July 18th, 2016
The First Circuit Court of Appeals in Louisiana has handed a small victory to businesses who claim the Louisiana Research and Development Tax Credit.
Promyse Prosthetics is a small home grown business that provides custom orthotics and prosthetics to kids and veterans. They applied for state research and development tax credits and were denied after being approved for several years. The state benefit is administered through the Louisiana Department of Economic Development that opined that their department is the final decision maker in awarding the research credit to businesses under Louisiana Revised Statute 47:6015. The Louisiana research credit statute adopts the definition of qualified research as codified in Internal Revenue Code § 41, and states the business shall receive the credit if it satisfies the definition of qualified research.
On the heels of a recent decision related to the Quality Jobs Program, the LED argued that the court does not have jurisdiction to review the decision of the LED and a taxpayer’s qualifications. The LED also argued that the taxpayer does not have a property right in receiving the credit and therefore due process protections are not granted. The district court granted the LED’s exceptions to dismiss the case, and Promyse Prosthetics appealed to Louisiana’s First Circuit Court of Appeals.
The First Circuit Court of Appeals summarily disagreed with the district court and ruled that the taxpayer does have a property interest in the tax credit as provided in La. R.S. 47:6015 and the district court has jurisdiction as authorized by the Louisiana Constitution. The court found the legislature set forth mandatory requirements, leaving the LED without discretion except to determine whether the requirements of La. R.S. 47:6015(B)(2) are met, thereby creating a property interest. The court went further and held that the district court has subject matter jurisdiction to hear the claims of due process and the LED exceeded its legislative authority. Ultimately, the court reasoned that district courts must act as gatekeepers against unconstitutional actions, as alleged by Promyse and reversed the district court’s ruling.
The executive branch in Louisiana cannot make arbitrary decisions related to the research credit without being subject to judicial review any longer. Taxpayers and business owners now have an avenue for recourse against the LED that was denied in the past. Not bad for a small prosthetics company from Shreveport, Louisiana.
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