Calvetti Ferguson

Update on the Single Sales Factor in Louisiana

-Jennifer Barajas, CPA

Louisiana Governor John Bel Edwards signed legislation on June 28, 2016, to adopt changes to the Louisiana corporate income tax apportionment formulas for certain businesses and to provide rules for the sourcing of income relating to certain sales. These corporate income tax amendments apply to all taxable periods beginning on or after January 1, 2016. Prior rules continue to be in effect for taxable periods beginning before January 1, 2016.

History & Background
Under Louisiana corporate income tax law, income is apportioned to Louisiana using one of several statutory formulas depending upon the type of business from which the taxpayer primarily derives its income. The default apportionment formula for taxpayers not specifically required to use a special apportionment formula is a three-factor formula based on the average of the taxpayer’s property value, payroll and sales. The new rules provide a single-sales factor apportionment formula for most taxpayers and a four-factor apportionment formula for oil and gas companies. Additionally, sales other than sales of tangible personal property and sales of services are now sourced to Louisiana if the taxpayer’s market for sale is in the state.

H.B. 20: Single-Sales Factor Formula, Gross Apportionable Income

Louisiana requires one of two methods for calculating single sales factor apportionment for tax years beginning on or after January 1, 2016, depending on the taxpayer’s industry classification.

General Rule
Most taxpayers now calculate their sales factor using a combination of net sales and other gross apportionable income. It is equal to the ratio of (1) Louisiana-sourced net sales made in the regular course of business plus other Louisiana-sourced gross apportionable income to (2) total net sales made in the regular course of business plus total other gross apportionable income (sourced both within and outside of Louisiana).

Transportation Companies & Service Organizations
The sales factor for transportation companies (excluding pipeline transportation companies) and service organizations is equal to the ratio of (1) gross apportionable income sourced to Louisiana to (2) total gross apportionable income sourced within and outside of Louisiana.

H.B. 20: 4 Factor Apportionment for Oil and Gas Companies

Taxpayers defined as integrated oil companies now calculate their Louisiana apportionment factor using the standard three-factor (property, payroll, and sales) rule with double weighted sales. This includes taxpayers that derive income primarily from exploration, production, refining or marketing of oil and gas and integrated oil companies.

Look for more information in our next Louisiana update on market based sourcing rules for sales other than sales of tangible personal property.