A task force that is evaluating the state budget and tax structure will recommend that the Legislature ask voters to eliminate the business inventory tax in Louisiana and end the corresponding credit that costs the state millions each year.
After several months of reviewing where the state gets its money and how it is spent, the Task Force on Structural Changes in Budget and Tax Policy is nearing a final report that it will give to lawmakers.
On Friday, members set their sights on the inventory tax.
Louisiana is one of 12 states with an inventory tax — a property tax on the goods that businesses have on hand or raw materials needed to manufacture products. Three other states have partial taxes on inventory.
The tax particularly affects large manufacturers, but also can be a hit to car dealerships and big retailers.
Mobile and tablet users: Click here to read the story.
But in Louisiana, the state repays companies for the inventory taxes they are charged, meaning that while it's technically a business tax on the book, the state ends up paying the bill to local government.
Steven Sheffrin, an economics professor at Tulane, called the resulting structure a "bizarre byzantine system."
"I think we're getting toward a consensus and the consensus is that we need to phase down the tax at the local level," Sheffrin, a member of the task force, said during Friday's meeting.
The inventory tax credit costs the state between $400 million and $500 million annually, Revenue Secretary Kimberly Robinson said. That cost, she said, is one of the "prime drivers" for eliminating the tax.
The task force agreed on Friday that it will recommend that the Legislature propose a Constitutional amendment, which will be put to a statewide vote, that would gradually eliminate the inventory tax in Louisiana over 10 years, while eliminating the state-backed tax credit over five years.
At the same time, the task force is urging lawmakers to suggest other revenue options for local governments that rely heavily on the inventory tax to pay for police, road upkeep, public libraries and other city and parish services.
Every year, the oil refiner Motiva Enterprises writes a check for $6.6 million to St. James Parish.
"The challenge with the inventory tax is that it's become so ingrained and such a part of the local tax structure," said Lake Charles Mayor Randy Roach, a member of the task force. "If you reduce that revenue source, where do you find the revenue to replace it?"
The Legislature charged the task force with coming up with a series of recommendations to address the state's revenue and spending structure, which has led to a cycle of budget shortfalls in recent years.
Earlier this year, the Legislature plugged a projected nearly $2 billion budget shortfall, largely by increasing sales taxes.
The task force is expected to reveal its final report by Nov. 1. The Legislature, which begins its next legislative session in April, has been directed to focus on the state's finances in the coming year.
The inventory tax change will be one piece of that larger report.
An audit earlier this year found that the state does not clearly define which businesses are eligible for the inventory tax credit, allows companies to self-report the information used to calculate how much money they’ll get back, and does not require that they provide supporting documentation.
Between 2007 and 2014, the tax credit’s cost to the state ballooned from $271 million to about $405 million, the audit showed.
Jim Richardson, an LSU economist who serves as co-chair of the task force, said that the elimination of the tax could have a bigger impact on some industry-heavy parishes.
Louisiana could save millions in taxpayer dollars by tightening controls on the inventory ta…
"We need to keep our eye on it," he said. "We don't want to penalize parishes unfairly."
Generally, the task force said that other sources that could be tapped to replace any revenue lost include increased property taxes and changes to other local rates.
Tax experts generally agree that inventory taxes are outdated and can put states at a competitive disadvantage.
The Tax Foundation, a nonpartisan tax research group, says that they "violate a number of principles of sound tax policy."
"It's just not good policy," said Tom Clark, an attorney who was appointed to the task force by the governor. "It's not a predictable and reliable source of revenue for local government."