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STARTING AND OPERATING A BUSINESS IN LOUISIANA Copyright © 2009, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Louisiana has a very unusual legal structure under which businesses must operate. Since it first became a state, Louisiana's main body of law has been the Civil Code, or Napoleonic Code, inherited from its French past. This has made Louisiana very different from the other 49 states, which have basically operated under the English common law system. The author remembers well the countless times when his professors at Harvard Law School mentioned that some particular rule of law was applicable in 49 states -- with Louisiana being the exception, of course. For example, all the other states had adopted the Uniform Commercial Code, which Louisiana had not (but finally did so in 1990). Also, as anyone who does business in or lives in Louisiana already knows, the state is divided into parishes, rather than counties, unlike 48 of the other 49 states. (Alaska has "boroughs" that are similar to counties.) However, in recent years, Louisiana's legal system has gradually been becoming more and more similar to other states as it replaces much of the Napoleonic Code with more modern laws. It has now adopted much, but not all, of the Uniform Commercial Code. Its tax system is more typical, however. Like most other states, Louisiana imposes an income tax, a franchise tax on corporations, a sales and use tax, various excise and severance taxes, plus property taxes that are imposed at the local level. The state has also adopted a limited liability company (LLC) law and a limited liability partnership (LLP) law, so that businesses operating in Louisiana in LLC or LLP form may now obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Louisiana has a very low cost of living, as compared to national averages, which makes it an attractive place for companies to locate and to attract good employees. The state's economy has been relatively weak in recent years, in terms of average per capita income levels (much lower than national averages) and other economic measures. For example, as recently as November, 2005, in the immediate aftermath of Katrina and Rita, the Louisiana unemployment rate soared to 11.4%. However, unemployment rates decreased significantly since then, to only 4.2% as of March, 2008, and although unemployment has since risen to 5.8% in March, 2009, it is still significantly below the national unemployment rate of 8.5% for that month. In addition, as displaced residents move back to New Orleans, the city has become the fastest growing major city in the United States in the 12 months ended July 1, 2007, according to the U.S. Census Bureau. To view the latest federal Bureau of Labor Statistics unemployment rate data for Louisiana or any other state, visit the BLS website. Despite the current fairly low reported unemployment rate in the state, the numbers are of somewhat questionable validity, as the state is still recovering from the catastrophic 2005 hurricane season, in which Hurricane Katrina devastated the southeastern part of the state and virtually destroyed New Orleans, and was soon followed by Hurricane Rita, which tore into the southwestern part of Louisiana, so that nearly the entire southern half of the state sustained massive storm damage, except for a narrow band around Eunice and Opelousas (where this writer grew up) that was on the periphery of both storms. The damage from the two hurricanes was expected to nearly bankrupt the state and many local governments, and it was expected to take many years for Louisiana to completely recover economically. Many of the tens of thousands of homeless refugees who left the state may never return, so the economic future of much of Louisiana is, at this time, still a large question mark. Fortunately, the federal government has poured massive amounts of aid into the state and Congress has enacted a number of tax incentives to encourage businesses to invest in the hurricane disaster areas. Also, surprisingly, the New York Times reported in June, 2006 that the state's tax collections were up sharply in the aftermath of the 2005 hurricane disasters, so that the Louisiana government has been generating large surpluses, since spending had been cut back in the expectation of a $900 million drop in tax revenues. Instead, the increased spending by residents on replacing everything from socks to S.U.V.'s has increased sales tax collections alone by some $500 million for the fiscal year ending June 30, 2006, and revenues the state gets from higher oil and gas prices and income taxes from the booming energy economy have also added to the growing surplus. Thus, while some had feared initially that the state might be bankrupted by Katrina and Rita, its coffers had instead been overflowing with increased tax revenues and oil and gas royalties, with a large budget surplus as a result. All that has changed, however, with the plunge in oil and natural gas prices that began in July, 2008, plus the national recession that began in 2008, so that by the end of 2008, a budget deficit of over $2 billion was predicted for the 2009-2010 fiscal year. Comprehensive information about jobs, affordable housing, reviving a business, voting, and social services for displaced residents, businesses, government agencies, and nonprofit organizations is available online at: LouisianaRebuilds.info: II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Louisiana can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. However, unlike most other states, Louisiana does not explicitly recognize S corporation tax status for income tax purposes, although its corporate income tax law has provisions that may in many cases allow an S corporation to be free of tax, as under federal law, if all of its shareholders file Louisiana income tax returns and pay any taxes they owe. Louisiana also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Louisiana can be established with no formalities. However, as discussed in Section IV(b), it will typically be necessary to obtain one or more local business licenses from cities or parishes in which you operate and, in some cases, state licenses, as well. In addition, if you sell any kind of tangible personal property at retail or provide certain types of services, you may be required to obtain a sales tax license and collect sales tax, as discussed in Section IV(d). No separate tax form filing is required, generally, for a sole proprietorship, under the Louisiana income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Louisiana income tax and filing requirements for individuals. Doing business as a sole proprietor in Louisiana is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself. However, if your sole proprietorship operates under an assumed or fictitious business name (trade name), it will be required to register the name with the clerk of court of the parish where you do business (or with the Register of Conveyances, for the city of New Orleans), as discussed in Section IV(g). (c) Partnerships. Louisiana's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership (called a partnership in commendam in Louisiana), in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, usually. