La. senators may redesign tax reform in potential deal
18th November 2024 · 0 Comments
By Christopher Tidmore
Contributing Writer
Is a deal coming together to preserve the Film, Live Performance, Digital, Quality Jobs and Historic Restoration tax credits?
It looks like a compromise may be in the works, according to highly placed sources who spoke to The Louisiana Weekly on the condition of anonymity, but it remains less clear how the Landry administration could plug an additional $500-million hole in the budget. Retaining those credits would create such a deficit.
Absent other tax changes, the Legislature would find it difficult to achieve the governor’s desired three-percent flat income tax rate on individuals, 3.5 on corporations, abolition of the state corporate franchise tax, as well as enacting a permanent $2,000 per year pay increase for teachers. In fact, the potential fiscal hole may have grown even larger after the La. House rejected a slew of sales tax hikes last Thursday (November 14). That decision alone created the potential of an additional $500 million deficit.
In the Special Session’s first week, a series of tax changes (including a constitutional amendment) comfortably earned better than a 2/3 majority of the Louisiana House of Representatives, but one major piece of legislation failed by one vote. Many GOP legislators felt deeply uncomfortable instituting several new sales taxes – especially on boat storage. Revenue Secretary Richard Nelson maintained in the House Ways & Means Committee a week prior that the package had to pass in its entirety, as written. He argued that eliminating any element would unbalance the revenue-neutral nature of the entire reform.
That was also the case made by Gov. Jeff Landry in a private Thursday morning meeting less than 15 hours after he opened the Special Session on Tax Reform on Nov. 6. Landry asked several skeptical legislators to support the entire package of bills in the House, both in committee and on the floor. However, the governor reportedly added that he would be willing to reconsider the sunset of several of the more popular credits and exemptions by the time the package of bills reached the La. Senate Revenue & Fiscal Affairs committee. Nevertheless, Landry’s pleas ended up being insufficient to save HB10 one week later to pass certain sales tax hikes, but pressure from the governor proved enough to convince the House members to sunset some of the most popular tax credits for the arts and historic restoration.
By better than 80 votes, the La. House voted to abolish the Louisiana Quality Jobs Program which rebates up to six percent of annual payroll expenses for up to 10 years and costed $153.3 million in 2023; the Film, Digital, and Live Performance Tax Credits which cost collectively $250 million and provide 25 percent rebate on production costs and 35 percent on labor costs; and the Historic Restoration Credit which covers 20 percent of construction costs at just over $100 million.
In addition, companion legislation had sought to renew the soon-to-expire .45 cent “temporary” sales tax along with imposing sales taxes on services previously untaxed. It was the imposition of many of these new sales taxes which ran into trouble. One of the two bills barely passed, while the other failed.
House Bill 10 crossed the 2/3 finish line by one vote, 71-33. In fact, to ensure passage, the legislation had to be amended to replace the expiring .45-cent state sales tax with an 0.4-cent sales tax, a reduction of .05-cents. As a result, the La. Treasury would receive roughly $50 million per year less per year. After approving another 47 amendments without objection, House members did defy Landry by maintaining some sales tax exemptions – including those for the purchase of diapers and Bibles.
Despite the pressure the governor put on wavering state representatives exactly seven days before, House Bill 9 (which would have raised sales taxes on many of the items listed below) failed by one vote on Thursday. Landry vowed to push for another vote. Interestingly though, the failure of HB9 in the House might provide a pathway for a key Senate committee to also save the Film, Live Performance, and Historic Restoration Tax Credits in the coming week.
