Louisiana may see sales tax hike

18th May 2015   ·   0 Comments

By Christopher Tidmore
Contributing Writer

To plug Louisiana’s $1.6 billion deficit, the budget fixes proposed in this year’s legislative session can best be called “confused.” Seemingly contradictory bills are coming to the floor to limit popular rebates, like the film and inventory tax credits in ways that are often at odds with one another. However, a proposal by State Senate President John Alario to substantially raise sales taxes in exchange for cutting the Corporate Franchise Tax is quietly being whispered as a potential solution. And, more radical tax swaps may be on the way.

House Ways and Means Committee Chairman Joel Robideaux (R-Lafayette) might argue, as he did last week, that his committee is has no plans to consider any more major revenue-raisers beyond the most recent 11 taxes that the House approved. Yet, Gulf South Strategies lobbyist and legislative insider Brian Trascher warned The Louisiana Weekly to never underestimate the influence of the Senate President.

“He runs a very tight ship over there in the Senate. He was in the House for a very long time. He served in the leadership. He was the only the second man to ever be both as Speaker of the House and Senate President. The guy knows what he’s doing. He’s also a CPA by trade, so he knows number. I’m comfortable that he and [House Speaker] Chuck Kleckley will figure something out.”

The labyrinthine rules specified by Grover Norquist’s Americans for Tax Reform that are guiding Jindal allow the Legislature to phase out a tax over a decade but enact a so-called “revenue offset” in fiscal 2015-2016 that would permit an equivalent amount of substitute taxes to be increased without risking a net tax hike.

That would allow the House and Senate to hike $140 million in sales taxes this year, which is equivalent to the revenue the state is expected to collect from the franchise tax in 2015. And, then phase out the other business tax over the next decade. Jindal’s Revenue Secretary Tim Barfield seemingly endorsed the idea when he noted that eliminating the Corporate Franchise Tax would improve Louisiana’s tax ranking among the 50 states and simplify the state’s tax code.

The legislature has to do something creative. The first draft of the budget, to be considered on the floor on May 21, 2015, relies on $615 million in new revenues. The monies come from 20 percent across the board cuts to the state incentive tax credits, cuts hitting everything from Inventory to Theatrical/Musical tax credits, to the complete elimination of the credit on Hydraulic Fracking when gas prices hit $70 to several proposals for absolute caps on Movie Tax Credit below what the $226 million that the state expended this year.

More worrying, as Trascher noted, “The proposals to cap the film tax credits and most of the other fixes will not produce one dollar in revenue this year…You could cut the entire film tax credit program today, to nothing. You could absolutely do away with it, and it would not change anything with regards to the Louisiana fiscal budget for the next two years. Because these credits are already out there. The state does not really know—they are estimating—how many certified credits are out there in the pipeline. And, $100 million in certified credits are already out there.”

“So, to talk about cutting a program that is one of the few tax credits out there that has already produced an ROI [Return on Investment] for the taxpayer is nothing but theatre, if you forgive the pun.” Critically, the legislators are not factoring the taxes that movies produce from personal income taxes to sales taxes for parishes, that could make the fiscal problem worse over the next year.

And, capping the film tax credits to below the $226 million spent this year, to $200 million or lower could send a chilling signal to the movie industry, Trascher warned. “That’s the problem with sending these signals out there. The most we have ever given in tax credits in any one-year is $251 million, since the program has been around for the last dozen years. Last year, we did $226 million. So, Chairman Robideaux put forth his bill capped at that, saying, ‘This is what we did last year. Let’s keep it there.’”

“The problem with a cap is that, now that there are three major operating studios, major film studios in Louisiana, one in Shreve­port, one in Baton Rouge, one in Chalmette, and there are more slated to be built. Now that we have this infrastructure, we are starting to attract these type of permanent roots, not just the ‘film and fly crowd.’ We are starting to attract the larger budget films, like Transformers, which could be a $200 million movie. They could suck up all of the credits by themselves, or at least a third or half of them in one year.”

Or go somewhere else, since one of the proposals is to cap each movie at $30 million. “The State of Georgia,” Trascher cautioned, “years and years ago, had these really generous tax credits. They brought in a ton of movie business. [Then], the Georgia economy started experiencing trouble. They scrapped the program altogether. Louisiana pretty much adopted what Georgia had done. We started getting business. Georgia couldn’t believe that the film industry left; that they just walked out of town. So, they re-introduced the credits. They just mirrored what Louisiana did, and now, they’re started getting some of it back.”

“New Mexico has it. Vancouver, up in Canada, has tax credits. Look, these [movie] guys will go where the deals are. However, that’s the ‘film and fly’ crowd. That’s the folks that will come in, produce the movie, take their credits, and go back to Hollywood. What we’re seeing now is 13,000 jobs get created, direct jobs not contract labor like restaurants and catering…and now we have three studios like the Ranch studio in Chalmette.”

“Assuming that the credits come out of this session in pretty good shape,” The Ranch Studio alone, Trascher observed, “is poised to spend close to $50 million on a state-of-the-art [facility] which will be the largest film studio in the country. And, on top of that, they are building it right in the middle of one of the hardest hit parishes from Hurricane Katrina. And, in that project, they are rehabilitating three closed box stores, an old Save a Center, a Home Depot, and an old Lowes.

“So, they are putting all of these buildings back into commerce. The movie that is coming up that is filming about the BP Oil Spill, they are going to be hiring hundreds of out-of-work oil rig workers, who were laid off thanks to falling oil prices and things related to the BP Spill. They will hiring them as extras and set hands, and things like that. They will be putting these guys to work.

“So, again, it’s really short-sighted. When you say, ‘We’re going to mess with an industry. We’re going to just put out a signal that maybe we’re not appreciative of this business to where it’s going to scare off some of these projects to go somewhere else.’ We’re going to lose 13,000 jobs overnight. We’re still going to have to honor these hundreds of millions of dollars in tax credits that are already in the pipeline, already certified, And taxpayers will get nothing for it in return, because we’ve killed the industry.”

Other proposals, such as the effort to substantially roll back or eliminate the Inventory Tax Credit will not only have a chilling effect on business creation, it will cause many parishes “to roll forward their millages by 200 percent or more” to make up the lost revenue, and the fiscal impact on the 2015 budget will be far less $615 million than the House hopes to find to plug half of the deficit.

The good news, Trascher added, is that “we’re at halftime in the legislature.” The capping of film credits and other rollbacks are far from a done deal. That’s why many observers believe that Alario’s plan to consider some radical proposals, such as reinstituting one cent of the state sales tax on business utility bills or Rep. Jay Morris’, R-Monroe, House Bill 768 to raise $231 million next year by reinstituting one cent of the sales tax on a broad range of activities now exempt from that tax, may find a receptive audience.

In point of fact, a couple of pennies in sales tax across the board could allow for a phaseout of the corporate income as well as franchise tax, propelling Louisiana into the ranks of one of the most competitive states of business attraction. The short-term $1.4 billion produced would plug most of the budget in year one, as the other taxes are phased out over the decade.

Even if Jindal vetoes a net tax increase in this year’s budget, though, the legislature might demand a constitutional prerogative not exercised in decades, calling a “veto session” to override the governor. Should John Alario’s final deal not meet Jindal’s tight “Americans for Tax Reform” standards on no new net taxes, the Senate President will have the votes to override any gubernatorial veto, Trascher predicted.

This article originally published in the May 18, 2015 print edition of The Louisiana Weekly newspaper.