Louisiana’s taxes on business are supposed to help government provide its many services.
But the state has paid out $210 million more in tax credits and rebates to corporations so far this year than it has collected in corporate income and franchise taxes, reports the Department of Revenue. That shortfall is contributing to the massive budget gap that the 25-day special legislative session is supposed to address.
Gov. John Bel Edwards is asking lawmakers to raise more money for the state treasury by approving several measures that would close or reduce corporate tax giveaways. Those measures are expected to get their first hearing on Friday before the tax-writing Louisiana House Ways and Means Committee.
No one is claiming that large numbers of corporations are violating the law to avoid paying taxes. What has happened is that state lawmakers over the years -- and especially during Gov. Bobby Jindal’s two terms – have been increasingly generous in creating the tax subsidies, at the behest of corporate interests and their lobbyists in Baton Rouge.
A tax break here and a tax break there, over time they have added up, as The Advocate reported in a 2014 series of articles: Tax breaks for six major programs alone cost the state $1.08 billion in 2014, up from $207 million in 2004.
Another factor: sharp-eyed tax attorneys and accountants have gotten increasingly skilled in gaming Louisiana’s tax system, said Kimberly Robinson, the Edwards administration’s secretary of Revenue. She should know. Until January, she found ways for clients to lower their taxes while at the Jones Walker law firm.
“Our tax code needs to be updated to reflect the modern economy,” Robinson said in an interview Thursday. “We’re giving away more than we can afford to give.”
Robinson’s predecessor, Tim Barfield, showed the extent of the corporate tax avoidance with a report he released last year.
It found that of the 87 largest companies that filed corporate tax returns in 2012, only one-quarter of them 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.
Another measure of the gifts from state government: the Edwards administration is circulating a handout showing that Louisiana has given $13 billion of subsidies to business, mostly in recent years, according to Good Jobs First and Corporate Research Project, a leftist-oriented group in Washington, D.C. It was the fourth highest amount given by a state. The report shows hundreds of millions of subsidies given to large energy companies, including Sempra, Cheniere and ExxonMobil.
In 2015, facing a budget deficit then as well, the state Legislature attempted to tackle the issue, at least partially, by approving measures that trimmed a number of tax breaks. The initial revenue figures indicate that lawmakers achieved only partial success.
“Weren’t we supposed to be getting more money than we thought?” asked Robert Travis Scott, the president of the Public Affairs Research Council, a Baton Rouge-based think tank. “That’s what everybody is stressed out about. We went through all this agony last session to carve back tax credits, exemptions and rebates. Everyone was expecting that to give the state a better revenue picture than we’ve got.”
In the end, the state’s economists still expect corporate income and franchise taxes to net the state $359 million this year, but that would be $230 million less than expected in November. And no one can be sure that the entire $359 million will actually materialize, given the lower-than-expected numbers so far, and the state’s economic downturn.
In tax parlance, the measures pushed by the Edwards administration during the special session would “broaden the base,” that is, they would make businesses pay taxes for activities that go untaxed today or generate rebates. At the same time, Edwards wants to reduce corporate tax rates – which currently range from 4 to 8 percent – by 0.5 percent, through House Bill 29 by state Rep. Walt Leger, D-New Orleans.
The net effect of broadening the base and reducing the rates would generate more revenue for the state, Robinson said.
“With a structural deficit, you can’t look at revenue-neutral changes,” she said.
House Bill 31 by Leger would no longer allow corporate (and individual) taxpayers to deduct their federal taxes on their state tax returns. That proposal — which voters statewide would have to approve — would raise about $200 million per year.
House Bill 55 by Leger would aim at companies that shift their profits to other states, for accounting purposes, to reduce or eliminate their taxes in Louisiana.
“There are droves of CPAs employed in managing taxable income between the states,” said state Rep. Julie Stokes, R-Kenner, who is actually a CPA. Stokes said Louisiana needs to become one of the states that reduces the opportunities for companies to play this game.
House Bills 46 and 47 by state Rep. Ted James, D-Baton Rouge, would expand upon a measure approved by lawmakers in 2015 by limiting even further the tax rebates that companies can get when they pay the inventory tax.
House Bill 19 by James would require companies that file corporate income tax returns to the federal government to also file corporate returns — and not individual income returns – to state government.
The Louisiana Association of Business and Industry — the state’s biggest business lobby — favors broadening the base and lowering tax rates.
“The state has used exemptions and credits to nullify the harmful tax code,” said Stephen Waguespack, the group’s president. “We would love to have a fair, flat and simple code.”
Waguespack acknowledged, however, that LABI’s lobbyists are not pushing for this. “We’re more in responsive mode,” he said. “There are 23 tax increases as part of the call” for the special session.
Follow Tyler Bridges on Twitter @TegBridges.
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