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain significant exceptions). In addition, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or parishes in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. Partnerships, as entities, are not subject to state income tax in Louisiana. Instead, the income or losses of the partnership, as allocated among the partners, are reported on the personal income tax returns of the individual partners (or on the business income tax returns of any partners that are corporations or other legal entities). Partnerships are required to file an annual tax information return with the state if they have any nonresident partners or any partners that are not natural persons (individuals). For details on Louisiana partnership tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
Unlike most states, where general partnerships can be formed with no formalities, in Louisiana it is usually necessary, or at least highly advisable, to have a written partnership agreement. The Louisiana Secretary of State's office maintains a central registry for partnerships, where you may register your partnership contract, for a $75 fee. Foreign (out-of-state) partnerships must also register, and pay a fee of $125, plus file an annual report. The initial annual fee of $25 must also be paid at the time of initial registration of a domestic or foreign partnership, so that the initial total of fees is $150. A partnership should also register the partnership with the recorder of mortgages in the parish where the partnership has its principal place of business. Partnerships registered with the secretary of state are required to file annual reports each subsequent year and pay a $25 annual filing fee. Registered foreign partnerships also pay an annual filing fee of $25.00. Thus, only those partnerships that do not have a written partnership agreement are exempt from filing an annual report. LIMITED PARTNERSHIPS (PARTNERSHIPS IN COMMENDAM) A limited partnership, or, as it is called in Louisiana, a partnership in commendam, is one in which there is at least one general partner (who is liable for partnership debts) and at least one partner in commendam (limited partner), who is not liable for partnership debts. To form a partnership in commendam under Louisiana law, you must have a written partnership agreement, and must register it with the secretary of state. Until the partnership agreement is filed for registry, partners in commendam are liable to third parties to the same extent as general partners. Partnerships in commendam are subject to the same fees and filing requirements as general partnerships, except that when registering, they should indicate which partners are partners in commendam and which are general partners. For forms and more information on partnership in commendam (limited partnership) filing requirements, see the contact information for the offices of the Louisiana Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Louisiana. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Louisiana state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. A general partnership can achieve a degree of limited liability for its partners by simply registering the partnership with the state as an LLP. To form an LLP in Louisiana, you must, however, register your domestic or foreign partnership with and pay a filing fee of $125 to the secretary of state. Note that in Louisiana an LLP does not offer full protection from claims of creditors, to the same extent as a corporation or LLC. Under the Louisiana law, a partner in an LLP is relieved of liability for wrongful acts or misconduct of other partners or representatives of the LLP only, and not for his or her own wrongful or negligent acts, malpractice, or misconduct, or for other debts of the partnership. Every LLP doing business in Louisiana, including both domestic and foreign LLP's, must file an annual renewal and the $125 fee each year to retain its LLP status. A registered foreign LLP must file an annual report and pay a $25 filing fee. Thus, the total fee is $150 when registering and in each subsequent year when renewing an LLP registration. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Louisiana, is that some states, like California and New York, only recognize certain types of professional partnerships as LLP's. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Louisiana, you must file articles of incorporation with the secretary of state and pay a fee of $60. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Louisiana, by filing an application for a certificate of authority and paying a filing fee of $100. Louisiana's corporations law permits professional corporations, in various fields such as, for example, law, medicine, dentistry, or accounting. