Was an oil and gas corporation commercially domiciled outside Louisiana even though it maintained a Louisiana administrative and operations office?

Plain-English summary

The corporation's commercial domicile was in the state of its out-of-state headquarters, not Louisiana.

Although the company had a Louisiana administrative office handling day-to-day operational work, engineers, geology, accounts processing, human resources, and local land support, the business as a whole was directed and managed from headquarters in State A.

Headquarters facts that controlled

The out-of-state office housed corporate records, the CEO, CFO, finance staff, acquisition personnel, and other key employees. It was where the company:

• Evaluated, negotiated, approved, signed, and closed acquisitions and divestitures.
• Approved major drilling, construction, operational, litigation, insurance, and expenditure decisions.
• Held management meetings and maintained governance records.
• Managed banking, cash, wire transfers, budgets, financing, loans, checks, and monthly financial review.

Approximately 98% of producing properties were outside Louisiana, and the ruling described property acquisition and disposition as the heart of the business.

No bright-line test

Commercial domicile was the state from which the business was actually directed or managed and that furnished the bulk of governmental protection. The Department examined material facts and commercial practices as a whole, not merely paper structure, board-meeting location, or the presence of management employees.

The ruling assumed that transactions said to close in State A involved substantive work there, not merely bringing documents in for signature.

Common questions

Q: Was Louisiana the commercial domicile?

A: No.

Q: Did significant Louisiana operations decide the issue?

A: No. Strategic direction and management of the whole business occurred at headquarters.

Q: Is board-meeting location alone controlling?

A: No.

Q: Was there a single bright-line factor?

A: No. The Department considered all material facts together.

Citations and references

• LAC 61:I.306(A)(1)(h)(iii) — commercial domicile
• Kevin Associates, L.L.C. v. Crawford, 865 So. 2d 34 (La. 2004)
• United Gas Corp. v. Fontenot, 129 So. 2d 748 (La. 1961)
• North Baton Rouge Development Co. v. Collector of Revenue, 304 So. 2d 293 (La. 1974)
• Pelto Oil Co. v. Collector of Revenue, 384 So. 2d 533 (La. App. 4th Cir. 1980)
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 04-004

Original ruling text

Louisiana Department of Revenue

Private Letter Ruling
Redacted Version
No. 04-004
September 13, 2004
Corporation Income Tax and Corporation Franchise Tax
Location of the Commercial Domicile of a Corporation
This is in reply to your request for a private letter ruling concerning the location of the
commercial domicile of ABC, Inc.
Facts
You provided the following facts:
ABC is a corporation engaged in exploration and production activity within the oil and gas
industry. While ABC maintains an office in City B, Louisiana, the executive decisions regarding
the company’s oil and gas properties and rig operations come from the office in City, State A.
ABC’s corporate headquarters is located in its City, State A office and corporate governance
records are maintained there. The finance department is also located in the City, State A office,
and all financing is obtained from non-Louisiana lending institutions. All depository accounts are
kept with banks in State A, and all company checks are signed at the City, State A office. All
significant business transactions, including sales and acquisitions, are closed in the City, State A
office (or in any such other location as the conditions may require); however, no such
transactions or closing take place in Louisiana. An executive located in the City, State A office
must approve all decisions of strategic or significant importance, and no meetings of the Board
of Directors are held in Louisiana. In addition, quarterly management meetings are conducted at
the State A office. Finally, the majority of ABC’s corporate assets are not located and shall not
be located in the future in Louisiana.
Approximately 98% of ABC's producing properties are located outside the territorial limits of
Louisiana. While these properties produce the company's income, the decisions to buy each of
these properties and the decisions to sell or trade earlier owned properties were made and
consummated in City, State A or outside Louisiana. This activity, the buying and selling of
properties, is the "heart and soul" of ABC's activities and what determines whether in the long
run ABC is a successful company.
The buying and selling activities involve many different facets. The company's CEO sets the
course for the company. His work is almost substantially all involved in this buying and selling
activity. These "deals" can take months or years from start to finish to consummate. The CEO
works on these deals in City, State A. City, State A is where the other parties to these deals are

617 North Third Street
Baton Rouge, Louisiana 70802
225-219-2700 ‚ 225-219-2708 Fax
www.rev.state.la.us

Private Letter Ruling 04-004, Redacted Version
Page 2 of 4
September 13, 2004
located, and City, State A is where other key company personnel and all the data and other due
diligence materials are located.
The company's Vice-President of Acquisitions and its Acquisitions Manager have been in City,
State A for some period of time. All of their time is spent in City, State A, and they are each
residents of State A. All of the data for these deals is presented in City, State A, is evaluated in
City, State A, and all decisions about whether to pursue the deal or not are made in City, State A.
All negotiations take place in City, State A, and all contracts are signed and sealed in City, State
A.
The company's CFO is located in the City, State A headquarters office together with his Finance
Department staff. The financing of these deals is an integral part of each transaction, and the
financing activity is in City, State A with City, State A sources of capital or with sources of
capital not located in Louisiana.
Executive management activities in City, State A:
All matters of strategic or significant importance are initiated or approved by an executive in the
headquarters office. These activities include the following:

1. Acquisition and divestiture offers (a mainstay of the corporate strategy).
2. Acquisition and divestiture agreements are signed and maintained in the headquarters
   office.
3. Any authorization for expenditure in excess of $1,000,000.
4. Drilling and exploration agreements with other companies must be approved by an
   executive in the headquarters office.
5. Quarterly meetings of key managers with executives occur in the headquarters offices.
6. Consent for operations in excess of $1,000,000 proposed for a non-operated property
   must be approved by an executive in the headquarters office.
7. Construction or drilling contracts in excess of $1,000,000 must be approved and signed
   by an executive in the headquarters offices.
8. Any matter subject to litigation or arbitration must first be approved by an executive in
   the headquarters office.
9. All matters regarding casualty insurance are handled by an executive in the City, State A
   office.
   All matters relating to finance are initiated or approved by an executive in the headquarters
   office. These activities include the following:
   1.
   2.
   3.
   4.
   5.
   6.

