The Tax Cut and Jobs Act's new base erosion and antiabuse tax is not eligible for the Louisiana deduction for federal income taxes paid, according to a recent state Department of Revenue guidance.
The DOR's July 11 revenue information bulletin explains that Louisiana allows corporations to deduct federal taxes “based on net income, accumulated earnings, war profits, excess profits, personal holding company income, and tax from recomputation of investment credit” under La. R.S. 47:287.85.
The BEAT, set out in IRC section 59A, is a minimum tax imposed on corporations with average annual gross receipts of at least $500 million over the previous three-year period that make payments to foreign affiliates over a certain threshold to prevent income shifting.
The guidance says the federal alternative minimum tax, which the BEAT replaced, was eligible for the state deduction to the extent it was applied to regular taxable income, but notes that the AMT was specifically allowed to be deducted under La. R.S. 47:287.83(B) and La. R.S. 47:287.85(B). Because the statute does not specifically provide that the BEAT paid on regular taxable income is allowed as part of the deduction, taxpayers may not claim the federal income taxes paid deduction for the BEAT, the bulletin says.
“It would appear that any federal income taxes paid related to transfer pricing adjustments or similar types of adjustments would also not be an income tax” under the DOR’s logic as evidenced in the bulletin — which would be absurd, Jaye Calhoun of Kean Miller LLP told Tax Notes July 12, adding that the bulletin “reaches its questionable conclusion without much analysis.” She said that “the BEAT is computed with reference to a taxpayer’s ‘modified taxable income,’ which is essentially taxable income with certain expenses added back,” and that it seems clear it is an income tax for purposes of the state deduction.
Calhoun said it's “also possible that the department is premising its interpretation on its regulation, which creates new defined terms ‘regular federal income tax’ and ‘regular tax on ordinary net income.’” But the statute does not use those terms and “the regulation only appears to use those terms for determining the [federal income tax] deduction for a taxpayer that files a consolidated federal return,” she added.