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Louisiana, see the contact information for the offices of the secretary of state, listed in Section VI(a). Once your corporation is formed, it will be required to file annual reports and a filing fee of $25 with the secretary of state each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in Louisiana must also file corporate income tax returns with the state, although some S corporations may not be taxable. Corporations, including S corporations, are also subject to a corporate franchise tax based on their capital. See Section IV(c) for a discussion of state corporate income tax rates, the franchise tax on capital, and tax return filing requirements. For tax forms and more information on corporate income and franchise taxes in Louisiana, see the contact information for the offices of Louisiana Department of Revenue, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Unlike most states, Louisiana does not treat S corporations differently from regular corporations (C corporations) for state income tax purposes, unless certain conditions are met. However, as a practical matter, the state allows an S corporation to reduce its taxable income by the amount of any such income reported on Louisiana state individual income tax returns by its shareholders. Thus, if all shareholders of your S corporation report their respective shares of its income on their Louisiana income tax returns, the S corporation should have no taxable income on which it must pay Louisiana income tax in most cases. (However, it will still be fully subject to the state franchise tax). For more on the taxation of S corporations and other corporations by the state of Louisiana, see Section IV(c). (f) Limited Liability Companies. Louisiana, like every other state, has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Louisiana may also choose to operate in the form of an LLC. In most states, including Louisiana, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. In Louisiana, an LLC offers the added advantage, when compared to a corporation, of being exempt from the corporate franchise tax on capital. See Section IV(c) for a discussion of the income tax treatment of LLC's under Louisiana tax laws. To form an LLC under the laws of Louisiana, one or more persons may file articles of organization with the secretary of state, which must be accompanied by a filing fee of $75, according to the Louisiana Revised Statutes. Louisiana law formerly required that an LLC have two or more members, but single-member LLC's are now allowed. The state's LLC laws also allow professional LLC's, for dentists, to be formed. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Louisiana, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $125, according to the Louisiana Revised Statutes. All LLC's, domestic and foreign, must file annual reports with the Secretary of State and pay a filing fee of $25. LLC's are treated as partnerships for all state tax purposes, unless they have elected to be treated as corporations for federal income tax purposes. This is very favorable, because it means, among other things, that an LLC is exempt from Louisiana franchise tax, as well as usually avoiding state income tax. The exemption from the franchise tax applies even if an LLC has elected to be taxed as an S corporation or C corporation for income tax purposes. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching parish, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as is discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Louisiana is one of the business-friendly states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business that is located in Louisiana. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Louisiana, you should obtain, or have the seller obtain, a tax release for state unemployment tax from the Louisiana Department of Labor and a sales and use tax release from the Louisiana Department of Revenue. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. In some states, this is optional, but in Louisiana, if you acquire substantially all of the assets and employees of the seller's business, the law specifies that you will automatically inherit the seller's experience rating and will be treated as a successor employer. However, if you acquire only a portion of an existing employer's business and payroll, you and the seller must file an Application and Agreement for Partial Transfer of Experience Rating with the Louisiana Department of Labor within 180 days after the acquisition, in which you and the seller agree to and specify the percentage of the seller's experience record that is to be transferred to your business. PLANNING POINT: EXAMPLE: IV. LOUISIANA TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Taxes in Louisiana tend to be somewhat lower than in many states,
particularly on individuals or businesses with low or medium levels
of taxable income. While the state sales tax is a low 4%, high
local sales taxes generally raise the overall sales tax rate to 7%
to 9%, in most urban areas. Louisiana has exempted most kinds of
intangible property from the property tax, but unlike most other
states, it does not exempt business inventories from personal
property taxation (although some taxpayers may claim a refundable
income or franchise tax credit for local property taxes paid on
inventories).
An "Angel Investor" income or franchise tax credit was recently
enacted by Louisiana. This new law provides for a 50% tax credit
for investments by certain "accredited investors" ("Angel Investors")
who invest in certified Louisiana entrepreneurial businesses, for
qualified investments made between January 1, 2005 and December 31, 2009.
While it is a significant incentive, a number of conditions must be
met when applying for the credit and, most significantly, the Louisiana
legislature has only appropriated a maximum of $5 million in total
that can be allowed as tax credits for Angel Investors in any one
year while the program is in effect. Thus, only a very few investors,
who are first to apply, will be able to earn this tax credit.
Louisiana is one of only a few states that allows the federal
domestic production activities deduction, generally. Most other
states have "de-coupled" from this federal tax deduction that
went into effect in 2005 for manufacturing and certain other
types of businesses. Louisiana, unlike most other states,
announced that it will follow the new 50% federal bonus
depreciation deduction for 2008 and the increased Section 179
expensing deduction under new federal tax enactments.
For state tax forms and tax information, see the contact
information for the Louisiana Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States, will
have to have at least one government license of some kind. In
most cases, this will be a local license, issued by your city
or county -- or in Louisiana, your parish. Before you open your
business, contact your local city or parish government and find
out if your particular business needs one or more local licenses.
Most kinds of local business licenses are granted upon payment
of a fee, with no further requirements, except possibly for
annual or other periodic renewal fees.
