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Louisiana has issued a letter ruling on two types of bundled transactions that involve the sale of equipment and wireless internet service. The letter ruling discusses two scenarios that involve a wireless internet service provider that requires customers to sign a one year contract and purchase certain equipment. In both scenarios the wireless provider purchases equipment from a supplier and issues a resale certificate. The provider, in turn, sells the equipment to an authorized dealer, who also issues a resale certificate, at a below market price. In the first scenario, the customers make the purchase through the dealer and pay the same below market price. This below market price is contingent upon the customer signing the one year agreement. Therefore, in essence, the monthly payments over time represent partial payment for nontaxable internet service and partial payment for the cost of taxable equipment. In this scenario, the dealer should collect and remit tax on the below market price paid by the customer, which leaves the service provider liable for use tax on the remaining cost of the equipment. In the second scenario, the customer makes the purchase directly from the service provider. In this scenario, a credit memo is issued to the dealer on the purchase of the equipment. This leaves the provider liable for collecting the sales tax on the below market price from the customer and paying use tax on the remaining cost of the equipment. So in both scenarios tax is due on the entire cost of the equipment, but the person liable for the tax is different. (Private Letter Ruling No. 08-010, Louisiana Department of Revenue, August 15, 2008)


Louisiana issued a bulletin to remind taxpayers that effective July 1, 2008, newspapers will be excluded from the definition of tangible personal property. The sales tax exemption for newspapers has also been repealed. This exemption had been suspended since July 1, 2004, making newspapers subject to state sales tax. (Revenue Information Bulletin No. 08-017, Louisiana Department of Revenue)


The Supreme Court of Louisiana reversed the decision of the appellate court and reinstated the Board of Tax Appeals decision that a Louisiana manufacturer’s purchases of sodium chlorate, hydrogen peroxide, and elemental oxygen for use in the bleaching of white paper products are exempt from state sales and use tax. Although the Louisiana Department of Revenue contended that the bleaching chemicals are merely used during the manufacturing process, and not incorporated within the final product, the Board of Tax Appeals determined that the chemicals were necessary for “further processing”, and therefore statutorily exempt from sales and use tax.

The Supreme Court acknowledged that the Board applied the correct test in determining the ruling. The test states that raw materials “further processed” into end products are excluded from sales and use tax when: (1) the raw materials become recognizable and identifiable components of the end products; (2) the raw materials are beneficial to the end products; and (3) the raw materials are material for further processing, and as such, are purchased with the purpose of inclusion in the end products. The Court also determined that there was sufficient evidence to support the Board’s decision that the chemicals met all three criteria. (International Paper, Inc. vs. Bridges, Louisiana Supreme Court, No. 2007-C-1151, January 16, 2008)


A recent Louisiana law enables taxpayers who purchase or lease an annual average of $5 million (previously $15 million) of tangible personal property and taxable services to obtain a Direct Payment Number, enabling them to purchase materials without paying tax to the vendor. To qualify, the taxpayer must have had a $5 million average for the previous three calendar years, and must maintain the average for each subsequent three-year period. In addition, taxpayers who have entered into a tax exemption contract with the Department of Economic Development will be issued a Direct Payment Number for the duration of the contract, which will remove the taxpayer’s responsibility to remit use taxes on exempt purchases when filing monthly sales and use tax returns. (Act 456 (S.B. 445), Laws 2008, effective August 15, 2008)


The current manufacturing phase-out of Louisiana sales and use tax on certain manufacturing machinery and equipment has been accelerated to exclude 100% of the purchase, lease, or rental of qualifying manufacturing machinery and equipment for all periods beginning on or after July 1, 2009. The phased-in (complete phase-out of the tax) exclusion was originally scheduled to extend over a seven-year period that began on July 1, 2004, and was to have ended July 1, 2010. Previously, only 82% was to be excluded on July 1, 2009, and 100% on July 1, 2010. Furthermore, the exclusion of machinery and equipment used by a manufacturer in a plant facility predominately and directly in the actual manufacturing for agricultural purposes or the actual manufacturing process of an item of tangible personal property has been modified to include rubber tired farm tractors, can harvesters, cane loaders, cotton pickers, combines, haybalers, attachments and sprayers, clippers, cultivators, discs, plows, and spreaders. Additional regulations apply. (Act 12, S.B. 12, Laws 2008, 2nd Extraordinary Session, effective July 1, 2008)



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