Louisiana Gov. John Bel Edwards' administration overstated by about 10 percent the amount of revenue lost last year because of tax exemptions, according to a legislative audit.
That means instead of the struggling state budget giving up $1.53 billion in tax breaks, the real number was $1.37 billion. The Louisiana Department of Revenue doesn’t dispute the findings.
How much state government was giving away in the form of tax exemptions came up a lot during the past three months as lawmakers struggled to find enough money to pay for popular programs, such as TOPS, which pays college tuition for many students. For the first time ever, the Taylor Opportunity Program for Students was not fully funded. Exemptions are, for the most part, taxes that are owed and would have been paid but for the credits.
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Legislators and budget architects frequently refer to the Tax Exemption Budget analysis in making fiscal decisions about how allocate resources. “Errors in the preparation or content of the TEB may lead to flawed decisions that impact the future economic position of the state,” said the report released Tuesday by the Louisiana Legislative Auditor.
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While the revenue lost number is mostly used in speeches, it can also be used to calculate the fiscal notes that estimate the impact a particular bill will have on the state’s financial situation, said Beth Davis, assistant director of financial audits for the Louisiana Legislative Auditor’s Office.
“The important piece,” Davis said, “is to alert users of that Tax Exemption Budget report that the conclusions are overstated.”
Perhaps, said Greg Albrecht, who as the Legislature’s chief economist puts together the fiscal notes. But the Legislative Fiscal Office doesn’t solely rely on the Tax Exemption Budget report when drafting notes that accompany every bill that carries a cost.
Legislators don’t usually do away with an exemption, a scenario in which economists would anticipate how much of the costs would return to the revenue stream. Generally, the bills change the way the credit is applied, which requires using more sources than just the Tax Exemption Budget, he said.
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State law requires that every March the Revenue Department estimate the revenue lost to the state treasury because of the approximately $8.3 billion tax exemptions granted by the state, largely as incentives for business.
Auditors determined that the Louisiana Department of Revenue was double-counting some of the results on tax returns, which is where the statistics are derived. Consequently, the amount of revenue loss in 2015 is overstated by about $150 million.
The Revenue Department estimated, for instance, that the state treasury lost $551.6 million from the Inventory Tax credit, in which the state refunds the money companies pay local governments in ad valorem taxes, according to the report. The proper amount lost was $458.7 million, a difference of $91.9 million. The tax credit granted Motion Picture investors was reported to have cost the state $212.8 million in lost revenues. But that amount was overstated by $13.5 million, the report stated.
The Revenue Department Revenue acknowledged that its software isn’t configured to differentiate between original tax returns and amended returns, Secretary Kimberly Lewis Robinson wrote in a letter to Legislative Auditor Daryl Purpera. Eliminating duplications when a tax returned is amended would require someone manually reviewing tens of thousands of returns, then adjusting the numbers by hands.
Robinson took over the department in January when Gov. John Bel Edwards was inaugurated. She did not respond to a request for comment by The Advocate.