However, if you are engaging in any kind of food
business, you will usually need to also obtain a health
department permit and show that you are in compliance
with health department food-handling requirements. In
addition, be sure to check with an attorney or local
government zoning or planning department officials to
determine if your business will be in compliance with all
local zoning and planning restrictions. If you own or
rent any type of facility, you will generally need fire
department permits, showing that you meet fire safety
codes and any construction or improvements to an existing
structure will usually require a building permit. If you
intend to simply operate your business from your home, you
may be in violation of local zoning requirements, but this
is less likely to be a concern if you don't have clients,
customers, suppliers, or employees coming to your house on
business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Louisiana has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
Every business operating in Louisiana must also obtain a
state tax account number by filling out Form R-16019
(CR-1), Application for Louisiana Revenue Account Number
and filing it with the Louisiana Department of Revenue. (Doing
a word search of the Department of Revenue web site will not
turn up this form, but if you are persistent and diligent in
searching their web site, you will, as we did, eventually find
a downloadable copy of the form.) Note that corporations that
are already registered with the Louisiana Secretary of State
are automatically assigned a tax account number, and do not
need to file this form if only wishing to obtain a Corporate
Income and Franchise Tax (CIFT) account number.
For assistance with state licensing and business registration
requirements in Louisiana, see the contact information for the
offices of the First Stop Shop of the secretary of state,
listed in Section VI(a). They can
help you and provide customized information on all types of
business licenses and permits for your specific type of
business and location.
(c) Income and Franchise Taxes.
Louisiana has both an individual income tax and a corporate
income tax, as well as a franchise tax on the capital of
corporations. Each of these taxes is discussed below in
this section, as they apply to each of the main types of
business entities.
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Louisiana individual income tax is imposed at a
maximum tax rate of 6%. In 2002, Louisiana voters amended
the state constitution to modify the state personal income
tax brackets. As revised, the maximum 6% tax bracket
applies to taxable income in excess of $25,000 for a
single taxpayer, or in excess of $50,000 for married
couples filing jointly. Beginning in 2009, the top tax
bracket rate will not apply until taxable income exceeds
$50,000 (single) or $100,000 (joint).
Individual taxpayers pay state income tax on their
business earnings from a sole proprietorship, or on their
share of the earnings of a pass-through entity, such
as a partnership, S corporation, or LLC. The Louisiana
personal income tax return must be filed each year with
the Louisiana Department of Revenue, by May 15th for a
calendar year taxpayer.
Partnerships, or entities taxable as partnerships, such as
LLC's, are not subject to state income taxation in Louisiana,
and generally are not required to file a Louisiana income
tax return. Each partner reports his or her share of the
partnership income, losses and credits on the individual's return.
However, if a partnership has any nonresident partners, or
if any partner is not a natural person, the partnership must
file a partnership tax return (Form IT-565)
and, if it has any nonresident partners, must either:
Where a composite return is filed, the nonresident
partners or members may file individual Louisiana income
tax returns and may claim the tax paid on their behalf
by the entity as a credit, which may be refundable in
whole or in part in some cases, depending upon the
person's total Louisiana taxable income. However, a
nonresident for whom tax is paid on a composite return
is not required to file a Louisiana tax return if the
nonresident's only Louisiana-source income is that which
is reported on the composite return.
The partnership or LLC may charge the capital account
of a nonresident partner or member for any Louisiana
income taxes it pays on his or her behalf. Tax may also
be paid on behalf of resident partners on a composite
partnership return, but doing so will not relieve a
resident of the obligation to file a Louisiana tax return.
Individual taxpayers doing business as sole proprietors
(or who are partners in partnerships, members of LLC's, or
shareholders in S corporations), who have taxable income from
the business, will generally be required to make advance
payments of estimated Louisiana individual income taxes, on
Form IT-540ES, Declaration of Estimated Tax, if
the net tax liability (not covered by withholding) exceeds $1000
($2000, in the case of a joint declaration by husband or wife).
Estimated tax payments are due in four installments, on the
15th day of the 4th, 6th, and 9th months of the taxable year, and
the 15th day of the first month of the following year.
Payments must generally be equal to 90% of the current year's
tax liability or 100% of the prior year's tax, whichever is less.
The "safe harbor" for payments equal to the prior year's tax
liability is available only if the prior taxable year covered a
full 12 months and if there was a tax liability for such prior year.
The Louisiana corporate income tax rate, on all corporations,
nominally including S corporations, is graduated, starting at 4%
on the first $25,000 of income and rising to a maximum rate of
8% on income over $200,000.
The state corporation income (and franchise) tax return is
Form CIFT-620, Income and Franchise Tax Return,
which must be filed with the Department of Revenue by the 15th
day of the fourth month following the end of the taxable year,
or by April 15th in the case of a corporation whose taxable
year is the calendar year.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance, if their
tax liability for the year equals or exceeds $1,000.
