A court ruling last week means Louisiana residents, also doing business in Texas, who were taxed multiple times on income from their LLC or S corporations should look into getting a tax refund, according to the Louisiana Association of Business and Industry.
While current state law generally limits the ability to recover the payment of taxes ultimately ruled unconstitutional, there’s nothing prohibiting impacted taxpayers from filing an appeal with the state or pursuing a lawsuit.
A law passed during the 2015 regular legislative session, Act 109, disallowed credits for taxes imposed on net income paid to states that do not have a reciprocal credit. Under the act, some state residents who owned interests in certain LLCs or S corporations and did business in both Louisiana and Texas were doubly taxed on the same income. While Texas has no state income tax, it does have an entity-level franchise tax based on gross receipts and business profits.
But the Louisiana Supreme Court last week ruled the act unconstitutional, saying it violates the Commerce Clause of the U.S. Constitution because the total tax burden on interstate commerce was higher than the burden on business conducted within the state.
“From our perspective, we think the state has collected somewhere between $60 million and $80 million on this unconstitutional tax,” says LABI President Stephen Waguespack, referencing the fiscal note attached to the 2015 legislation that predicted $33.6 million in annual tax revenue.
How much money the state actually collected from the tax over the past two-plus years is unknown, as the Department of Revenue declines to comment on the ongoing litigation resulting from the Supreme Court ruling.
However, during a meeting of the Revenue Estimating Conference this morning, department secretary Kimberly Robinson said they weren’t expecting to dole out refunds to anyone who didn’t pay under protest.
“One taxpayer paid under protest and received $23,000, but there are no other payments under protest,” Robinson said. “You have to pay under protest to challenge the statute. If the taxpayer already filed a return and did not pay it under protest, they would have to file a claim at the Board of Tax Appeals, and that’s somewhat limited also.”
While the law was set to expire, the Louisiana Legislature recently extended it through the Fiscal Year 2023. Another law passed during the second special session of 2018 also attempted to correct legal problems with the law, though LABI officials say more needs to be done.
LABI recommends affected individuals consult with their CPA or tax professional to figure out their rights and best course of action.
“The more we’ve examined some of this, the more important we think it is for small- and mid-sized companies to consult with a CPA,” Waguespack says. “There could be some major dollars at stake.”