In the final 8 minutes of the special session, the Louisiana Legislature passed about $1 billion in new taxes for next year — more than $800 million of that was passed in the last 97 seconds.
Coupled with other tax hikes approved earlier in the three-week session, it means tax payers will shell out roughly $260 million in new taxes over the next three months to help close the $900 million midyear state budget shortfall and another estimated $1.2 billion next fiscal year, beginning July 1, to address a projected $2 billion deficit.
But as of Thursday, the exact numbers for how much some of the tax hikes would generate for the state were foggy because of the last-minute shuffling needed to strike a compromise on the revenue bills. State officials say the remaining budget deficit for this fiscal year could be anywhere from $30 million to $50 million, once state analysts have time to process the true costs of last minute changes.
But one thing’s for sure: Beginning April 1, taxes are going up for virtually every Louisiana resident, business and tourist.
The increase of a single penny to the state sales tax rate is the most costly increase. The state sales tax rate is going from 4 cents to 5 cents, but that’s coupled with the local sales taxes. On average, the combined local sales tax rate is about 5 percent, which means consumers will end up paying about a dime for every dollar they spend on most goods and services in Louisiana.
But in many places, like the French Quarter, Juban’s Crossing in Livingston Parish and the City of Central in East Baton Rouge, the sales tax will exceed 10 percent.
For a worker who earns between $19,000 and $37,000 a year, he or she will pay an average of $210 more dollars 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.
Consumers — and businesses in particular — are going to be paying sales taxes for things they previously didn’t have to pay it on because of legislation to “clean” the four sales tax pennies that are currently collected.
There are almost 200 exemptions spelled out in state law for goods that sales taxes don’t apply to such as tickets to performances by little theaters, newspapers, catalogs, breast feeding materials and Mardi Gras beads. From April 1 to June 30, the end of the fiscal year, these exemptions are mostly gone. After that, the exemptions will be reinstated but only for two of the five cents of sales tax.
Grocery store food and prescription drug purchases, which are constitutionally protected, will continue to be exempted.
Exemptions were a key issue of conflict in negotiations between legislators because businesses and industry in particular benefit from not having to pay sales taxes on a variety of materials and manufacturing and construction equipment.
Business lobbyists, with considerable political sway, fought to keep these exemptions in place, which is why the final hours of the session came down to a debate between hiking the sales tax beyond just a penny increase or wiping clean more exemptions to raise more money.
In the end, exemptions for the agricultural industry were kept in place. For example, farmers won’t pay sales tax to purchase feed, fertilizer and pesticides because they will still keep their sales tax exemptions. So will crawfish farmers, who purchase supplies and vessels.
But other businesses didn’t fare as well. Businesses were hoping to keep their tax exemption for utility payments, for bills like water, power and natural gas. But, their exemption was scrubbed, like dozens of others that benefitted other businesses.
At the end of this fiscal year, the sales tax exemptions for everyone will be put back in place for two pennies, and then by June 2018, everything reverts back to the way it is currently — the extra penny hike sunsets and all of the exemptions benefitting businesses and consumers will be rolled back into place.
“The governor talked about shared sacrifice from the beginning,” said Stephen Waguespack, president of the Louisiana Business and Industry lobby. “Well, business isn’t very happy, individual tax payers aren’t very happy, those who want smaller government aren’t happy and those who want larger government aren’t happy. This might be the shared sacrifice he was talking about.”
Waguespack said he thinks business owners were unfairly villainized during the special session by a small group of lawmakers, “trying to score cheap political points.” But he said businesses, especially during a recession, should be protected from rising costs because it disrupts their ability to create jobs in the economy.
State Rep. Katrina Jackson, D-Bastrop, who sponsored the one-penny sales tax hike said she held firm at not increasing it beyond that.
“You have to stick to your word and be clear,” she said. “I put my foot down because it was very clear that the overwhelming consensus in our body and in the constituency didn’t want to go above the penny.”
The new penny sales tax is expected to generate about $215 million this year and $883 million next year. But the money raised from the plan to scrub the exemptions was still unclear as of Thursday.
The cost of alcohol drinks is also going up. For beer, it’s less than a penny a beer. Liquor taxes will increase from 66 cents a gallon to 80 cents per liter. Wine taxes will increase between 13 and 29 cents per liter depending on the alcohol content. These taxes are expected to generate $4.6 million this year and $18.8 million next year.
Smokers will pay an additional 22-cents per pack of cigarettes starting April 1, for a total tax of $1.08. That’s expected to raise $11 million for the state by June 30 and $46 million next fiscal year.
Lydia Kuykendal, government relations director for the American Cancer Society Cancer Action Network, said there are about 850,000 adults who are regular smokers in Louisiana.
Her organization opposed the tobacco increase because they said it’s not large enough that it will curb smoking habits. They instead advocated for an additional $1.25 tax increase.
“It would have wiped out the rest of the deficit and raised $200 million in the next fiscal year,” she said, while adding that incremental tax increases on cigarettes, “bring in money for the state but do nothing to affect smoking rates.”
Taxes on a tourist in Louisiana who wants to rent a car or potentially stay at an Airbnb residence, which is a popular website that allows people to rent out their own private homes, will also go up. Car rental taxes are going up 3 percent (2.5 percent goes to state and 0.5 goes to local governments). It’s expected to generate $5 million annually for the state and $1 million for local governments. For many parishes, the local government component is being funneled directly to the various Councils on Aging to support services for the elderly.
Airbnbs and other “vacation rentals by owner” will be assessed the 4 percent tax that hotels and motels are assessed. But local governments will be the benefactors.
Jan Moller, director of the Louisiana Budget Project, a nonprofit that advocates for low and middle income families, said he was disappointed to see most of the revenue raising measures target poorer individuals over business.
“I think (the Legislature) did the absolute bare minimum of what was required of them, and that’s a shame,” he said. “Not only did they only pass mostly regressive taxes … they didn’t address next year’s budget problem and they didn’t even attempt to address the structural problems addressed in the budget.”