Louisiana: Sales tax treatment revised; permanently attached “other constructions”

Louisiana: Sales tax treatment revised

Louisiana’s sales and use tax treatment of services or transactions involving “other constructions” that are permanently attached to the ground has been revised, by legislation passed in a recent special session of the Louisiana legislature.

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Background

Louisiana’s state-level sales and use tax as of April 1, 2016, is made up of different components:

  • A 2% tax levied under R.S. 47:302
  • A 1% tax levied under R.S. 47:321
  • What equates to a 1% tax levied under R.S. 47:331
  • A new, temporary 1% tax levied under R.S. 47:321.1

Effective April 1, 2016, there also is an “exclusive list” of the exclusions and exemptions that will be allowed under each of the four historical components of the state sales and use tax—in other words, a list effectively suspending those exemptions and exclusions that were allowed prior to April 1 and that are not included in the “exclusive” list.  

One of the suspended provisions relates to “other constructions” permanently attached to the ground (land), as provided in R.S. 47:301(16)(l). 

Under R.S. 47:301(16)(l), the term “tangible personal property” does not include “other constructions” permanently attached to the ground. The statute requires such other constructions to be treated as immovable property.  This provision alters—for state and local sales and use tax purposes only—the Louisiana Civil Code, which classifies “other constructions” as movable property when there is no unity of ownership between the other constructions and the land on which they are located. 

Accordingly, for sales and use tax purposes, “other constructions” have historically been treated as immovable property if they are permanently attached to the land, regardless of who owns the underlying land.  

Persons constructing, selling, leasing, renting, or repairing “other constructions” that are permanently attached to the ground have been required to treat those constructions, for both state and local sales tax purposes, as immovable property. This characterization has a number of tax implications. Notably, sales and use tax has not been collected by sellers or lessors of “other constructions” because such transactions do not involve the sale, rental or lease of tangible personal property.

Repair services on such “other constructions” treated as immovable property have not been taxable because only repair services performed on tangible personal property are taxable. Instead, persons performing repairs on “other constructions” have owed state and local sales or use tax on the materials that they acquire for repairing such property.

Changes to treatment of “other constructions"

House Bill 61 sets forth specific exemptions and exclusions that apply for purposes of the four state sales tax components in effect prior to the special session. Louisiana Revised Statute 47:301(16)(l)—which mandates that other constructions be treated as immovable property, even if there is no unity of ownership with respect to the underlying land—was not included in the exclusive lists. This means that during the suspension periods, other constructions will be treated as tangible personal property for purposes of the four state sales tax components in effect prior to the special session.

Effective April 1, 2016, persons selling, leasing, renting, or repairing “other constructions” that do not share unity of ownership with the owner of the land are  liable for collecting and remitting state sales tax on such transactions as tangible personal property (for purposes of the four sales tax components in effect prior to the special session).  

Sales, leases or rentals of such property are subject to state sales and use tax as sales, leases or rentals of tangible personal property. Any repair services performed on such property is now considered a repair to tangible personal property subject to state sales and use tax. 

The rate of tax due on such transactions is 4% through June 30, 2016, and 2% through June 30, 2018.

 

Read an April 2016 report [PDF 167 KB] prepared by KPMG LLP: Louisiana: Special session revises treatment of services performed on and taxability of transactions involving “other constructions”  

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