Was severance paid by a Louisiana employer sourced to Louisiana after the former employee moved to another state?

Plain-English summary

The Department sourced the former employee's severance to the state where the employee lived when each payment was received. Payments received while the individual was a Louisiana resident were sourced to Louisiana; payments received after the individual established residence in another state were sourced to that new state.

The result rested on treating the payments as severance unrelated to services rather than compensation for work previously performed.

Facts that mattered

The requester had been a member of a professional athletic team, stopped working for the Louisiana employer early in 2000, and no longer rendered services to that employer. The employment agreement provided payments equal to compensation that would have been received had employment continued, but the facts characterized those payments as severance rather than compensation.

The individual had not been a Louisiana resident since early 2000 and had established residence in another state.

Why residence controlled

The ruling cited an Idaho decision describing severance as a benefit for a displaced employee rather than payment for past work. It also cited proposed uniform state regulations for nonresident professional athletes, which excluded severance, termination pay, contract or option-year buyouts, and other payments unrelated to team services from athlete-income apportionment.

Based on that treatment, the Department sourced each severance payment to the recipient's residence rather than allocating it to Louisiana team services.

Common questions

Q: Did the ruling say all payments from a former Louisiana employer escape Louisiana tax after an employee moves?

A: No. Its conclusion depended on the supplied characterization of these payments as severance unrelated to services.

Q: What happened to payments received before the move?

A: Severance received while the taxpayer was a Louisiana resident was sourced to Louisiana.

Q: Did the ruling expressly resolve the employer's withholding responsibility or every other Louisiana tax question raised?

A: The published text states that those questions were asked, but its express conclusion addresses where the severance was sourced. It does not separately state a withholding or other-tax conclusion.

Q: Can another taxpayer rely on this ruling?

A: No. The ruling states that it may not be used or cited as precedent and bound the Department only for the requesting taxpayer under the stated conditions.

Citations and references

• Idaho State Tax Commission Docket No. 12274 — treatment of severance as unrelated to past services
• Federation of Tax Administrators, State Income Taxation of Nonresident Professional Team Athletes: A Uniform Approach (Mar. 1994)
• Proposed uniform regulation, Compensation Received by Nonresident Professional Athletes (b)(2) and (b)(4)(i)
• LAC 61:III.101(C) — Private Letter Ruling authority and reliance limitations

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 01-004

Original ruling text

STATE OF LOUISIANA

DEPARTMENT OF REVENUE
POLICY SERVICES DIVISION
M. J. "MIKE" FOSTER, JR.

CYNTHIA BRIDGES

Governor

Secretary

Private Letter Ruling 01-004
Redacted Version
October 3, 2001
A Private Letter Ruling concerning the application of Louisiana
personal income tax has been requested. Specifically, the Department
of Revenue was asked whether severance pay is subject to Louisiana
personal income tax and whether a Louisiana entity is responsible for
withholding this tax. In addition, the Department of Revenue was asked
whether a Louisiana entity in such a situation would be liable for any
other taxes imposed by Louisiana upon the severance payments.
The following is a summary of the facts as supplied by the taxpayer
requesting the Private Letter Ruling (Individual A):
• Individual A has not been a resident of Louisiana since early
2000.
• Individual A has established residency in another state.
• Individual A was a member of a professional athletic team and
was required to perform services on behalf of a professional
athletic team on a regular basis.
• Individual A receives severance payments, not compensation,
under an employment agreement that was entered into several
years ago with a Louisiana entity.
• Employment was defined as ending on January 31, 2003, unless
employment was ended sooner.
• Employment was ended early in the calendar year 2000.
• Individual A is no longer employed and no longer renders
services to the Louisiana employer.
• Overall payments received under the agreement are equal to the
compensation that would have been received if the employment
had not been terminated.

Post Office Box 201 Baton Rouge 70821-0201
Telephone 225-925-7537
225-925-7533 (TDD)
An Equal Opportunity Employer

Private Letter Ruling
Page 2 of 3

Several states have issued rulings concerning severance pay. According
to the Idaho State Tax Commission in Docket No. 12274, severance
pay received by an Idaho resident from a Washington state employer
was subject to the Idaho personal income tax because Idaho residents are
taxed on their income regardless of where it was derived.
The Idaho State Tax Commission went on to state that:
Severance pay is typically paid to individuals who are forced
to leave employment through work force reductions and down
sizing. Severance pay is not for past services, but is generally
paid to help employees while between jobs. The Tax
Commission does not see the severance pay as payment for
work performed by the taxpayer. Rather the Tax Commission
sees the severance pay as a benefit paid to the taxpayer
because he was forced to find other employment.
In June 1992, the Federation of Tax Administrators formed the Task
Force on Nonresident Income Tax Issues. One of the issues with which
the Task Force concerned itself was the taxation of nonresident
professional athletes. The goal of the Task Force concerning this issue
was to develop a uniform approach to the proper apportionment of the
income of professional athletes between the states for tax purposes. In
March 1994, the Task Force published a report entitled State Income
Taxation of Nonresident Professional Team Athletes: A Uniform
Approach. As part of this report, the Federation of Tax Administrators
proposed uniform state regulations to apportion income of nonresident
professional athletes.
According to the proposed uniform state regulations, a member of a
professional athletic team is defined to include, those employees who
are active players, players on the disabled list and any other persons
required to travel and who do travel with and perform services on
behalf of a professional athletic team on a regular basis. This includes
but is not limited to coaches, managers, and trainers (Compensation
Received by Nonresident Professional Athletes (b)(2)).
According to the proposed uniform state regulations, not all of the

Private Letter Ruling
Page 3 of 3

compensation received by members of professional athletic teams is
subject to apportionment. Those forms of compensation which are not
subject to apportionment include strike benefits, severance pay,
termination pay, contract or option year buy-out payments, expansion
or relocation payments, or any other payments not related to services
rendered to the team
(Compensation Received by Nonresident
Professional Athletes (b)(4)(i)).
As such, any severance payments received while a resident of Louisiana
would be sourced to Louisiana, but any severance payments received
after a taxpayer changed his/her state of residence would be sourced to
his/her current state of residence.
Cynthia Bridges
Secretary
By:

William (Mac) E. Little
Attorney
Policy Services Division

A Private Letter Ruling (PLR) is issued under the authority of LAC 61:III.101( C ). A PLR provides
guidance to a specific taxpayer at the taxpayer s request. It is a written statement issued to apply
principles of law to a specific set of facts or a particular tax situation and is limited to the matters
specifically addressed. A PLR does not have the force and effect of law and may not be used or cited
as precedent. A PLR is binding on the Department only as to the taxpayer making the request and
only if the facts provided with the request were truthful and complete and the transaction was carried
out as proposed. The Department s position concerning the particular tax situation addressed
remains in effect for the requesting taxpayer until a subsequent declaratory ruling, rule, court case,
or t tute uper ede it