One week into this year’s regular legislative session, Gov. John Bel Edwards has yet to gain visible traction for his far-reaching plan to replace the state’s corporate tax on profits with a corporate tax on sales, as a way to raise more revenue to offset taxes that are disappearing.
Lawmakers — Democrats and Republicans alike — are expressing skepticism over the proposal, but administration officials believe that a reworked version to be released Monday will generate supporters.
What Edwards is calling a “commercial activities tax” is not likely to face its first legislative test — before the House Ways and Means Committee — until late April at the earliest.
“The (tax) will have a tough, tough road,” state Rep. Gene Reynolds, of Minden, who heads the House Democratic Caucus, said in an interview. “People don’t understand the whole thing. LABI (the Louisiana Association of Business and Industry) and the different business groups are against it.”
Edwards is proposing the commercial activities tax — modeled after a similar levy in Ohio — to replace the $850 million or so the treasury will lose next year when a temporary 1-cent increase in the state sales tax will expire. The business tax would hit only a small percentage of large corporations that are not paying taxes now, administration officials say.
The commercial activities tax is Edwards’ major proposal to head off a looming “fiscal cliff” when $1.3 billion in temporary taxes will fall off next year, including $850 million or so from the expiring sales tax.
Legislators are offering numerous other options to raise money, principally by eliminating tax breaks that have proliferated in recent years.
But the anti-tax stance of conservative Republicans in the House has left many lawmakers predicting that a Washington, D.C.-style gridlock will envelop the Legislature and prevent the passage of a package to solve the fiscal cliff by the time the regular session ends on June 8.
“I’m afraid that members are not feeling the pressure of the cliff being here,” state Senate President John Alario, R-Westwego, said in an interview. “That is unfortunate.”
Edwards warned legislators last week that he will call them into a special session if they do not head off the fiscal cliff before the regular session ends.
The Louisiana Legislature kicked off its regular legislative session on Monday like it frequ…
The governor has offered a comprehensive tax package that would lower various tax rates in conjunction with repealing dozens of tax breaks, along with instituting the commercial activities tax and extending the sales tax to a number of transactions currently free from taxation.
His package would achieve three goals — raise $400 million or so next year to provide additional funding for such programs as the Taylor Opportunity Program for Students and fixing roads; raise the $1.3 billion needed to offset the expiring temporary taxes; and simplify the tax code along the lines recommended by a blue ribbon panel that called for deep-seated changes.
“If we do not summon the courage to make bold changes now, the problem will not get fixed, and these same options will be on the table again in the very near future,” Edwards told lawmakers April 10 during his session-opening address.
Under his overall plan, 95 percent of families would get a tax cut, while only families earning more than $203,000 per year would pay more, according to a study released Wednesday by the Louisiana Budget Project, a left-of-center nonprofit based in Baton Rouge.
A tax package proposed by Gov. John Bel Edwards would raise taxes on the wealthy while givin…
Nearly all of the governor’s tax plan would require a super-majority two-thirds vote in both the House and the Senate. That is a tall order, especially in the more conservative House.
Edwards’ proposals to lower corporate and individual income tax rates in exchange for eliminating the federal tax deduction on state taxes would require the additional hurdle of winning voter approval. In November, voters rejected the tax swap for corporations, but many State Capitol insiders note that no one mobilized a public relations campaign to win its passage.
For now, among the items in Edwards’ tax package, the commercial activities tax is getting the most attention, with business trade groups looking to counterparts in Ohio for more information.
Ohio’s Chamber of Commerce has learned to live with the tax, which was approved by the Republican-controlled Legislature in 2005 under the state’s Republican governor, to replace two other taxes disliked by business.
Ohio businesses with sales above $1 million per year pay a 0.26 percent tax rate on their sales. Of the 159,533 businesses that paid the tax in 2015, 105,734 — or about two-thirds — paid no more than $150, according to the Ohio Department of Taxation.
Under Edwards’ plan, Louisiana would levy a 0.35 percent rate on businesses with gross receipts above $1.5 million per year. Louisiana would phase out the corporate franchise tax while retaining the corporate income tax.
As a result, the commercial activities tax would serve as an alternative minimum tax to ensure that the 80 percent of corporations that paid no taxes in 2015 would no longer escape taxation by taking tax exemptions available under the corporate income tax.
“This broadens the base of our business income tax system to ensure that everyone pays their fair share,” Edwards told lawmakers on April 10.
Before its formal release, Kimberly Robinson, Edwards’ secretary of revenue, has been revising the commercial activities tax to make it more palatable to the businesses community and legislators.
One change spells out that “pass-through entities” — businesses such as limited liability corporations or sole proprietorships that choose to file individual income tax returns — with taxable gross receipts under $1 million per year would pay no more than $500, while those with taxable gross receipts above $12 million would pay $12,500 per year.
Robinson also has addressed concerns of businesses, such as grocery stores, that the commercial activities tax would hit them unfairly because they have huge amounts of sales with low profit margins. Retailers and wholesalers could deduct the cost of their goods sold, Robinson said.
State Rep. Sam Jones, D-Franklin, who is expected to file the commercial activities tax measure, has been hearing the criticism.
“They’re attacking the idea before they’ve actually heard the whole thing,” Jones said. “Kicking the can down the road is not an option. If you can’t vote for a plan that’s proposed, then where’s yours?”
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One possibility attracting buzz among legislators is House Bill 220 by state Rep. Tanner Magee, which would lower the sales tax rate from 5 cents to 2 cents and broaden the base by eliminating dozens of sales tax exemptions.
Under Magee’s proposal, the expiring penny of sales tax would disappear and so would two existing pennies, while the remaining two pennies would be scrubbed of all exemptions. Under current law, the five pennies will raise about $3.7 billion this year. Since each penny without exemptions raises about $850 million per year, or $1.7 billion for two "clean" pennies," Magee's bill would cost about $2 billion per year. That led him Monday to say that he would likely have to add back one or two pennies to make up the lost revenue.
The first step for Edwards’ tax proposals will be the Ways and Means Committee. Stacked with conservative Republicans, the panel could simply kill his tax proposals, in favor of Republicans plans such as Magee’s or nothing at all.
“There’s no appetite for raising more revenue,” said one committee member, state Rep. Paula Davis, R-Baton Rouge, in comments echoed by another, state Rep. Dodie Horton, R-Haughton. “You can’t tax your way out of this,” Horton said.
Many legislators say the conservatives cannot simply vote no on everything.
“For us collectively as a body to do nothing is unacceptable,” state Rep. Kenny Havard, R-St. Francisville, told his colleagues when he testified on Tuesday before Ways and Means in support of a tax measure he is pushing.
State Rep. Jim Morris, R-Oil City, said in an interview that he agrees with Havard but believes that Edwards’ pledge to call them into a special session if they don’t solve the budget and tax problems in the regular session is having an unintended opposite effect.
“A lot of legislators think we won’t get anything done in the regular session, so we ought just deal with it during the special session,” Morris said. “I think that’s a mistake.”
Reynolds and Jones said they are finding reasons to be optimistic.
“I’m feeling better at the end of the week,” Reynolds said. “At the beginning, no one was willing to talk. Now I like what I’m seeing and hearing. Maybe we can show everybody we’re not Washington.”
Correction: The article has been corrected to note that state Rep. Tanner Magee's House Bill 220, in its current form, would cost the state about $2 billion per year, not raise $900 million, as originally estimated.
Gov. John Bel Edwards State of the State: April 10, 2017 (as prepared for delivery).