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GILTI Classified as Dividend Income, Louisiana Guidance Says

Posted on Oct. 10, 2019

Global intangible low-taxed income will be classified as dividend income for Louisiana income tax purposes, according to recent Department of Revenue guidance.

According to an October 8 DOR revenue information bulletin, dividend income is 100 percent deductible now that the temporary 72 percent deduction enacted under 2015 legislation (H.B. 624) has expired. Therefore, the DOR said, no portion of GILTI income is taxable for Louisiana corporation income tax purposes.

The federal Tax Cuts and Jobs Act enacted IRC section 951A, which subjects U.S. shareholders of controlled foreign corporations to tax on GILTI, with section 250 allowing domestic corporations a deduction equal to 50 percent of the GILTI amount. A deduction related to GILTI income taken on a corporation’s federal return is not allowed for state income tax purposes and must be added back, according to the guidance.

The department noted that individual taxpayers are not eligible for the deduction in IRC section 250, nor are they eligible for a state deduction for dividends like the one allowed for corporate income tax filers. Therefore, "all GILTI income for a resident individual is included for Louisiana individual income tax purposes,” the guidance says.

Adding that Louisiana classifies dividends as allocable income, the guidance said nonresidents must report the amount of GILTI income allocable to the state on their Louisiana nonresident and part-year resident income tax return. The DOR provides similar guidance on reporting GILTI income for resident and nonresident trusts.

Jaye Calhoun of Kean Miller LLP told Tax Notes October 9 that the bulletin acknowledges that dividends are not taxable under Louisiana law regarding corporate taxpayers and requires them to make an adjustment so they are not double-dipping or otherwise benefiting from the federal GILTI deduction. But she added that there are many unresolved constitutional issues.

“The interesting issue is what impact the inclusion of this income will have on Louisiana apportionment,” Calhoun said. “Because the income is, by definition, foreign-source, Louisiana should not be able to tax it.”

Calhoun continued that there is no federal GILTI deduction for individuals or fiduciaries and Louisiana taxes resident individuals and trusts on income wherever derived. “While individuals and trusts will benefit from the Louisiana deduction for federal income tax paid, it’s likely that these taxpayers will not have foreign tax credits to claim against this income,” she added.

IRC section 965 repatriation income is also considered deemed dividend income for Louisiana income tax purposes, according to October 2018 guidance.

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