Louisiana: Adopted Rule Implements New Law Permitting Certain Passthroughs to Elect to Pay Entity-Level Income Tax

The legislative session that occurred in 2019 resulted in two tax laws for Louisiana. This follows federal income tax reform in which the physical presence rule for sales and use taxes were eliminated.

On June 22, 2019, pass through entities were signed making it possible to pay state income tax at the entity level. This circumvents the federal limit for individual itemized deductions of $10,000.


The Pass through Entity Tax


The pass-through entity tax started on January 1, 2019. Any corporation or partnership can pay income tax at the entity level.This is not available to those who file a composite partnership return.

To pay at the entity level, the election must be made in writing in the preceding or current tax year up to April 15th. After the election, it is effective until it is terminated.

Termination is only possible if shareholders,partners and members consent to it and they own at least 50% of the entity.

The tax applied is as follows:

●    Up to $25,000 is taxed 2%.

●    From $25,0001 to $100,000 is taxed at 4%.

●    $100,000 or more is taxed at 6%.


Entities are also allowed a deduction that equals the federal income tax on Louisiana’s net income.

Shareholders and owners can exclude net income or loss from individual income tax returns, as long as it was filed in the Louisiana corporate income tax return.

Tax Obligations for Remote Seller Sales Tax


The imposition section of the Louisiana sales tax code was updated and effective August 1, 2019. This requires dealers to collect and remit sales and use tax. This should be performed monthly.

Definitions for “remote sale” and “remote seller” have changed.

Remote Sale is “a sale that is made by a remote seller for delivery into Louisiana.”

Remote Seller is “a seller who sells for sale at retail, use, consumption, distribution, or for storage to be used for consumption or distribution any taxable tangible personal property, products transferred electronically, or services for delivery within Louisiana, but does not have physical presence in Louisiana, and is not considered a dealer.”

Remote sellers have to register with the Commission no later than 30 calendar days after becoming a dealer. This is usually once $100,000 is achieved in gross revenue or 200 transactions have been made.

The Commission selects an enforcement date before July 1, 2020, and provide voluntary disclosure agreements with remote sellers. These agreements are with remote sellers and their state, local and use taxes.


Final Comments

Louisiana is not the only state to establish a workaround from the $10,000 federal limit by allowing pass-through entities to pay income tax at the entity level. It will be interesting to see how the IRS reacts to this elective regime, as they have denied other attempts at avoiding the limitation.