Louisiana Gov. John Bel Edwards signed legislation during the 2020 Second Extraordinary Session which amended the Enterprise Zone (“EZ”) Program and Quality Jobs (“QJ”) Program,1 and expanded an incentive opportunity for income and franchise tax credits for local ad valorem taxes paid on inventory in the 2020 tax year.2 During the 2020 First Extraordinary Session, Louisiana previously enacted legislation to address state credits and incentives. 3
Extensions for applications for benefits for EZ and QJ participants
Louisiana held a regular legislative session and two extraordinary legislative sessions during 2020. The regular legislative session temporarily adjourned due to the COVID-19 pandemic and was abbreviated as a result. The 2020 First Extraordinary Session, which began immediately after the conclusion of the regular session, was called by the legislature to consider 41 items, including appropriations and various tax issues.4 The 2020 Second Extraordinary Session was called by the legislature and held to focus on: (i) hurricane recovery efforts; (ii) COVID-19 issues; and (iii) the state’s Unemployment Trust Fund.5 Effective October 28, 2020, S.B. 67 was enacted during the 2020 Second Extraordinary Session to provide extensions for job creation requirements for EZ benefits and provide an extension for the rebate filing period for QJ benefits.
Generally, the EZ Program is a job incentive program that provides Louisiana income and franchise tax credits to new or existing businesses located in Louisiana that create permanent net new full-time jobs.6 In order to receive a benefit, an eligible business must either create a minimum of five permanent net new full-time jobs within 24 months of its project start date or increase its current statewide workforce by at least 10% within the first 12 months.7
The QJ Program is a cash rebate to eligible businesses that create high-paying jobs and promote economic development.8 The program offers participating companies two benefits. First, eligible companies may receive a cash rebate of up to 6% of annual gross payroll related to new direct jobs for up to 10 years. Second, an eligible company may elect to take either a state sales and use tax rebate on capital expenditures or a 1.5% project facility expense rebate on the total capital investment, excluding tax exempted items.9 In order to receive QJ benefits, an eligible business with more than 50 employees must create at least 15 new jobs with an aggregate annual payroll of at least $650,000 by the end of its third annual rebate filing period. Businesses with 50 employees or less must create at least five new jobs with an aggregate annual payroll of at least $225,000 by the end of their third annual rebate period. At least 70% of the employees in new jobs must work at least 30 hours a week in order to qualify for benefit.10
S.B. 67 provides existing EZ and QJ contract holders the option to request an additional 12 months to meet their job commitments if they were affected by COVID-19 emergency proclamations, Hurricane Laura, or Hurricane Delta. Eligible businesses must notify the Louisiana Department of Economic Development prior to the contractual original certification date, but no later than December 31, 2021.11
Tax credits for inventory taxes paid
Currently, Louisiana manufacturers, distributors, and retailers earn tax credits for ad valorem taxes paid to local political subdivisions on inventory or natural gas held, used, or consumed in providing natural gas storage services or operating natural gas storage facilities.12 The amount of credit earned each year offsets Louisiana income or corporation franchise tax with the excess credits carried forward for up to a five-year period.13 Under existing law, for a business entity formed or registered to do business in the state prior to April 16, 2016, a business entity whose ad valorem taxes eligible for the credit in the tax year were more than $500,000, but less than or equal to $1 million, is refunded 75% of the excess credit, and the remaining 25% is carried forward for up to five years.14 New business entities formed or first registered to do business in Louisiana after April 15, 2016, whose ad valorem taxes in the tax year were $10,000 or more, but no more than $1 million, are refunded 75% of the excess credit, and the remaining 25% is carried forward for up to five years.15 Regardless of when the business entity was formed, a business entity whose ad valorem taxes eligible for the credit were greater than $1 million is refunded 75% of the first $1 million of excess credit, and the remaining amount is carried forward for up to five years.16
Effective November 5, 2020, S.B. 62 provides an opportunity for eligible entities to claim excess tax credits as a one-time refund for the 2020 tax year, instead of carrying forward the credits for up to five years.17 This refund opportunity is applicable to businesses that meet two qualifying criteria: (i) paid $1 million or less in ad valorem taxes on inventory in the 2020 tax year; and (ii) maintained at least 100 full-time employees at each location in the state for at least one month in each of the first three quarters of 2020.18 The preamble to S.B. 62 states that the legislation is intended “to provide for refunds of the ad valorem taxes paid on inventory for certain taxpayers impacted by the 2020 emergency and disasters.” Presumably, this legislation is designed to provide temporary relief so that certain taxpayers immediately receive a full refund of their ad valorem taxes paid on inventory for the 2020 tax year. However, manufacturers that claimed the ad valorem exemption for a new manufacturing establishment or an addition to an existing manufacturing establishment under Art. VII, Sec. 21(F) of the Louisiana Constitution in the 2020 tax year are not eligible to claim this refund.19
Two other laws enacted during the 2020 Second Extraordinary Session also amend the inventory tax credit provisions. S.B. 52 provides that taxpayers that pay ad valorem taxes for the 2020 tax year that are eligible for this credit but are paid after Dec. 31, 2020, may elect to treat these taxes as having been paid on Dec. 31, 2020, for purposes of this credit.20 However, the payments must be made to the local tax collector by April 15, 2021, and taxpayers making this election may not claim these taxes for a credit for the 2021 tax year.21 Furthermore, effective Jan. 1, 2021, S.B. 1 increases the five-year carryforward periods discussed above to 10 years.22
S.B. 62 as enacted contains two areas that may need clarification. First, the enacting provision currently reads as only taxpayers who paid $1 million or less to all Louisiana political subdivisions are eligible for the refund. Therefore, as drafted, taxpayers that paid over $1 million will not qualify for the refund. Second, the 100-employee requirement would prohibit taxpayers who are part of an affiliated group and utilize a common paymaster for employment purposes.23
Louisiana’s adoption of legislation during both 2020 extraordinary sessions is aimed to support businesses. In the First Extraordinary Session, Louisiana enacted changes and updates to incentive programs including the New Markets Tax Credit,24 Angel Investor Tax Credit,25 sales and use tax credit on fiber-optic equipment,26 and the EZ and QJ programs.27 The additional amendments enacted during the most recent extraordinary legislative session to the EZ and QJ programs provide businesses the flexibility to still apply for program benefits if business operations were impacted by one of the multiple natural disasters that affected Louisiana in 2020. Additionally, the amendment to the ad valorem tax credit provides an opportunity for businesses to access cost savings faster than usual despite the lack of clarity discussed above. Overall, the changes made to these programs show the government’s continued efforts to assist businesses and update certain programs to be more effective in the near future.
