tax credit in the same taxable year in which they also receive the benefit of the ITEP may not receive a refund of inventory tax credits that exceed the amount of tax liability due that year. Instead, these companies must carry forward all excess amounts of the credit for no more than five years. The Act further provides that the limitation on the refundability of the credit extends to the manufacturer's "related parties, affiliates, subsidiaries, parent companies or owners of the manufacturer for the inventory held that is related to the business of such manufacturer." It authorizes the Secretary of Revenue to promulgate rules "to ensure that taxpayers affiliated with or related to any other entity through common ownership by the same interest or as a parent or subsidiary shall be considered to be one taxpayer for purposes of the limitation on refundability." Furthermore, the Act does not define the term "related" for purposes of what inventory may be subject to this reduction when held off-site by an affiliate, subsidiary, or parent company. The Act will take effect immediately and shall apply to all returns filed on or after July 1, 2016, regardless of the taxable year the return relates to.
During the special session, the Louisiana Department of Revenue reported to the Legislature on a study it made of tax returns filed for fiscal year 2014 in which it compared companies taking the inventory tax credit on their state returns with a list of companies utilizing the ITEP. The Department reported that companies getting the benefit of the ITEP also took $86 million of inventory tax credits that year—$14 million was used to offset tax liabilities, while the remaining $72 million was excess credit available for refund to the companies.
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