Exclusions and Exemptions PEGGY PARKER LOUISIANA DEPARTMENT OF REVENUE 1

What is an Exclusion? Usually found in R.S. 47:301 Approximately 114 exclusions 2

What is an Exemption? Most are found in R.S. 47:305 but they do appear in other statutes Approximately 120 exemptions 3

Constitutionally Protected Exemptions Sales of water, electricity and natural gas to residential consumers Sales of food for home consumption Sales of prescription drugs Sales of gasoline when road use tax has been paid 4

Exclusion versus Exemption Burden of proof Economic reasons 5

6 Suspension of Exemptions In response to a fiscal crises, the legislature passed HCR 55 of the 1986 Regular Session to “temporarily” suspend the exemptions from the 1% tax imposed by R.S. 47:331.

7 More Suspensions Act 20 of 1994 – 07/01/94 – 06/30/96 Act 5 of 1996 – 07/01/96 – 06/30/98 Act 1 of 1998 – 07/01/98 – 06/30/00 Act 18 of 2000 – 07/01/00 – 06/30/02 Act 22 of 2002 – 07/01/02 – 06/30/04 Act 4 of st E.S. – 07/01/04 – 06/30/09

8 “Protected” Exemptions “Protected” exemptions Suspensions and protected exemptions are listed in the tax imposition statutes of R.S. 47:302, 321, 321.1, 331 and Title 51:1286.

Results Exemptions are enacted as exclusions (R.S. 47:301) Less transactions are subject to states sales tax 9

Acts 25 & 26 of 2016 First Extraordinary Session Act 25: Uses the impositions of R.S. 47:302, 321, 331 and 51:1286 to tax both exclusions and exemptions Act 26: Imposed a new 1% states sales tax 10

ACT 25 Effective April 1, 2016 Taxes exclusions and exemptions All impositions were in place for April 2016 – June 2016 Imposition under R.S. 47:302 (2%) continues until June 30,

ACT 26 Imposes a new 1% sales tax under R.S. 47:321.1 Taxes exclusions and exemptions Expires 6/30/

“True Exclusions” Sales for resale Sales in interstate commerce Sales to the federal government Isolated or occasional sales Articles traded in for like items of property 13

DANELL GERCHOW LOUISIANA DEPARTMENT OF REVENUE Louisiana General Sales Tax Return 14

Louisiana General Sales Tax Return July 2015 to March 2016 April 2016 to June 2016 July 2016 to June 2018* Tax Rates5 rates 0%, 1%, 2%, 3%, & 4% 6 rates 0%, 1%, 2%, 3%, 4%, & 5% 6 rates 0%, 1%, 2%, 3%, 4%, & 5% Total number of pages for return 246 Number of supporting schedules 025 Number of pages for the instructions 2510 * Updated through the 2016 First Extraordinary Session of the Louisiana Legislature 15

Return for July 2015 to March

Return for July 2015 to March pages long; return had 17 lines Schedule A is used to report certain allowable deductions 17

July 2015 to March 2016 – Schedule A- Allowable Deductions 19 separate lines to capture data on exemptions/ exclusions Included “Other Category” How is it determined what is captured separately on Schedule A?  Items taxed at different rates  Items where taxes are dedicated  Items the LDR is frequently asked about  i.e. Sales tax holidays, utilities, food for home consumption 18

Line on Schedule A for July March 2016 Reason Intrastate telecommunication services Different rate (3%); dedicated (Tourism, Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Interstate telecommunication services Different rate (2%); dedicated (Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Electricity and natural gas or energy for non-residential use Different rate (1%); dedicated (Tourism) Steam and bulk or utility water used for other than residential purposes Different rate (1%); dedicated (Tourism) Return for July 2015 to March

Line on Schedule A for July March 2016Reason All other transactions subject to 1% Different rate (1%) Boiler fuel, except natural gas, for nonresidential use Different rate (2%); dedicated (Tourism) Prepaid telephone cardsDifferent rate (3%); dedicated (Tourism) Return for July 2015 to March

Return for July 2015 to March exemptions for sales tax as described below: 41 exemptions such as food for home consumption, sales tax holidays, vendor’s compensation, business and residential utilities, and manufacturing machinery and equipment were grouped together on 20 lines/categories on the return 26 exemptions taxed at 1% were reported on one line of the return 96 exemptions were reported on one line on the return called “other totally tax exempt sales” 20 exemptions have either no reporting requirements, or are exemptions that apply to nontaxable services 2 exemptions that by court order LDR cannot grant 6 exemptions that are refunds that are not listed on the return 1 exemption that is a credit that is not listed on the return. 21

Return for April 2016 to June

Return for April 2016 to June 2016 Schedule A is still used to report certain allowable deductions Schedule A-1 is used to capture all totally exempt sales Schedule A-2 is used to capture sales taxed at 4% Most exemptions have been assigned a 4 digit code; similar exemptions have been grouped together  i.e. Manufacturing machinery & equipment 23

Return for April 2016 to June 2016 Tax rate Number of exemptions/exclusions subject to rate Lines or codes on the return 0%6443 codes plus 7 lines 1%42 lines 2%41 line 3%11 line 4%2419 codes plus 2 lines 5%1374 lines to be used in future 24

Line on Schedule A for April to June 2016 Reason Intrastate telecommunication services Different rate (4%); dedicated (Tourism; Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Interstate telecommunication services Different rate (3%); dedicated (Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Electricity, natural gas or energy, and boiler fuel for non-residential use Reserved for future use Steam and bulk or utility water used for other than residential purposes Reserved for future use Return for April 2016 to June

Line on Schedule A for April to June 2016Reason Sales/purchases/leases/rentals of manufacturing machinery or equipment Different rate (2%); dedicated (Tourism) Prepaid telephone cardsDifferent rate (4%); dedicated (Tourism) Sales and leases to nonprofit electrical cooperatives Different rate (1%) Sales of diesel fuel, butane, propane and other liquefied petroleum gases to farmers. Different rate (1%) Return for April 2016 to June

Return for July 2016 to June

Return for July 2016 to June 2018 Schedule A still is used to report certain allowable deductions Schedule A-1 is used to capture all totally exempt sales Schedule A-2 is used to capture sales taxed at 4% Schedule A-3 is used to capture sales taxed at 3% Schedule A-4 is used to capture sales taxed at 2% Schedule A-5 is used to capture sales taxed at 1% 28

Return for July 2016 to June 2018 Tax rate Number of exemptions/exclusions subject to rate Lines or codes on the return 0%5640 codes plus 8 lines 1%125 codes plus 2 lines 2%2618 codes plus 1 line 3%10182 codes plus 1 line 4%2619 codes plus 3 lines 5%130 29

Line on Schedule A for April to June 2016Reason Intrastate telecommunication services Different rate (4%); dedicated (Tourism; Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Interstate telecommunication services Different rate (3%); dedicated (Telephone Company Property Assessment Relief Fund & Telecommunications Fund for the Deaf) Electricity, and natural gas or energy, for non-residential use Different rate (4%); dedicated (Tourism) Steam and bulk or utility water used for other than residential purposes Different rate (4%); dedicated (Tourism) Return for July 2016 to June

Line on Schedule A for April to June 2016Reason Sales/purchases/leases/rentals of manufacturing machinery or equipment Different rate (1%) Prepaid telephone cardsDifferent rate (4%); dedicated (Tourism) Sales and leases to nonprofit electrical cooperatives Different rate (2%) Sales of diesel fuel, butane, propane and other liquefied petroleum gases to farmers. Different rate (2%) Return for July 2016 to June

32 QUESTIONS ???