Louisiana’s special session on tax reform officially commenced Wednesday, and over the next few weeks, lawmakers will consider a number of measures proposed by Gov. Jeff Landry that would restructure the state’s tax code in a significant way.
Among the items most likely to be consequential for those doing business in Louisiana are the proposed reforms to the state’s corporate franchise and corporate income taxes.
Louisiana’s corporate franchise tax is a capital stock tax imposed on a company’s net worth rather than its net profits. The tax is generally intended to capture value from companies with significant assets in the state.
Currently, the corporate franchise tax is assessed at a rate of $2.75 per $1,000 in excess of $300,000 of capital employed in Louisiana. Landry is calling for the tax to be phased out in its entirety.
Sanders Colbert, a tax attorney with Stone Pigman, tells Daily Report that the corporate franchise tax essentially taxes companies merely for owning capital in the state and thereby directly disincentivizes investment.
“The corporate franchise tax has been an issue in Louisiana politics for a long time and different administrations have tried to get rid of it,” Colbert says. “Trying to repeal it is nothing new because the tax is just a direct disincentive for corporations to make capital investments in the state.”
As for Louisiana’s corporate income tax, Landry is proposing a flat rate of 3.5%. The tax is currently assessed at a rate of 3.5% on the first $50,000 of income, 5.5% on the next $100,000 of income and 7.5% on income in excess of $150,000.
Colbert says flattening the corporate income tax to 3.5%, like phasing out the corporate franchise tax, would only serve to make the state more attractive to businesses looking to expand or relocate.
“[These reforms] would just help to make us more competitive,” he says.
Colbert is careful to note, however, that the proposed reforms to Louisiana’s corporate franchise and corporate income taxes would lead to a fiscal cliff on their own. They would need to be implemented alongside other reforms—sales tax reforms, in particular—that would offset any revenue lost.
“The corporate franchise and corporate income tax reforms and the sales tax reforms kind of go hand-in-hand. … I don’t see any way that the corporate franchise and corporate income tax reform bills, as currently drafted, could happen without some action on the sales tax side to balance out the revenue,” Colbert says.
Louisiana is one of 15 states with both a corporate franchise and income tax, according to the Department of Revenue. Three states allow a company to pay the higher of the franchise or income tax rather than paying both.
