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199 purposes is an affiliated group as defined in the internal revenue codes associated

with consolidated returns except the 80% rule is replaced by a 50% rule. Under proposed

federal regulations, the deduction is allocated among members of the expanded affiliated

groups in proportion to each member’s respective amount of qualified production activity

income.

Rulings

How will the IRC § 199 deductions be allocated among members of a federal expanded

affiliated group for the purposes of calculating Louisiana corporation tax? How will the

individual corporation determine the portions of the total amount allocated to it that is

attributable to allocable income, apportionable income or income not taxed by Louisiana?

The amount of Section 199 deduction attributed to each member of an expanded

affiliated group will be the amount determined under federal law and regulations. In

general, for federal purposes corporate members of expanded affiliated groups are treated

as a single taxpayer for the purpose of computing the section 199 deduction allowed all

members in total. Following the proposed federal regulations, that total deduction is

allocated among members of the expanded affiliated group in proportion to each

member’s respective amount of qualified production activity income (QPAI). The

proposed federal regulations also provide that if a member has negative qualified

production activity income (QPAI) the qualified production activity income of that

member shall be treated as zero. The federal regulations recognize this will at times cause

a member with no taxable income or no wages to be allocated Section 199 deductions.

Once the domestic production activities deduction allocated to a corporation is

determined, further allocation is necessary to determine the extent to which the deduction

is attributable to allocable income, apportionable income or income that will not bear

Louisiana income tax. To accomplish this:

1. The federal basis QPAI of the corporation will be segregated into QPAI that is

allocable income, QPAI that is apportionable income and QPAI that is not subject

to Louisiana income tax.

2. The domestic production activities deduction will be attributed to each

classification to the extent of the ratio of each classification’s QPAI to total QPAI

for all classifications.

3. Any negative QPAI amounts will be treated as zero.

The domestic production activities deduction attributed to allocable income will be

considered a deduction in computing Louisiana net allocable income to the extent of the

ratio of allocable QPAI allocable to Louisiana to total allocable QPAI.

The domestic production activities deduction attributed to apportionable income will be

considered a deduction in computing Louisiana net apportionable income to the extent of

the ratio of apportionable QPAI apportionable to Louisiana to total apportionable QPAI.

Form 06-003 - Calculation Of The Domestic Production Activities Deduction For Lousiana Corporation Income Tax Purpose Page 2