1 Act 41 (S.B. 67), Laws 2020, 2nd Extra. Session.
2 Act 50 (S.B. 1), Act 56 (S.B. 52) and Act 59 (S.B. 62), Laws 2020, 2nd Extra. Session.
3 For a discussion of this prior legislation, see GT SALT Alert: “Louisiana enacts credits and incentives changes.”
4 Legislative Proclamation, Louisiana Senate and House of Representatives, May 22, 2020. The 2020 First Extraordinary Session was held from June 1 through June 30, 2020.
5 News Release, Louisiana Senate, Sept. 21, 2020; News Release, Louisiana Senate, Oct. 23, 2020. The 2020 Second Extraordinary Session was held from September 28 through Oct. 23, 2020.
6 LA. REV. STAT. ANN. § 51:1787; LA. ADMIN. CODE tit. 13, § 701. The EZ Program also allows sales and use tax rebates for certain capital expenditures.
7 LA. REV. STAT. ANN. § 51:1787.B(5)(a).
8 LA. REV. STAT. ANN. § 51:2455.
9 LA. ADMIN. CODE tit. 13, §§ 1101; 1103; see LA. REV. STAT. ANN. § 51.1787.
10 LA. REV. STAT. ANN. § 51:2455.E.
11 LA. REV. STAT. ANN. §§ 51:1787.B(5)(f); 51:2455.I.
12 LA. REV. STAT. Ann. § 47:6006.A.
13 LA. REV. STAT. ANN. § 47:6006.B(1), (3).
14 LA. REV. STAT. ANN. § 47:6006.B(1)(b), (3)(a). Taxpayers formed or registered to do business in the state prior to April 16, 2016 whose ad valorem taxes eligible for the credit for the tax year were less than or equal to $500,000 receive a refund of the entire excess credit. LA. REV. STAT. ANN. § 47:6006.B(1)(a), (3)(a).
15 LA. REV. STAT. ANN. § 47:6006.B(1)(3)(c). New business entities formed or registered to do business in the state after April 15, 2016 whose ad valorem taxes in the tax year were less than $10,000 are refunded the entire excess credit. LA. REV. STAT. ANN. § 47:6006.B(1)(3)(b).
16 LA. REV. STAT. ANN. § 47:6006.B(1)(1)(c).
17 LA. REV. STAT. ANN. § 47:6006.H. Note that S.B. 62 added the new subsection as LA. REV. STAT. ANN. § 47:6006.G, but this was codified as LA. REV. STAT. ANN. § 47:6006.H.
18 LA. REV. STAT. ANN. § 47:6006.H(1), (2).
19 LA. REV. STAT. ANN. § 47:6006.C(3)(b), H(3).
20 LA. REV. STAT. ANN. § 47:6006.G.
22 LA. REV. STAT. ANN. § 47:6006.B(1), (3), (4).
23 Under LA. REV. STAT. ANN. § 23:1473.B(1), a common paymaster of a group of related corporations is any member of the group that disburses wages to employees of two or more of these corporations on their behalf and that is responsible for keeping books and records for the payroll for these employees.
24 Act 17 (S.B. 13), Laws 2020, 1st Extra. Session.
25 Act 19 (S.B. 17) and Act 22 (S.B. 24), Laws 2020, 1st Extra. Session.
26 Act 35 (H.B. 69), Laws 2020, 1st Extra. Session.
27 Act 28 (H.B. 13) and Act 29 (H.B. 19), Laws 2020, 1st Extra. Session.
Credits and Incentives Leader, Managing Director, State and Local Tax
Michael Eickhoff has 10 years of experience assisting clients in identifying, negotiating and implementing business incentives. He has held senior positions in government, industry, public accounting and financial advisory firms.
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