Lagniappe Tips When Buying Louisiana Tax Credits

Posted on July 11th, 2014 by Lenny Alsfeld

Buying Louisiana tax credits is a relatively easy way to reduce your state income tax (and sometimes franchise tax) liability. The following is a sampling of issues you and your legal or tax professional should discuss when making the decision to purchase tax credits.

The tax credits must be earned in compliance with applicable statutory and regulatory requirements.

In certain cases, this may mean the credits are “certified” by a state department, and in other cases your professional may have to review applicable documentation to determine if the credits have been legally earned by the seller.

There is also a new tax credit registry administered by the Louisiana Department of Revenue and with this registry comes new paperwork and regulations. Be sure that your professional is up to date with the latest requirements for obtaining credits and then properly applying them against your tax liability. For example, if you are purchasing motion picture tax credits that were certified by Louisiana Economic Development on or after January 1, 2014, you will need to complete a Form R-6140 with your seller in order to transfer the credits, and you will need to wait until you receive a Form R-6135 from the Louisiana Department of Revenue before you can apply these tax credits against your tax liability.

Reputation matters.

Use only reputable brokers or sellers when purchasing tax credits. There have been instances of fraud by individuals selling fake credits or credits that they did not own. Therefore, make sure that you use a reputable broker, and get the advice of an attorney in order to help protect your investment.

Ensure you get “clean” title.

Tax credits are described as “general intangibles” subject to the Louisiana UCC rules and can be pledged by the person earning the credits as collateral for their indebtedness. A professional can perform a UCC check to determine if the tax credits are subject to such liens and can assist with removing them. A reputable broker, however, should have performed this step upon its own purchase of the credits, but if you are purchasing the credits directly from the credit earner, such as a production company, you will want to have a professional ensure that any liens or security interests are removed prior to your purchase.

Put it in writing.

Put the details of your agreement with the seller in writing. This includes but is not limited to the price, the amount of tax credits being purchased, the tax year of the tax credits being purchased, and the social security or federal identification numbers of both parties. The seller should also warrant that it neither claimed on its own behalf nor conveyed to any other transferee the tax credits being transferred and sold to you.

Notify the State.

Most statutes require state notification of the credit transfer within 10-30 days of the transaction, depending on the type of tax credit being transferred. So be sure to review the statutes and rules governing the particular type of credit being purchased to ensure your compliance with the law. Copies of the transfer documentation, state tax credit certification letter, and any forms issued or required by the Louisiana Department of Revenue, if applicable, should be sent to the state as well. Some credits, like the motion picture tax credits, also require a separate processing fee for each tax year of tax credits transferred.

Consider transferability limits.

Some tax credits have a limit on the number of times they can be transferred, and some cannot be transferred at all. For example, while motion picture tax credits are not limited, live performance tax credits may only be transferred once to one transferee. Always check the law and verify with your professional to ensure that you are within the transfer limits.

Not all tax credits are the same.

There are many forms of tax credits—motion picture, digital media, solar and historic, just to name a few. Each type of tax credit has its own set of rules and regulations. So be mindful that your transfer must adhere to the particular rules surrounding that type of tax credit in order for the transfer to be valid.