Daily review of cash deposits.
Draws and pay downs of bank lines must be initiated by headquarters.
Wire transfers must be approved and initiated at headquarters.
Bank records are maintained at headquarters.
Budget review and approval for all departments is done at headquarters.
Loan negotiations and closings (no Louisiana banks are involved) are conducted in the
headquarters office.

7. Merger and acquisition opportunities are evaluated by the finance department staff based
   in headquarters.
8. Checks are printed and signed in the headquarters office.

Private Letter Ruling 04-004, Redacted Version
Page 3 of 4
September 13, 2004

9. Monthly review of financial results occur with the CFO and CEO in the headquarters
   offices, together with analysis and decision making thereon.
   The Company has an administrative office in City B, Louisiana. Certain day-to-day operational
   issues are handled in City B, Louisiana. For example, engineers and geologists work with the
   field on issues relating to production and drilling operations. Accounts payable and receivable
   personnel process invoices and input them into the computer system. The human resource
   function is controlled from the City B office. Land men act in support of these operations locally,
   particularly as it relates to the US Minerals Management Service office in Louisiana.
   Currently, all of the Company’s properties are located outside the territorial limits of Louisiana,
   primarily in the federal Outer Continental Shelf waters.
   Discussion
   The Louisiana tax statutes do not define “commercial domicile.” The Department relies on
   decisions rendered in United Gas Corp. v. Fontenot, 241 La. 488, 129 So.2d 748 (La. 1961), and
   North Baton Rouge Development Co., Inc. v Collector of Revenue, 304 So.2d 293 (La. 1974),
   Pelto Oil Co. v. Collector of Revenue, 384 So.2d 533 (La. App. 4th Cir. 1980), and Kevin
   Associates, L.L.C. v. Crawford, 865 So.2d 34 (La. 2004) and its regulation, LAC 61:I:
   306(A)(1)(h)(iii), for guidance.
   In the most recent Louisiana case on commercial domicile, Kevin Associates, the Louisiana
   Supreme Court observed that the commonly used definition of the term “commercial domicile”
   is the place from which the business is directed or managed. The court stated that the concept
   underlying commercial domicile permits a state to determine that it is the state of domicile for a
   corporation for tax purposes when it furnishes the bulk of the governmental protection to that
   corporation. This determination is to be based on the corporation’s actual commercial practices
   rather than its structure on paper and is to be made by considering the material facts as a whole.
   The court also noted that this concept has been incorporated into the Department’s regulation.
   The court determined that its definition of the term “domicile” was appropriate because the state
   where the actual commercial practices of the corporation are conducted is the state that furnishes
   the bulk of governmental protection to the corporation.
   The Department’s regulation, LAC 61:I: 306(A)(1)(h)(iii), defines “commercial domicile” as
   follows:
   Commercial Domicile is in that state where management decisions are
   implemented which is presumed to be the state where the taxpayer conducts its
   principal business and thereby benefits from public facilities and protection
   provided that state. Commercial domicile cannot be assigned to a state where the
   taxpayer has no substantial operation or facility, other than the location of one or
   more management level employees. The location of board of directors’ meetings
   is not presumed to create commercial domicile at the location.
   There is, therefore, no “bright line” test to determine a corporation’s commercial domicile.
   Instead, the facts and circumstances of the corporation’s actual commercial practices must be
   looked at as a whole in order to determine from which state the business is directed or managed.
   Prior to making this determination, it is necessary to assume that certain facts exist in addition to
   the facts provided. When your facts state that certain transactions are completed, certain

Private Letter Ruling 04-004, Redacted Version
Page 4 of 4
September 13, 2004
decisions are made, and certain documents are signed in City, State A, we assume that the
majority of the processes leading to those actions took place in State A. For example, when you
state that all significant business transactions will be “closed” in City, State A, the Department
assumes that is not a simple matter of bringing documents to City, State A for signature.
Although ABC does have significant operations in Louisiana and many of the day-to-day
business activities and decision-making take place in Louisiana, when all of the corporation’s
business operations are taken as a whole it appears that the business is directed and managed
from corporate headquarters in City, State A. Therefore State A is the commercial domicile of
ABC.
Ruling
Based on the information as provided and necessary assumptions, the commercial domicile of
ABC, Inc. is in State A.
Sincerely

Cynthia Bridges
Secretary

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided
for by section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at
the taxpayer's request. It is a written statement that applies principles of law to a specific set of facts or a particular
tax situation. A PLR does not have the force and effect of law, and is not binding on the person who requested it or
on any other taxpayer. This PLR is binding on the department only as to the taxpayer to whom it is addressed, and
only if the facts presented were truthful and complete and the transaction was carried out as proposed. It continues
as authority for the department's position unless a subsequent declaratory ruling, rule, court case, or statute
supersedes it.