A limited but significant revision of Louisiana’s corporate tax law on Wednesday passed the first of many steps before it could become law. However, broader efforts to reduce or eliminate dozens of corporate tax breaks have been opposed with particular interest by lobbyists.
The action took place before the House Ways and Means Committee, which, under its chairman, Rep. Stuart Bishop, R-Lafayette, seeks to scale back loans and deductions that lawmakers and governors have incorporated into tax legislation for years with the stated taxation purpose promoting business investment.
Bishop and other House and Senate leaders want to reduce tax breaks in order to lower a higher corporate tax rate that is higher than in neighboring states. Bishop and others say the higher rates discourage businesses from coming to Louisiana even if the taxes actually paid here are low due to all of the deductions and credits on the books.
But lobbyists filed a pile of red cards to register their opposition to Bishop’s House Bill 444, which would take a bite out of the corporate tax break.
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Bishop joked that the sergeant in arms ran out of red cards for other bills.
He announced that the committee would hear his bill on another day as the Legislative Fiscal Office has not yet determined how much money it would raise.
The Ways and Means Committee has approved two measures aimed at passing a tax swap aimed at lowering the highest corporate tax rate in order to eliminate a popular corporate tax deduction.
The two measures, House Bills 292 and 293, both sponsored by Rep. Neil Riser, R-Columbia, would impose a flat 6% income tax rate on businesses without any longer being able to deduct their federal tax payments from their state income tax returns.
That tax swap would have a net cost to the state of about $ 20 million per year, according to the Legislative Fiscal Office.
Louisiana companies are currently rated at five interest rates, which are 8%. Those five rates would drop to the 6% rate if legislature approves HB292 and 293 and then the public approves the constitutional amendments in a November 2022 election. Ways and Means did not take over the third part of Riser Package, House Bill 275.
Governor John Bel Edwards urged lawmakers to address the inequalities exposed by the coronavirus pandemic by approving a number of priorities.
Riser said the changes would simplify the corporate tax system and make Louisiana more attractive by moving to a lower top tax rate.
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Rep. Barry Ivey, R-Central, praised the proposed changes, but warned his colleagues that potential investors are not just concerned about the highest corporate tax rate.
“We all know that the net tax liability for these companies is relatively low,” said Ivey, who has tried repeatedly over the past few years to restructure Louisiana’s tax system. He said companies also want a well-trained workforce that requires tax revenue.
Ivey cited the Camelot Index, a quality of life metric performed by a Washington, DC group based on 25 measures. Louisiana ranked last among the 50 states.
Bishop and Senator Bret Allain, R-Franklin, are also trying to remove the federal individual income tax deduction on state tax returns in exchange for lowering individual income tax rates. These efforts began on Tuesday.
While Bishop put his bill on Wednesday, Rep. Phillip DeVillier, R-Eunice, brought out House Bill 454, which would cut all corporate tax breaks in half.
DeVillier said he knew his bill wouldn’t be popular with business lobbyists – he noticed many of them in the audience sat behind him – but said lawmakers must act now because a source of state tax revenue would likely fall while the other should disappear.
A reduction, he said, would come if the Democrats in Congress and President Joe Biden’s administration managed to raise corporate taxes. If so, Louisiana income tax revenue will be reduced due to federal tax withholding regulations. As things stand, higher federal government tax payments mean greater tax write-offs on Louisiana tax returns.
DeVillier also noted that a 0.45% increase in state sales tax approved by lawmakers during the third special session of 2018 expires in mid-2025. It produces approximately $ 500 million a year.
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DeVillier said lawmakers should act now. If this is not the case, they will have to wait two years to deal with the tax problem next in a regular meeting. And because 2023 is an election year, he said lawmakers won’t do anything until 2025.
Bishop received a pile of red cards against DeVillier’s bill. Lobbyists from the Louisiana Bankers Association and the American Property Casualty Insurance Association told committee members that cutting tax breaks for their members would mean double taxation.
In the end, the committee followed DeVillier’s request to thwart an attempt to maintain a tax break and allowed him to submit his bill another day after the tax office determined how much it would generate for the state.
The members of the committee then adjourned to lunch, which was provided by two Entergy lobbyists in an adjoining room.