Gov. Bobby Jindal’s proposal to eliminate state income and corporate taxes and shift the funding of Louisiana government toward higher sales taxes is a “huge change” that needs to be approached “very, very slowly,” said an LSU economics professor who closely monitors tax revenue.
Meanwhile, representatives from organizations representing local governments and retailers — groups that would feel major effects from higher sales taxes — say they are waiting to see the details of the plan before taking any public stance on the issue.
“There are certain things you can say from the beginning,” said Jim Richardson, an LSU professor and member of the Revenue Estimating Conference, which decides how much state government can spend. “There will be a redistribution of who pays for state government. Unless there are some real different clauses built into the law, it will change the burden from higher-income to middle- or lower-income.”
Last week, Jindal floated a proposal in advance of the April 8 legislative session that would wipe out the state’s personal income and corporate taxes. While the exact fine details have not been discussed, one of the ways of making up for the lost revenue would be to raise state sales taxes. Jindal said income taxes would be eliminated in a “revenue neutral manner.”
Jindal has argued that lower state income taxes have more of an influence in recruiting industry and will make the state more attractive to companies that will come into Louisiana and create jobs.
Richardson said that statement is “subject to analysis” and has not been proven absolutely correct.
For fiscal 2012, which ended June 30, the state collected nearly $2.5 billion in personal income and $374 million in corporate franchise and income taxes. Sales tax collections were about $2.6 billion, and vehicle sales taxes were nearly $323 million.
So to make up for the loss of nearly $2.9 billion, the state has to do something big, Richardson said. And that number could be driven up if the state keeps some tax incentives, like the film tax credit, which is about $200 million annually and the credit for inventory taxes paid to local governments, which is about $350 million a year.
“So that’s about almost another $600 million in new dollars you have to make up,” he said.
Jessica Elliott, director of government affairs for the Louisiana Retailers Association, which represents more than 4,000 storefronts, said the two biggest concerns from merchants is that higher state sales taxes would hurt stores along the state border and increase sales to online stores.
According to figures Elliott provided that were furnished by the National Conference of State Legislatures, last fiscal year the state missed out on more than $808 million in sales taxes because of purchases through online retailers that don’t have a physical presence in Louisiana. That includes such popular online stores as Amazon.com and Overstock.com.
“Consumers are supposed to remit the taxes for things they purchase online on their state income tax return,” Elliott said. “But how are you going to pay a use tax, if there’s no state income tax?”
Elliott said if state and local sales taxes rise to the point where purchases are taxed at 12.5 percent, that could hurt border retailers and stores who cater to out-of-state visitors. Nearly all of neighboring Mississippi has a state and local sales tax burden of 7 percent.
Elliott said the LRA hasn’t reached out to all its members, but they are waiting to see the details of the tax plan.
“This is a huge issue and we want to have our side heard,” she said.
Tom Ed McHugh, executive director of the Louisiana Municipal Association, which represents state governments, also said his organization is holding off taking a public stance on Jindal’s proposal. McHugh, a former Baton Rouge mayor, said there are obviously some potential problems with an increase in state sales taxes, such as the fact city and parish governments could have their hands tied if they wanted to generate more local income for schools, transportation or economic development.
“We don’t know enough of the details yet,” McHugh said. “But we are paying attention to everything we are hearing.”
Former state Rep. Vic Stelly, of Lake Charles, who authored a plan approved by voters in 2002 that eliminated sales taxes on groceries and residential utilities in exchange for increased income taxes on middle- and upper-income earners, said eliminating the income tax is a complex proposal. He said there always is a trade-off.
In Lake Charles, he said, sales taxes already stand at 9 percent.
“This is going to take a lot of adding and subtracting to make this work. It sounds good,” Stelly said. “But there’s no free lunch.”
Michelle Millhollon contributed to this report.