Originally, HB9 and HB10 would have placed sales taxes on:
1. Storage for boats and vessels of less than 50 tons load displacement and trailers (an idea opposed by most coastal senators) along with auto club services and fees;
2. Car wash services;
3. Coin-operated machines;
4. Computer software installation, repair and maintenance;
5. Condominium timeshare and exchange services;
6. Dating services and marriage bureaus;
7. Delivery, shipping, freight and transportation services associated with taxable sale of tangible personal property;
8. Non-medical diet and weight reduction services;
9. Immovable property repair, maintenance and installation services (excluding new construction, reconstruction and capital improvements);
10. Information services such as research publications, financial reports, wire services, and news printing for publications (such as this newspaper);
11 Interior decorating and design services;
12. Intrastate limousine, bus and van transportation services;
13. Taxi cab and ride-share services;
14. Landscaping, lawn care and horticulture services;
15. Laundry;
16. Linen supply services;
17. Machine and equipment operator services provided with machine or equipment rental;
18. Mailing services;
19. Marina services;
20. Parking;
21. Personal fitness training services;
22. Pet grooming, boarding, sitting, training and obedience services;
23. Photography and photographic studio services;
24. Photofinishing and film development services;
25. Private process server services;
26. Public opinion and research polling services;
27. Quilting, embroidery and monogramming services;
28. Repairs, maintenance and installation of tangible personal property;
29. Repossession services;
30. Restroom operations and comfort station services;
31. Security services including locksmith, security and alarm system monitoring, private investigation, and background checks;
32. Event planning and catering services;
33. Spa services, massages by massage parlors and steam baths;
34. Rental spaces for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties and other short-term social events;
35. Storage space beyond the furnishing of cold storage (which is already taxed);
36. Tanning services;
37. Tattooing, piercing, scarification and branding;
38. Travel agents, travel packages and travel clubs;
39. Cable television services, direct-to-home satellite services, video programming services and satellite digital audio radio services;
40. Extended warranty agreements and service contract services; Waste collection and disposal services (excluding public or private municipal waste management);
42. Personal shopping;
43. Photo finishing
44. Repairs of personal property
45. Wrecking and towing services; and
46. Lobbying services.
In short, Louisiana essentially would adopt a Canadian-style “GST” or “Goods and Services Tax” system. Prescription drug purchases would be excluded, but very little else. Of course, the combined sales tax rate in Orleans and many other parishes would amount to 9.45 percent rather than the 15 percent in most Canadian provinces. That is unless a deal is cut.
There are a variety of ways of preserving the aforementioned popular tax credits, along with exempting unpopular sales taxes on boat storage and lobbying. In fact, Landry and his House allies tried to do just that to corral the necessary 70 votes, yet they came up short. Rather than pass HB9 as planned on Thursday, the House adjourned until Monday, Nov. 18. Gov. Landry now hunts for the extra vote.
With the sales tax hikes now in danger, other parts of the plan which have passed the La House, but face an uphill battle in the Senate such ending the five incentive tax credits, now might be reconsidered. One key member of the upper chamber has proposed a slightly higher personal income tax to save the popular credits and sales tax exemptions.
Outside of a slightly higher income tax, many revenue raising proposals, such as a statewide property tax are considered “dead-on-arrival” in the La. Senate. Unlike the La. House members, senators could opt to the .45-cent sales tax in full. In fact, they could raise that additional sales tax to a full penny. That change alone would create an additional $600 million in revenue, yet many representatives of impoverished districts would find such a jump hard on their constituents. After all, keeping .4-cent sales tax barely passed the House.
Instead, Sen. Franklin Foil (R-Baton Rouge), the chairman of the Senate Revenue & Fiscal Affairs committee, has floated the idea of a more modest income tax cut, reducing the top rate from 4.25 to 3.5 rather than Landry’s favored three percent. For each .1 percent increase in the individual income tax rate, the La. Treasury would earn an extra $100 million. Foil suggested that the tax rate could go as high as 3.5 percent, earning an additional $500 million, whilst still cutting taxes and most middle-class Louisianans.
In addition, Foil also has proposed that extra revenue could save some of the tax credits for film, performance and developers of historic buildings. Under his model, Louisiana would levy 3.5 percent on both individuals and corporations. Louisiana’s top income tax, though, would not achieve Landry’s goal of falling to third lowest in the nation – just ahead of North Dakota and Arizona at 2.5 percent. Instead, Louisiana would levy a higher top rate than Pennsylvania (3.07) or Indiana (3.05) and tied with Ohio (3.5). The Pelican State would be tied for fifth.
Making the net revenue-loss picture even more complicated last Thursday, the La. House also unanimously passed HB 25 establishing a six percent severance tax rate for both oil and natural gas on a volume basis. Currently, oil is taxed at a 12.5 percent rate, and the natural gas at a 4.5 percent rate on a volume basis. Even with the boost on natural gas, the net change would negatively affect revenues coming into the state treasury, legislative analysts argued.
This article originally published in the November 18, 2024 print edition of The Louisiana Weekly newspaper.