Estimated tax payments are due in advance, in four equal
installments, on the 15th day of the 4th, 6th, 9th, and
12th months of the taxable year. Estimated tax payments
must be at least 80% of the actual current year tax,
or 100% of the previous year's tax, whichever is less,
generally, although there are other exceptions upon which
a corporation may in some cases rely in order to avoid
underpayment penalties. The "safe harbor" for payments
equal to the prior year's tax liability is available only
if the prior year was a year of a full 12 months.
Penalties will be imposed for failure to make the
required estimated tax payments on a timely basis.
S corporations are theoretically subject to state corporate
income tax to the same extent as other corporations, but Louisiana
law allows an S corporation to reduce its taxable income by the
amount of any such income reported on Louisiana state individual
income tax returns by its Louisiana "resident" shareholders.
Thus, in many cases, if all its shareholders, residents
and nonresidents alike, file Louisiana income tax returns
and pay tax on their share of the S corporation's income, an
S corporation's taxable income will be zeroed out entirely,
so that the net effect can be similar to the federal
exemption of S corporations from federal income tax.
The S corporation's tax return must list the name, address,
and taxpayer identification number for each shareholder, as
well as his or her share of the S corporation's Louisiana taxable
income, so that the Department of Revenue can cross-check to
make sure that each such shareholder actually filed a Louisiana
tax return and paid any tax owed to the state, where the S
corporation is claiming a deduction for income allocable to
and reported by the shareholder.
Corporations (including S corporations) that do business
in Louisiana are also subject to a corporate franchise tax.
This tax is imposed on the capital stock, surplus, undivided
profits, and debt capital of the corporation that is employed
in or apportioned to the state of Louisiana.
This tax applies at the rate of $1.50 for each $1,000 of
capital, for the first $300,000 of taxable capital, and
$3.00 for each additional $1,000 of capital. The minimum
annual tax is $10.00.
Franchise tax accrues as of the first day of a taxable
year, and is due on the 15th day of the third month after
the date it accrues. In a corporation's first taxable
year in Louisiana, it is subject only to the $10.00 minimum
tax, which must be paid within the above time frame, with
Form R-6906A.
The franchise tax is reported and paid, along with corporate
income tax and on the same tax return (except for the initial
franchise tax return), to the state Department of Revenue.
Thus, for example, a corporation whose first tax year began on
January 1, 2009 would file Form R-6906A by
April 15, 2009 and pay only the $10 minimum franchise tax for
2009. The full franchise tax for 2010 would accrue on January
1, 2010, and would be paid with the 2009 corporate income tax
return, Form CIFT-620, by April 15, 2009.
In tax years 2006 and later, the franchise tax on
debt capital began to phase out, with only the following
percentages of debt capital subject to tax each year (for
taxable years starting in each such year):
IMPORTANT NOTE: UPDATE NOTE: TAXATION OF LIMITED LIABILITY COMPANIES In Louisiana, a limited liability company (LLC) is treated in the same manner as a partnership for income tax purposes. That is, an LLC is not a taxable entity, thus avoiding the possible double taxation of income that can occur with a corporation. LLC's are not subject to the Louisiana franchise tax, either. Louisiana state law has been changed so it now recognizes the validity of 1-member LLC's. Note that it is not always entirely clear whether an LLC is a "single-member LLC" or not, in a community property state like Louisiana, where the "single owner" is a married person and the LLC is owned as community property. Fortunately, the federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, stating that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. Presumably, the couple's choice of federal tax treatment will also apply for state tax purposes, since Louisiana follows the federal tax treatment of LLC's, generally. However, where the LLC is owned by a husband and wife as joint tenants, or tenants in common, or as tenants by the entirety, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of tenancy by a married couple, rather than being held as community property. IMPORTANT NOTE: While LLC's, as entities, are not taxed by the state, an LLC with nonresident members must either file an agreement, signed by all the nonresident members, under which they agree to pay Louisiana taxes on their share of the LLC's income, or else the LLC must file a composite tax return on behalf of all the nonresident members and pay Louisiana tax at the highest tax rate on their behalf. (d) Sales and Use Tax. Louisiana imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 4%. In addition, local governments are allowed to adopt local sales taxes, at varying tax rates. Combined rates in major cities are generally between 7% and 9%. Sellers are required to obtain a seller's permit and to collect and pay over the state and local sales and use taxes to the Department of Revenue. An additional sales tax of 3% (due to expire after June 30, 2012) applies to short-term rentals of passenger automobiles for 8 or fewer passengers, where such rentals do not exceed 29 days in length. This consists of a 2.5% state tax and a 0.5% uniform local tax. Some of the types of services that are taxable include the following:
There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Louisiana. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. During the period from July 1, 2004 until June 30, 2009, a number of sales tax exemptions are suspended, so that the "exempt" items are temporarily subject to the full 4% state sales tax, after which the tax rate is due to return to 1% on such items, as of July 1, 2009. Among various business incentives enacted by the Louisiana legislature in 2002 was a phase-out of the state sales and use tax on custom computer software (not applicable to "canned" or "off-the-shelf" software programs). For the period from July 1, 2004 through June 30, 2005, 75% of the cost price of custom software was exempt, and on and after July 1, 2005, it is completely exempted from state sales tax. The legislature also authorized local governments, if they so choose, to exempt custom computer software. Otherwise, the exemption does not apply for purposes of local sales taxes. Vendors who collect sales tax are entitled to retain a 1.1% "vendor's compensation credit" if they timely pay the tax that is due. This is designed to help defray some of the compliance and administrative costs incurred by sellers, as well as to give them an incentive to collect sales and use taxes by, in effect, paying the seller a commission equal to 1.1% of the tax collected. Local governments may allow an additional credit to sellers for local sales tax collected. Before making any taxable sales, you will need to register with the Department of Revenue for a permit. Register on Form R-16019 (CR-1), Application for Louisiana Revenue Account Number which can also serve as your state withholding tax (employer) registration. For more information on Louisiana sales and use tax registration and compliance, see contact information for the offices of the Department of Revenue in Section VI(a). (e) Real and Personal Property Taxes. In Louisiana, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the local assessor will bill you for each year's property taxes as they come due. Louisiana also imposes personal property taxes on tangible personal property. ("Personal property" is any kind of property that is not real estate.) Unlike many states, it does not exempt business inventories from local property taxes, generally, but the state government does offer manufacturers, distributors, and retailers an income or franchise tax credit for any local property taxes paid on their inventories. The tax credit is refundable if it exceeds the amount of the taxpayer's income or franchise tax liability for the year. To claim the tax credit, file Form R-10610. While Louisiana generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets. The 1994 law repealing the tax on intangibles was challenged as unconstitutional. However, Louisiana voters, on September 21, 1996, amended the state constitution to eliminate property taxes on nearly all types of intangible property, except for a few limited classes of assets, such as property of public service companies, bank stocks, and certain insurance industry assets. That amendment has been effective since November 5, 1996. (f) Other Business Taxes. Louisiana imposes a number of excise and other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Louisiana law requires anyone doing business under an assumed name to register with the register of conveyances in the city of New Orleans or the clerk of court in the applicable parish. No licenses will be granted by the city of New Orleans or a parish until such assumed name has been registered. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Louisiana imposes a state income tax on the income of individuals, you will need to also withhold Louisiana income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Department of Revenue on Form R-16019 (CR-1), Application for Louisiana Revenue Account Number to obtain your employer state withholding registration number. The same registration form can be used to register for sales and use tax, as well as other taxes (such as severance taxes) at the same time. However, if you have employees, you must register separately with the Louisiana Department of Labor for state unemployment tax purposes, as discussed in Section V(b). State wage withholding frequency depends on the amount of such tax withheld monthly by the employer, as summarized in the following table: 2009 LOUISIANA WAGE WITHHOLDING FILING FREQUENCY SUMMARY
For more information on Louisiana income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). Request their helpful publications, the Louisiana Tax Guide, Form R-20053 (1/2005) and the Louisiana Withholding Tables and Instructions for Employers, Form R-1306 (1/2003). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Louisiana unemployment tax are required to register with the Louisiana Department of Labor on Form LDOL-ES1, Status Report. New employers are required to pay tax at rate that varies by industry on the first $7,000 of wages (in 2009) paid to each employee. The standard new employer rate for most kinds of businesses is 2.7% of covered wages, but the rate can vary, based on the industry group in which the employer is classified. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Louisiana law, cannot be charged to your employees or withheld from their wages. Louisiana employers subject to Louisiana unemployment tax are required to display a state unemployment tax poster in the workplace, which you can obtain from the Louisiana Department of Labor. For more information on your Louisiana unemployment tax obligations as an employer, see the contact information for the Louisiana Department of Labor, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Louisiana, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor or a partner in a partnership may elect not to be considered an employee. Similarly, those employees of a corporation who own at least 10% of the stock of the corporation and who are officers of the corporation, or any 10% owners of an LLC, may also elect not to be covered for workers' compensation purposes. State law also exempts real estate salespersons and brokers from workers' compensation coverage. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. The Louisiana statute states that the notice should read substantially as follows: EXAMPLE: Within ten days of actual knowledge of an injury resulting in death or in lost time in excess of one week after the injury, an employer is required to file an injury report with the insurer. For more detailed information regarding your obligations as an employer under the Louisiana workers' compensation laws, contact your insurance carrier or see the contact information for the Office of Workers' Compensation Administration of the Louisiana Department of Labor, listed in Section VI(a). (d) State Wage and Hour Laws. Unlike most states, Louisiana does not have a minimum wage law governing the hourly wage that you must pay to your employees. In addition, state law prohibits local governments from enacting minimum wage laws or ordinances. However, in most cases, your business will be subject to the federal minimum wage and overtime laws, and thus required to pay a wage of at least $5.15 an hour and to pay time-and-a-half for hours worked in excess of 40 hours a week. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Louisiana. Before you may hire any minor in your business, the child, with parents' written permission, must obtain an employment certificate from the Louisiana Department of Labor, which you must receive and keep on your business premises where the child is employed. Louisiana's child labor laws prohibit hiring minors to work in various types of hazardous places or occupations, such as at mines, quarries, iron or steel manufacturing plants, sawmills, or logging operations. Minors who are 16 or 17 and who have not graduated from high school may not work during the following hours prior to the start of a school day:
Minors under the age of 16 are barred from many additional types of work, such as in manufacturing or processing plants, around power-driven machinery, in or around pool rooms, billiards rooms, or bars or lounges, and may not deliver goods or messages for delivery or messenger service firms. Minors who are age 14 or 15 and who work in an occupation that is not prohibited may do so only after school hours or on nonschool days. Minors under age 16 may not work more than 8 hours a day or more than six consecutive days in any one week when school is out; when school is in session they may not work more than three hours a day or 18 hours a week. Minors under the age of 16 who have not graduated from high school may not work before 7:00 a.m. or after 7:00 p.m. prior to a school day (after 9:00 p.m. on any other evening), and may never work more than 40 hours in a week. Children under the age of 16 may not work any period of five hours or longer without a meal break of at least 30 minutes. Children under age 14 are generally not allowed to be employed at any time in Louisiana; however, if the Louisiana Department of Labor grants a permit, a child under age 14 may do theatrical, film, or modeling performances or, if 12 or older, may work for a parent or guardian in a business owned by the parent or guardian, under their supervision, if a permit is obtained. For more information on Louisiana's child labor laws, contact the Louisiana Department of Labor at the address listed in Section VI(a). (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states, including Louisiana, have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within the state. The Workplace Safety Section of the Office of Workers' Compensation, part of the Louisiana Department of Labor, can provide free OSHA workplace safety consultations, to assist your business in meeting federal OSHA safety standards and thereby avoiding fines for safety violations. For more information on safety consultations, contact the Louisiana Department of Labor at the address listed for that agency in Section VI(a). For information on your job safety and health obligations as an employer, including required OSHA posters, contact the Baton Rouge offices of the U.S. Department of Labor -- OSHA, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Louisiana labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. An employee who voluntarily quits or is discharged from employment must receive a final wage payment by the next regular payday, but in no case more than 15 days after terminating employment. Do not take this requirement lightly -- failure to pay final wages when required will subject you to paying full wages to the employee from the time the employee demands payment up to the date paid, or 90 days, if less. In addition, if the employee files a lawsuit against you to recover unpaid wages and prevails, you must pay the employee's attorney fees and court costs. Employers are required to designate paydays and post a payday notice, provided by the Louisiana Department of Labor, in the workplace. Any employer that fails to designate paydays must pay wages on the first and sixteenth days of the month, generally. Also, wages must be paid at least twice a month by any employer engaged in manufacturing, boring for oil or in mining operations, or public service corporations, if employing ten or more employees. These requirements do not apply to any employee who is employed in a bona fide executive, administrative, supervisory or professional capacity. Employers must post a notice provided by the Louisiana Workforce Commission that states as follows: "Your employer has a duty to inform you at the time of your hire what your wage rate will be, how often you will be paid and how you will be paid, and of any subsequent changes thereto. If your employer should, for reasons within his control, fail to pay you according to that agreement, you must first lodge a complaint with him. If no action is taken to resolve your complaint, you may report the violation to the office of labor within the Louisiana Workforce Commission." (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Louisiana has enacted a right-to-work law. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Louisiana and display in the workplace a poster informing employees of their rights. State anti-discrimination laws apply only to employers who employ 20 or more employees in Louisiana for each working day of 20 or more calendar weeks in the current or preceding year. Louisiana law prohibits intentional employment discrimination on account of an individual's race, color, religion, sex, or national origin and also prohibits age discrimination against persons 40 or older, in a manner similar to federal age discrimination laws. State law also prohibits an employer having more than 25 employees from discriminating against a pregnant employee. Other Louisiana laws prohibit discrimination on account of:
For more information on anti-discrimination laws in Louisiana, or to obtain the required state equal employment opportunity posters, see the contact information for the Louisiana Equal Opportunity Officer of the Louisiana Department of Labor, at the address for that agency listed in Section VI(a). (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Department of Social Services, New Hire Reporting Program, for Louisiana employers) within 20 days after the date of hire. New hires can be reported by mail, phone, or fax to the Louisiana Directory of New Hires, at the (Virginia) address listed in Section VI(a). You may also report new hires online at the New Hire Registry website listed in Section VI(c). (5) State Maternity Leave Law. Louisiana has no general family or medical leave requirement. However, Louisiana law prohibits an employer with more than 25 employees from discriminating in employment practices against a female employee on account of pregnancy, childbirth, or related medical condition, or because a female employee takes a leave of absence for such maternity-related reasons, for a reasonable period not to exceed four months. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Louisiana, as many states have done in recent years, has set up a "one-stop" center, called GeauxBiz.com, to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. This office is a division of the Office of the Secretary of State of Louisiana. See the link to their GeauxBiz website in Section VI(c), where you can submit a business checklist questionnaire. Their staff will prepare a customized business license checklist tailored to your specific business licensing need. You can register your business with the state for Louisiana income tax, sales and use tax, and employer withholding, and obtain your state tax I.D. number, all on a single state application form, Form R-16019 (CR-1), Application for Louisiana Revenue Account Number which must be filed with the Department of Revenue, whose address is listed below. If you are having trouble locating a state government agency in Louisiana, call: State Information Operator: (225) 342-6600 or (800) 256-7777 To obtain information on business licenses and permits, or about starting or relocating your business in Louisiana, contact: GeauxBiz.com Addresses and other contact information for other key state and federal government agencies in Louisiana, mentioned in preceding sections of this book, are listed below for your convenience. SECRETARY OF STATE. Contact the office of the secretary of state for information on:
Louisiana Secretary of State TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the Louisiana Department of Revenue, which is the main tax collection agency in Louisiana. Also register with this agency as an employer, for state income tax withholding purposes and if you are required to register for a sales tax permit. Louisiana Department of Revenue STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
Louisiana Department of Labor STATE LICENSES. Contact the Secretary of State's First Stop Shop for information on licensing requirements for various state boards. They can provide you with a checklist of regulatory agencies you will have to deal with, based on your specific type of business and location. See the address listed above for the First Stop Shop or the link to GeauxBiz.com in Section VI(c). STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Louisiana sales and use tax law, from the Louisiana Department of Revenue, at the address listed above for that agency. STATE UNEMPLOYMENT TAX. Contact the Louisiana Department of Labor, at the address or phone number listed above for that agency, to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject. NEW HIRE REPORTING. Employers must report newly hired employees within 20 days to the Louisiana Directory of New Hires, by phone, Internet, fax, or by mailing the information to the following address (and yes, that is a Texas mailing address): Louisiana Directory of New Hires WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the Louisiana Department of Labor at the address listed above for that agency. STATE OSHA PROGRAM. There is no state OSHA program in Louisiana. The federal government provides federal OSHA enforcement instead. For free workplace safety consultations, contact the Louisiana Department of Labor at the address listed above for that agency. For required posters and information on federal occupational safety and health laws that affect you as an employer in Louisiana, contact: U.S. Department of Labor -- OSHA STATE ANTI-DISCRIMINATION LAWS. For information on state civil rights laws, contact the Baton Rouge office of:http://www.laworks.net/Downloads/Downloads_Posters.asp#State Louisiana Equal Opportunity Officer (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Louisiana to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Louisiana SBDC: State Director's Office (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Louisiana state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, and business regulations, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Louisiana. Since new sites are appearing frequently, you might also want to search for other Louisiana government Web sites by using one of the popular Internet search engines, such as Google, Yahoo, or msn.com. To start your Internet search for Louisiana government information, you may want to begin with the following Internet sites: State of Louisiana home page (contains links to all Louisiana government agencies): GeauxBiz.com (business licensing site): Louisiana Department of Economic Development (financial assistance information for small businesses): Louisiana Department of Revenue (state tax information and forms): Louisiana Department of Labor (workers' compensation, unemployment tax, Louisiana child labor, anti-discrimination, and other state labor laws): New Hire Registry (for reporting newly hired employees): (d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Louisiana, or contact the Louisiana Department of Economic Development, which administers many state loan programs, at the following address: Louisiana Department of Economic Development Or, contact: Louisiana Economic Development Corporation For information on SBA loans and small business assistance, contact the Louisiana District Office of the SBA, at: U.S. Small Business Administration |
Copyright © 2009 Michael D. Jenkins
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