(The Center Square) − The House Ways and Means Committee heard from the Louisiana Department of Revenue this week as lawmakers attempt to understand possible tax reform and current policy.
Louisiana is approaching a fiscal cliff and facing significant deficits over the next three years, reaching $755 million by 2027.
Richard Nelson, the Secretary of the Department of Revenue, said at the hearing on Wednesday that the goals are to stabilize state revenues with permanent reforms, adopt smart tax cuts without drastic revenue shortfalls, modernize and simplify the tax code, and improve tax competitiveness.
Currently, the Pelican State has the highest sales tax in the United States and the highest corporate income tax rate in the South, higher than New York’s.
“Everyone in the South is continuously improving their tax policy,” Nelson said. “If the state doesn’t begin reforms we’ll get left behind.”
Nelson mentioned the need to make the state more business friendly by reducing or eliminating franchise and inventory tax rates.
Nelson emphasized that tax reforms in other states, such as North Carolina and Arizona, have led to significant increases in median income and in-migration.
“When companies are looking to relocate, this is the reason they skip over Louisiana,” Nelson said, highlighting Louisiana’s complicated inventory tax. “If you go to the Tax Foundation website, they’ll say, ‘hey, you know, Louisiana has this weird credit, but you probably can’t figure it out, so we just say they have an inventory tax anyway.'”
A recent analysis by LDR shows significant disparities in corporate tax liabilities across the state. Of the 140,000 corporations that filed income tax returns in the last fiscal year, only 13,000 also had a franchise tax liability, according to the revenue department.
So while a large number of companies are subject to income tax, only a small subset are subject to the additional franchise tax.
LDR is advocating changes to how the state’s Budget Stabilization and Revenue Stabilization Funds operate, particularly in relation to corporate tax revenues.
Currently, the Budget Stabilization Fund, or “rainy day fund,” holds $1 billion, capped at 4% of the prior year’s state receipts, while the Revenue Stabilization Fund has nearly $2.8 billion, largely funded by corporate income and franchise taxes.
LDR is proposing to combine the two funds, and having a single fund with a higher cap.
“There’d be less flexibility for the Legislature to use the money to put in the stabilization fund, which you can only use for emergencies, if there’s a budget shortfall,” Nelson said. “But at the end of the day, it would give you more flexibility to use the other money, corporate collections, that would otherwise go into the revenue stabilization fund.
“It locks up some money in the savings account, you’d have less flexibility to spend, but more flexibility to spend the corporate collections that would otherwise go into the revenue stabilization fund.”
