Louisiana nexus developments.

• Author: Amitay, Sharlene
• Position: Holding company taxation

Several recent developments in Louisiana addressed nexus. Two decisions, issued at the beginning of 2004, discussed the context of out-of-state holding companies. Further, a district court recently ruled that several lawsuits challenging intangible holding company licensing transactions could proceed.

Kevin Associates, L.L C.

In Kevin Associates, L.L.C. v. Crawford, 865 So2d 34 (La. 2004), the Louisiana Supreme Court held that a Delaware-based company was subject to Louisiana corporate income and franchise taxes. The decision reversed an appellate court decision (Kevin Associates, L.L.C. v. Crawford, 834 So2d 465 (La. Ct. App. 1st Cir. 2002)). The company was part of a closely held group of corporations; all of its directors, except one (the company's Delaware-based nexus provider) were Louisiana residents. The company earned dividends from subsidiaries located in Louisiana and other states and received interest from an intercompany loan to an affiliated Louisiana corporation.

The Louisiana Supreme Court held that the company was commercially domiciled in Louisiana, because it was managed from there and its Delaware presence was merely a paper domicile. For Commerce Clause purposes, the company had a physical presence in Louisiana, because its principal place of business was in the state and it was managed from there. Thus, rather than imposing an economic nexus approach to subject an absent company to jurisdiction based on the presence of intangible assets in the state, the court deemed a physical presence to exist based on an argument more analogous to a sham-type rationale.

The Louisiana Court of Appeals had held that the company did not have nexus. It had employed a substance-over-form approach, noting that the company followed all the required formalities for establishing and maintaining a Delaware holding company. The court also noted that taxpayers are free to engage in planning to establish a tax-efficient structure. Although the Louisiana Supreme Court echoed this principle, it found that this was overruled by the fact that the company's principal place of business was in Louisiana. The court of appeals had also ruled that the company did not avail itself of Louisiana benefits and protections, a conclusion that the Louisiana Supreme Court found to be completely erroneous.

Autozone Properties, Inc.

In Bridges v. Autozone Properties, Inc., No. 2003 CA 0492, La. Ct. App., 1st Cir., 1/5/04, which was handed down before Kevin...