Beginning Friday, Louisiana shoppers and business owners are going to be shelling out more money for their day-to-day expenses.
A new penny of sales tax is going into effect across the state. That means purchases ranging from a new pair of jeans or a meal at a restaurant to a new TV or a new car will cost 1 percent more — which can be a few pennies or a few hundred dollars, depending on the expense.
The state’s sales tax is increasing from four pennies to five pennies per dollar. That, coupled with an average local sales tax of another 5 cents for local governments, means consumers typically will pay an average rate of 10 percent in sales taxes on top of goods and services. That easily secures Louisiana at the top spot in the nation for highest average sales tax rate. Groceries and prescription drugs will continue to be sales tax exempt.
Also going into effect April 1 are higher taxes for alcohol — about a penny a beer — and cigarettes — another 22 cents per pack. People renting out their homes to visitors, via websites like AirBnb, will now be assessed the same 4 percent sales tax hotels have to pay. And renting a car will cost 3 percent more.
Things that were previously tax free at the state level have temporarily lost their exemptions. That means for the next few months, consumers will pay 5 percent more than they previously did for items like Girl Scout cookies, newspapers, Jazzfest tickets, LSU football tickets, admissions to the zoo, aquarium or planetarium. After three months, part of the exemptions are restored, so the tax increase will go down to 3 percent.
Sales tax holidays will either be eliminated or scaled back. A regularly scheduled sales tax holiday at the end of May for hurricane preparedness items is voided this year and in the following years will only be a sales tax discount of 3 percent instead of 5 percent. The annual sales tax holiday in August for general shopping and the firearms and ammunition tax holiday in September will only offer a sales tax reduction instead of being a tax-free weekend.
But businesses and industries in particular are lamenting their loss of sales tax exemptions, which means they’ll pay more on the cost of utilities, raw materials and manufacturing equipment.
Tim Stine, chief financial officer of Stine Lumber Co. based in Sulphur, said the changes to the exemptions for business utility taxes alone will cost his business more than an estimated $33,000 a year while they’re in affect.
He said their 11 stores in Louisiana, including Walker and Broussard, rack up more than $1 million a year in utility bills to keep the lights on and air conditioning flowing through their show rooms. Those utilities were previously sales-tax free, but now they’ll be assessed 5 percent for the next three months, and then 3 percent until the changes sunset June 30, 2018.
“It just means it’s going to be tougher and tougher to compete,” Stine said, adding that his Louisiana-owned business strives to compete against national powerhouses like Home Depot and Lowe’s. “We’re getting more and more beat down on our return on investment. We’re being taxed more on all of these different areas, and our area of competition is being threatened.”
The increase in sales taxes is part of the “shared sacrifice” Gov. John Bel Edwards has been touting in recent months. He said he’s looking at all groups to pay a little more to fix historically large, back-to-back state budget shortfalls that threaten the state’s hospitals and classrooms.
The new taxes going into effect are part of the first wave of legislative action to address what was a $900 million shortfall for this year and another $2 billion in the next fiscal year starting July 1. The Legislature, in a three-week special session, closed the vast majority of this year’s shortfall and about $1.2 billion in next year’s budget through raising taxes and other steps.
The whirlwind of tax hikes and eliminating exemptions are creating headaches for the many businesses, nonprofits and public agencies trying to sort through the impacts.
Fire Chief Gerard Tarleton, of the St. George Fire Protection District in East Baton Rouge Parish, said he only recently learned that public fire departments are losing their sales tax exemptions for equipment purchases.
As recently as last year, his fire department asked voters for a tax increase so they could make $10 million in purchases for new buildings and equipment. He said having to account for 5 percent in sales taxes, which was previously unbudgeted, could add a few hundred thousand dollars to the cost.
But businesses and agencies aren’t the only ones who will be hurt. In fact, tax policy experts say poorer families are disproportionately hurt by sales tax increases because a higher percentage of their income goes toward these taxes.
For a worker who earns between $19,000 and $37,000 a year, he or she will pay an average of $210 more in sales tax dollars for a 1 percent sales tax increase, according to the Institute on Taxation and Economic Policy. For someone who earns between $103,000 and $209,000 a year, the average tax change will be $567.
Dawn Johnson, president of the Louisiana Retailers Association, which includes 4,000 storefronts across the state, said store owners are impacted from both directions. First, there’s an overhead cost to update their cash registers and processes to collect the new sales taxes. And the Legislature’s decision to exempt some items, eliminate exemptions for others and put varying timetables on the sunsets for taxes is creating chaos for some small businesses.
For example, a grocery store that sells newspapers will have to reprogram cash registers to levy an additional 5 percent of sales taxes for the newspaper alone because its lost its state sales tax exemption. Meanwhile, no sales taxes will be collected for the unprepared food sold at the grocery store. Then after June 30, the store will change and collect 3 percent sales tax on the newspaper. While other things like hot meals and candy will have yet another sales tax rate of the full 5 percent.
“This is a difficult time for retailers,” Johnson said.
The increase in sales tax also could be a deterrent for some retailers already feeling pressure from online retailers who sometimes enjoy sales tax loop holes. Dot-com retailers, such as Amazon, Overstock and Etsy, which don’t have a presence in the state don’t have to levy sales taxes at the point of purchase.
Johnson said daily shopping habits for clothes and restaurant meals won’t likely be affected by a sales tax increase. But she said for expensive purchases and for stores close to the state border, sales could be impacted.
“If someone can save money on large items, especially on the Internet, our members are going to get hurt,” she said. “Brick-and-mortar retailers are really fighting hard competition when it comes to the Internet.”