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Business advocate calls for reimbursing taxpayers for unconstitutional collections

December 13, 2018
By David Jacobs
Originally Posted on Louisiana Watchdog

The head of Louisiana’s most prominent business lobby said at least some Democratic and Republican lawmakers want to reimburse business owners taxed twice on out-of-state income.

“I have absolutely heard from legislators from both parties that they expect a fix to happen in the next legislative session,” said Stephen Waguespack, president and CEO of the Louisiana Association of Business and Industry. “We will be working hard to make that happen.”

The issue stems from a 2015 law the state Supreme Court recently ruled unconstitutional, though changes made this year may not have fixed the constitutional problem.

Louisiana offers a credit for income taxes paid in other states. Act 109, passed in 2015, made the credit only available for income taxes paid to a state that offers a reciprocal credit to the state’s own residents who do business in Louisiana.

Texas does not offer a reciprocal credit. When two Louisiana taxpayers requested a tax credit for $23,180 in taxes on business income earned in Texas, they were denied.

The taxpayers paid the taxes under protest and sued Kimberly Robinson, secretary of the Louisiana Department of Revenue, arguing Act 109 violates the Commerce Clause of the U.S. Constitution by subjecting them to double taxation on interstate income. The district court and the state Supreme Court both sided with the taxpayers.

Waguespack says the law affected owners of S corporations and limited liability companies who are “Louisiana homegrown businesses of all sizes.” He said LABI and State Sen. Barrow Peacock, R-Bossier City, warned against passing the 2015 law.

This year, lawmakers made changes that attempted to correct the legal issues. But LABI says the changes don’t fully address the problems the state Supreme Court identified.

Jason DeCuir, a tax attorney and former executive counsel for the state Department of Revenue, said the new law offers a deduction but not a credit for the entire amount paid.

“I think there would be some [legal] issues with taxpayers potentially not being given a full dollar-for-dollar credit for the taxes they paid to other states,” he said.

It has been reported that Louisiana taxpayers shelled out more than $30 million a year unnecessarily due to the 2015 law. However, that number reflects a Legislative Fiscal Office estimate, not actual collections, DeCuir notes.

At Monday’s Revenue Estimating Conference meeting, Department of Revenue Secretary Kimberly Robinson said taxpayers who wanted to challenge the law could have paid the taxes in question under protest.

“That taxpayer gets their $23,000 back,” she said, referring to the successful Supreme Court plaintiffs. “There aren’t any other payments under protest.”

A taxpayer who didn’t pay under protest could file a claim against the state with the Board of Tax Appeals. But even if successful, they won’t get their money back unless legislators choose to appropriate money for that purpose.

Waguespack suggests affected taxpayers speak with a tax professional to decide the best course of action, which could include filing an amended return or suing in district court. While the Department of Revenue might reject a new return, filing one would at least create a paper trail.

“The Legislature and the administration always have the right to come back and say, ‘You know what? This isn’t right, and we’re going to bring a bill in the next session to address this,’” Waguespack said.

Robinson on Monday told legislators she would review the decision and the 2018 changes to see if further tweaks are needed.