Louisiana’s business-lobbying groups are calling a centerpiece of Gov. Bobby Jindal’s budget proposal a multimillion-dollar tax hike on business, pitting the governor against powerful industry leaders in the upcoming legislative session.
The Republican governor wants to lessen spending on refundable tax credits, in which the state pays out more than the taxes a person or business owes. He proposes to use the savings to pay for public colleges and health care services in the fiscal year that begins July 1, as he looks for ways to close a $1.6 billion budget gap.
Business organizations object to the most expensive tax break targeted: the inventory tax credit, which refunds businesses for paying local property taxes on their inventory. Jindal wants to limit the credit to only cover a business’ state tax liability, which the administration estimates would save the state as much as $377 million annually.
Lawmakers will consider the idea in the legislative session that begins April 13.
The Louisiana chapter of the National Federation of Independent Business outlined its criticism Tuesday, along with the Louisiana Oil and Gas Association. One of the most vocal critics is Jindal’s former chief of staff Stephen Waguespack, now head of the powerful Louisiana Association of Business and Industry.
Scaling back the credit “would drive us down the rankings of business-friendly states, throw sand in the gears of our growing economy, incentivize employers to send their investment and inventory out of state, thereby diminishing local collections, and lower the number of jobs in Louisiana,” Waguespack wrote in a commentary attacking the proposal.
The issue of tax hikes is sensitive for Jindal, a possible presidential candidate who has guarded his reputation on taxes and refused to support anything considered a tax increase, going so far as to balk at the renewal of an existing tax.
But the governor is trying to drum up new dollars to help with next year’s deep budget shortfall. To get around his self-imposed restrictions, Jindal has insisted that caps on refundable tax credits weren’t tax increases, but reductions in state spending.
“This policy does not raise taxes. In fact, companies and individuals affected by this policy change will still pay zero in state income tax. Our proposal just reduces the taxpayer dollars our government pays out above and beyond a company’s state tax liability,” Jindal spokesman Mike Reed said in a statement Tuesday.
Business groups disagree with Jindal’s distinction, saying thousands of companies will pay inventory taxes to local government for which they will no longer receive reimbursement, thereby increasing their tax bills.
Only 13 states charge some sort of property tax on inventory, according to the Washington, D.C.-based Tax Foundation.
Waguespack said Louisiana’s tax hits a broad array of businesses, from small retailers such as neighborhood grocery stores to large chemical manufacturers, and represents 11 percent of all local property taxes paid in Louisiana.
The Louisiana Legislature created the tax credit in 1991, to address criticism that the local property tax made the state less competitive, but to avoid stripping parishes of the tax revenue.
“Small businesses operate on thin profit margins to begin with, and that refund can be enough to allow a small business to expand, hire an extra employee or, sometimes, keep the lights on,” Dawn Starns, Louisiana state director of NFIB, said in a statement.
The Jindal administration said it would also support an outright elimination of the inventory tax, which would save the state more money by getting rid of the entire tax-break program. That idea is backed by the business groups, but the move would leave a hefty hole in local tax collections and faces pushback from parish officials.