Case Name: DOW HYDROCARBONS & RESOURCES v. John Neely KENNEDY, Secretary, Department of Revenue and Taxation, and Richard P. Ieyoub, Attorney General of the State of Louisiana
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1997-05-20
Citations: 694 So. 2d 215
Docket Number: No. 96-CA-2471
Parties: DOW HYDROCARBONS & RESOURCES v. John Neely KENNEDY, Secretary, Department of Revenue and Taxation, and Richard P. Ieyoub, Attorney General of the State of Louisiana
Judges: LEMMON and KIMBALL, JJ., concur and assign reasons.
Reporter: Southern Reporter, Second Series
Volume: 694
Pages: 215–219

Head Matter:
DOW HYDROCARBONS & RESOURCES v. John Neely KENNEDY, Secretary, Department of Revenue and Taxation, and Richard P. Ieyoub, Attorney General of the State of Louisiana
No. 96-CA-2471.
Supreme Court of Louisiana.
May 20, 1997.
Robert G. Pugh, Pugh, Pugh & Pugh, Shreveport; Richard P. Ieyoub, Attorney General, Thomas S. Halligan, Baton Rouge, for Applicant.
Bruce James Oreck, Adams, Johnston & Oreck, New Orleans, for Respondent.

Opinion:
| iTRAYLOR, Justice.
This case comes to this Court on direct appeal from the 19th Judicial District Court of East Baton Rouge Parish pursuant to Louisiana Constitution Article V, Section 5(D) upon a declaration by that court that 1993 La. Acts No. 690 violates Article III, Section 2 of the Louisiana Constitution.
Issue
Article III, Section 2(A) of the Louisiana Constitution of 1974 provided: "No measure levying a new tax or increasing an existing tax shall be introduced or enacted during a regular session held in an odd-numbered year."
The issue before us is whether 1993 La. Acts No. 690 (hereinafter "Act 690"), which reclassifies corporate dividend income from "allocable income" to "apportionable income" for taxing purposes, constitutes a new tax or an increase to an existing tax. Because Act 690's reclassification results in an increase in corporate income tax, and because Act 690 was enacted in 1993, we find that Act 690 increases an existing tax in an odd-numbered year in violation of Article III, Section 2(A) of the Louisiana Constitution. We therefore affirm the trial court's ^declaration of the uneonstitutionality of Act 690.
Background
On June 21, 1993, in a regular session, the legislature passed Act 690 which amended certain provisions of Louisiana's corporate income tax law. The act, inter alia, reclassified certain dividend income, with the result being that a corporation not based in Louisiana but doing business in Louisiana (hereinafter "non-Louisiana corporation") would have to pay income tax on dividends received from a controlled subsidiary that earned no income in Louisiana. Before the enactment of Act 690, such income was not subject to Louisiana income tax. The act also provided that a corporation based in Louisiana (hereinafter "Louisiana corporation") would not be subject to corporate income tax on dividends received from a controlled subsidiary that earned no income in Louisiana.
Following the enactment of Act 690, several corporate taxpayers, including Dow Hydrocarbons & Resources, Inc. ("Dow"), paid their corporate income taxes in accordance with Act 690 under protest and filed suit for refunds alleging that Act 690 violated Article III, Section 2(A) of the Louisiana Constitution and the Commerce Clause of the United States Constitution.
Resolving cross motions for summary judgment, the district court concluded that Act 690 violated Article III, Section 2(A) of the Louisiana Constitution. The court found that the reclassification of dividend income amounted to a new tax or an increase to an existing tax, stating in his Amended Written Reasons for Judgment, "it matters not whether one categorizes Act No. 690 as a new tax or an increase in an existing tax. Both are prohibited by the Louisiana Constitution if passed in an odd-numbered year."
Act 690
Under Louisiana corporate tax law, all corporate income is segregated into either "ap-portionable" or "allocable" income. La.R.S. 47:287.92. This classification determines the method of taxation for that income. Alloca-ble income is allocated directly to the states where the income is earned or derived, while apportionable income is subject to taxation in Louisiana based on an apportionment percentage regardless where such income is derived. La.R.S. 47:287.93-94. Therefore, Louisiana only taxes allocable income which is earned in Louisiana, La.R.S. 1347:287.93, whereas Louisiana taxes a percentage of all apportionable income without regard to its geographic source. Apportionable income is the default category as it includes all items of gross income not specifically included in allo-cable income. La.R.S. 47:287.92(0).
Prior to Act 690, dividend income was classified as allocable. The former La.R.S. 47:287.92(B)(4), deleted by Act 690, listed "[djividends from corporate stock" as alloca- ble income. Additionally, the former subsection (4) of La.R.S. 47:287.93(A), also deleted by Act 690, provided that dividend income was to 'Tie allocated to the state in which the securities or credits producing such income have their situs ." Therefore, prior to Act 690 a corporation was not subject to tax on dividends received from a subsidiary provided that the subsidiary earned all of its income outside of Louisiana. Because the default category is apportionable income, Act 690's deletion of these subsections changed the classification of dividend income from allocable income to apportionable income. Consequently, the previously untaxed income received from such sources is now subject to Louisiana corporate income tax.
