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When it comes to tax policy, Capitoland is focused more on the March 29 ballot than on the upcoming fiscal session, as lawmakers and advocates mobilize for and against Amendment 2, the Article VII overhaul that came out of last year’s tax special session.
But whether it passes or not, the work lawmakers did in the November session will dictate much of the fiscal action that kicks off in April.
After practically rewriting the state’s tax code in less than a month, it was all but inevitable the Legislature would revisit and tweak the results this year.
“Given the scale and the scope of the tax reform that happened in the last session and the short time frame within which it all happened, I don’t think anybody’s surprised that some mistakes were made,” says Andre Burvant, a New Orleans-based tax attorney with Jones Walker.
One of the main issues for the cleanup bill will be reinstating vendor compensation, which is the cut of sales taxes that businesses get to keep, for local sales tax collections. Lawmakers also plan to clarify that K-12 schools and nonprofits don’t have to collect sales taxes for sports tickets and events, an issue Revenue Secretary Richard Nelson addressed in a bulletin earlier this year.
“We got rid of 92 sales tax exemptions, and so some of them, we’re going to have to go back and clarify or clean up,” he said.
Nelson also expects to take another look at the incentives the state is offering to entice local governments to forgo charging the inventory tax, an option the locals will have if the amendment passes. Lawmakers approved upfront payments for parishes, based on how much inventory tax they collect, but failed to include totals collected at the municipal level, Nelson says.
And as Senate Revenue and Fiscal Affairs Chair Franklin Foil notes, if the amendment passes, some dollars that have been flowing to two state trust funds will be available for general spending. Some of that money could be used to enhance payments to local governments that choose to give up inventory taxes, he suggests.
As for future steps in the tax reform arena, Nelson says there might be some appetite for a “limited services sales tax bill” that would be sort of a scaled-down version of the legislation Rep. Neil Riser carried last fall. Taxing services kicked up so much controversy during the session that the entire tax package almost went off the rails.
Nelson also expects lawmakers to take another crack at lowering severance taxes on oil. Right now, the state’s horizontal well exemption spares much of the natural gas production from taxation; limiting that exemption could allow the Legislature to pay for a lower rate on oil.
He even suggests there might be room to lower income tax rates a bit more if the amendment passes and enough available revenue is anticipated. However, many legislators will be wary of making major changes, preferring to wait and see how what they’ve already done plays out first.
“I don’t think from a leadership standpoint that we’re going to be coming in and trying to make any significant changes,” House Ways and Means Chair Julie Emerson says. “At this point, I think we’re waiting to see if Amendment 2 passes and kind of go from there.”
If the amendment passes, enacting a new exemption, exclusion, deduction, credit or rebate will take a two-thirds vote, rather than a simple majority. But even if it doesn’t pass, advocates hoping for new tax breaks will face a challenging environment.
Emerson says she’s had a few people contact her about potentially establishing new credits.
“I’ve cautioned them that we just moved away from all of that,” she says. “I’m not really foreseeing a huge appetite for new credits. But I’m sure people will bring them, and we’ll have the discussions.”
Tax consultant Jason DeCuir expects conversations around reinstating Foreign Trade Zone benefits that were repealed last year. There has also been talk about broadening an exemption for business-to-business transactions, he says.
Louisiana Economic Development Secretary Susan Bourgeois is expected to unveil her proposal for a new suite of economic development tools in the coming days. Foil, the Senate tax chair, has advised constituencies who want to establish incentives for their programs to get with LED and see if their request fits into the department’s plans.
Foil wants to keep looking to further align what is taxable on the state and local levels. For example, the state exempts prescription drugs, but the locals balked at giving up that revenue.
“We’re going to require them to give us more specific information to try to get an idea of how much revenue that really is,” Foil says.
Centralizing sales tax collection does not appear to be on the agenda for this year, though that could change. Business advocates have pushed for a simpler system for many years, but the locals have been wary about giving up too much control. At the very least, Emerson says she wants to keep the discussion going.
