Advocate staff photo by BRIANNA PACIORKA -- Louisiana Gov. John Bel Edwards will ask the Legislature to change the state's system of collecting business taxes, replacing a tax on corporate income with a tax on corporate sales, according to administration officials. He also wants to begin charging sales tax to a number of services and items that currently aren't taxed.

Brianna Paciorka

Gov. John Bel Edwards wants to dramatically revamp Louisiana’s tax system when the Legislature meets next month by replacing the current corporate tax on income with a corporate tax on sales, according to administration officials.

Many economists applaud the proposal, saying it would level the playing field by eliminating most corporate tax breaks and exemptions that cause businesses to pay different tax rates. Some companies take advantage of so many tax loopholes that state government winds up sending them a check.

“It’s a much more fair approach,” state Sen. Rick Ward, R-Port Allen, who has studied the proposal, said in an interview. “It’s extremely simple. Your corporate tax return could be done on a simple sheet of paper.”

However, businesses that benefit from the imperiled tax breaks and exemptions — and their legislative allies — will likely attempt to kill the plan.

“I’m sure every industry group will be looking to see the impact of the gross receipts tax on them,” said William Potter, an attorney and certified public accountant with the Postlethwaite & Netterville firm in Baton Rouge who was briefed on the plan Thursday.

In another major change, Edwards will propose extending the sales tax to a number of activities and services that go untaxed today in return for eliminating a temporary one-cent increase in the state sales tax that lawmakers approved last year.

With that increase, Louisiana has had the highest state and local combined sales tax rate in the nation, at an average of 10 percent. Many of the services that the governor wants to make subject to sales taxes — including cable TV and internet service — are already taxed in neighboring Texas.

“We’re trying to achieve a structurally sound tax system that allows us to have the necessary revenue to fund government services,” Revenue Secretary Kim Robinson said in an interview. “We are broadening our tax base and lowering the rates.”

Edwards’ proposal on corporate taxes, which was first reported Thursday by lapolitics.com, is the boldest aspect of an overall plan to remake a state tax system that critics complain has high tax rates and too many loopholes.

Another driving force: The governor and legislators must address a so-called fiscal cliff when $1.2 billion in temporary taxes expire next year in a budget of about $9.5 billion in state money. Lawmakers need to find a way to make up the $1.2 billion or else approve draconian spending cuts they have not shown a willingness to make.

The tax proposals will inevitably create winners and losers, which is a major reason why making big changes to a tax system is difficult.

Robinson said the administration is still trying to nail down the specifics of its tax plan.

The general outlines began to emerge after Edwards and top aides began briefing lawmakers and opinion leaders privately this week. He is planning to sketch out the details publicly on March 27, two weeks before the Legislature begins a 60-day annual session devoted to taxes and the budget.

Some of the changes will require a simple majority in the House and the Senate, while others will require a two-thirds vote in each chamber.

The starting point for Edwards and legislators is a 71-page report issued in January by a 13-member blue ribbon panel that spent last year studying the tax code. The governor is planning to follow some but not all of the panel’s recommendations.

Edwards will not propose ending or reducing two popular tax deductions — as the task force recommended — that individuals take on their income taxes.

One provision allows taxpayers to deduct, on their state returns, the amount of taxes they pay on their federal tax returns. The other allows taxpayers to deduct, on their state income taxes, the itemized deductions they take on their federal tax returns that are in excess of the federal standard deduction. Both tax breaks favor middle- and upper-income taxpayers.

LSU economist Jim Richardson, who co-chaired the panel, was disappointed but philosophical that Edwards will not seek to end or reduce the two tax breaks.

“He’s saying he appreciated our ideas, but if the people aren’t willing to do it, it won’t happen,” Richardson said.

The task force did not recommend replacing the current corporate tax system, as Edwards will propose.

Four states have the tax, known as a tax on gross receipts, that Edwards favors. Louisiana's would be modeled on the one in Ohio, which imposes a 0.26 percent tax on all sales. Businesses that sell at least $150,000 a year must pay the tax.

“You have a low rate that applies to sales, not profits,” said Steven Sheffrin, a Tulane University economist who heads the university’s Murphy Institute and served on the task force. He added that the tax would apply to sole proprietorships, Subchapter S corporations and partnerships with a certain minimum level of sales.

“Even if a corporation loses money, it would still pay the tax,” Sheffrin said, adding that the economic theory behind this is that “businesses are still using services” even if they have no profits. 

The Edwards administration has not settled on the rate it wants the Legislature to set in Louisiana, Robinson said, but it would be less than 1 percent.

“Obviously, the devil is in the details,” Stephen Waguespack, president of the powerful Louisiana Association of Business and Industry, said. “We’re waiting to see what the administration plans to propose on this tax, the gas tax and other taxes so we can vet them and hear from our members.”

Eliminating the corporate income and corporate franchise taxes — which together are projected to raise about $500 million this year — would also eliminate the dozens of tax exclusions, credits and exemptions that now exist in the tax code.

A 2015 study conducted by the Jindal administration found that of the 87 largest companies that filed corporate tax returns in the state in 2012, only one-quarter paid corporate income taxes in Louisiana, even though 96 percent of those that make financial reports public said they were profitable.

Of the 87, only half paid corporate franchise taxes in Louisiana.

“Many companies received refunds from refundable tax credits that exceeded their income and franchise liability,” the report found. In other words, the government paid those companies, instead of the other way around.

Robinson said the Edwards administration is not planning to try to replace the state inventory tax credit, a convoluted tax scheme in which the state reimburses businesses for property taxes they pay to local government on their inventory. Local government officials have resisted changing that tax.

Follow Tyler Bridges on Twitter, @tegbridges.