A discussion of Act 690 would not be complete without noting that while non-Louisiana corporations are required to pay taxes on dividends from controlled subsidiaries, Louisiana corporations are not. La.R.S. 47:287.94(1), added by Act 690, instructs Louisiana corporations to segregate dividend income from controlled subsidiaries and attribute that income to the states or foreign countries where the subsidiary earns its income. Thus, a Louisiana corporation is not taxed on dividend income received from a controlled non-Louisiana subsidiary which earns all of its income outside of Louisiana, whereas a non-Louisiana corporation is taxed on such income.
Analysis
Article III, Section 2 of the Louisiana Constitution prohibits the enactment of any measure levying a new tax or increasing an existing tax during a regular session held in an odd-numbered year.
|4The legislature enacted Act 690 in June of 1993, an odd-numbered year, during a regular session with an effective date of the previous January 1, 1993. 1993 La. Acts No 690. The remaining question is whether Act 690 is prohibited as imposing a new tax or increasing an existing tax.
The initial determination as to whether Act 690 is a tax is not difficult. The stated purpose contained within Act 690 is "[t]o amend and reenact . relative to the classification of income for the purposes of the corporation income tax." All of the deletions and additions effected by Act 690 occur within Part II-A., entitled "Louisiana Corporate Income Tax," of Title 47. Act 690 clearly deals with corporate income tax. Moneys collected by the state pursuant to the Louisiana Corporate Income Tax statutes are taxes. The moneys paid to Louisiana pursuant to the statutes modified by Act 690 are taxes.
While a determination as to whether Act 690 is more appropriately characterized as a new tax versus an increase to an existing tax is somewhat difficult, that it is one of the two is easily diseernable. Act 690 reclassifies dividend income from allocable to ap-portionable. Consequently, non-Louisiana corporations must pay income tax to Louisiana on dividend income received from a controlled subsidiary that earned the income elsewhere. Simply put, prior to Act 690, corporations did not pay this tax to Louisiana. Under Act 690, they must pay this tax to Louisiana. This is an increase to corporate income tax. Although paying taxes on income previously not taxed is arguably a new tax, it matters not whether Act 690 is characterized as a new tax or an increase to an existing tax as both are violative of Article III, Section 2.
Decree
For the foregoing reasons, we find that Act 690 is a new tax enacted in an odd-numbered Isyear in violation of Article III, Section 2(A) of the Louisiana Constitution. We therefore affirm the trial court's declaration of the unconstitutionally of 1993 La. Acts No. 690.
AFFIRMED.
LEMMON and KIMBALL, JJ., concur and assign reasons.
Johnson, J., not on panel. Rule IV, Part 2, § 3.
. Article III, Section 2 was amended effective November 18, 1993; however, Act 690 was enacted prior to that date.
. Controlled by direct ownership of fifty percent or more of the voting stock. La.R.S. 47:287.94(1).
.Louisiana taxes apportionable income based on the Louisiana Apportionment Percentage calculated according to the provisions of La.R.S. 47:287.95. La.R.S. 47:287.94.
. Based upon this apparent discrimination between in-state and out-of-state corporations Dow contends that Act 690 also violates the federal constitution. Because we find that Act 690 violates the Louisiana Constitution, we do not reach the question as to whether Act 690 also violates the Commerce Clause of the United States Constitution.
. Article III, Section 2 has since been amended to also prohibit "legislating with regard to tax exemptions, exclusions, deductions or credits" during an odd-numbered year. The amendment, effective November 18, 1993, does not affect our analysis.
.Where the collected moneys at issue are clearly taxes, there is no need to digress into an analysis of legislative intent. See La.Civ.Code art. 9. Where the collections could reasonably be a fee or some other non-taxing collection pursuant to the state's police power, the legislative intent to raise revenue could be controlling. Audubon Insurance Co. v. Bernard, 434 So.2d 1072 (La. 1983). There are no such assertions here.
. The state has suggested that we, the Court, upon a finding of unconstitutionality, should simply sever the offensive portion of the act and leave the remainder intact. We will only do so where the objective of the act can still be achieved without the offensive portion. Louisiana Associated Gen. Contractors v. State, 669 So.2d 1185, 1201 (La.1996). Such a severance requires a determination that the legislature would have passed the act in the absence of the invalid portion. Id. Where, as here, the purpose of the statute is defeated by the unconstitutional portion, the entire act is void. Id. It is not within the authority of the judiciary to rewrite the legislation in order to salvage the remainder. Nor do we find any authority for a judicial "line-item veto." The entire act is void ab initio.