How did Louisiana treat property and sales connected with a Louisiana foreign trade zone in the corporation income- and franchise-tax ratios?

Plain-English summary

Louisiana treated foreign-trade-zone property and deliveries differently for corporation income tax and corporation franchise tax.

For corporation income tax, all corporeal movable property physically located in a Louisiana foreign trade zone was treated as outside Louisiana for the property ratio. For corporation franchise tax, the exclusion was narrower: the property also had to have been imported into the zone from outside the United States.

The ruling applied the same distinction to the revenue ratio. A seller could exclude sales from the income-tax numerator when the customer received the corporeal movable property in a foreign trade zone. For the franchise-tax numerator, the seller also had to deliver the property into the zone from outside the United States.

Why the income- and franchise-tax rules differed

La. R.S. 47:606(D), the franchise-tax provision, covered corporeal movable property imported into the United States and located in a Louisiana foreign trade zone. The ruling therefore limited the franchise property-ratio exclusion to imported property.

La. R.S. 47:287.95(H), the income-tax provision, covered corporeal movable property located in a Louisiana foreign trade zone without the same import limitation. The ruling applied that broader treatment to all such property.

Revenue-ratio treatment

The Louisiana Board of Tax Appeals had read the phrase “for the purposes of this section” in La. R.S. 47:606(D) to reach both the property and revenue ratios. The Department used the same reasoning for the similarly worded income-tax statute.

Common questions

Q: Was all property in a foreign trade zone excluded from the income-tax property numerator?

A: All corporeal movable property physically located there was treated as outside Louisiana under this ruling.

Q: Did franchise tax use the same rule?

A: No. The property had to be imported into the zone from outside the United States.

Q: Could sales delivered to a customer in the zone be excluded from the income-tax revenue numerator?

A: Yes, for sales of corporeal movable property received in the zone.

Q: What additional condition applied to the franchise-tax revenue numerator?

A: The seller had to deliver the property into the foreign trade zone from outside the United States.

Citations and references

• La. R.S. 47:606(D) — corporation franchise-tax foreign-trade-zone rule
• La. R.S. 47:287.95(H) — corporation income-tax foreign-trade-zone rule
• 19 U.S.C. § 81c — federal foreign-trade-zone customs treatment
• Texaco Refining & Marketing, Inc. v. Secretary, Department of Revenue, Louisiana Board of Tax Appeals Docket No. 5920 (2003)
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 06-018

Original ruling text

Revenue Ruling
No. 06-018
November 3, 2006
Corporation Income and Franchise Taxes
Allocation and Apportionment Ratio Treatments Regarding Foreign Trade Zones

Purpose: The purpose of this Revenue Ruling is to state the Department’s position regarding the
treatment of property in a foreign trade zone and its affect on corporation income and franchise taxes.
Analysis/Discussion: Foreign trade zones were established by Congress to allow foreign
merchandise to enter the United States without being subject to customs duties or certain excise taxes
in accordance with 19 USCA 81(c). Only merchandise that is delivered into the zone for the specific
purpose of being stored, manipulated, manufactured, or exhibited is not subject to the custom laws of
the United States that include duties and excise taxes.
Corporation Franchise
R.S. 47:606(D) provides that corporeal movable property imported into the United States and located
in Louisiana in a foreign trade zone is located outside of Louisiana. This property is therefore
excluded from the numerator of the property ratio. It is important to note that only corporeal movable
property imported into the United States receives this treatment for franchise tax purposes.
In Texaco Refining & Marketing, Inc vs. Secretary, Department of Revenue, BTA Docket No. 5920
(2003), the Louisiana Board of Tax Appeals ruled that because the statute specifically states: “…for
the purposes of this section…”, R.S. 47:606(D) applies to both the property and revenue ratios.
Therefore, goods, merchandise, or property imported from outside the United States and received in a
Louisiana foreign trade zone are considered received outside of Louisiana and are excluded from the
numerator of the revenue ratio.
Corporation Income
R.S. 47:287.95(H) permits corporeal movable property located in Louisiana in a foreign trade zone to
be considered as located outside Louisiana. Unlike the franchise tax provision, this applies to all
corporeal movable property, not only property imported into the United States.
Although the Board of Tax Appeals ruling in Texaco addressed the corporation franchise tax, it is
logical to assume, that since the wording in the income statute is the same “…for purposes of this
section…”, the Board would conclude that R.S. 47:287.95(H) applied to both the property and
revenue ratios. Therefore, sales of goods, merchandise, or property received in a foreign trade zone
are excluded from the numerator of the revenue ratio.
Conclusion: In the determination of the property ratio for corporation income tax purposes,
corporeal movable property is to be treated as outside Louisiana when physically located in a foreign
A Revenue Ruling is written to provide guidance to the public and to Department of Revenue
employees. It is issued under Section 61:III.101(C) of the Louisiana Administrative Code to apply
principles of law to a specific set of facts. A Revenue Ruling does not have the force and effect of
law and is not binding on the public. It is a statement of the department's position and is binding on
the department until superseded or modified by a subsequent change in statute, regulation,
declaratory ruling, or court decision.

Revenue Ruling No. 06-018
Page 2 of 2

trade zone. For corporation franchise tax purposes, to be excluded from the numerator of the
property ratio it must have been imported into the Louisiana foreign trade zone from outside the
United States.
In the determination of the income tax revenue ratio, a taxpayer selling corporeal movable property
to a customer who receives the property in a foreign trade zone may exclude the sales from the
numerator of the revenue ratio. To receive the same numerator exclusion for franchise tax purposes,
the seller must have delivered the property to the foreign trade zone from outside the United States.
Cynthia Bridges
Secretary