Legislature 'running out of time' to prevent devastating budget cuts; sales tax key issue _lowres (copy)

Rep. Julie Stokes, R-Kenner, has served as chairwoman of the Sales Tax Streamlining and Modernization Commission since 2015. The commission has been trying to come up with ways to make Louisiana's sales tax less convoluted.

Here’s something to ponder the next time you dine out or shop for a new shirt: Louisiana has the highest sales tax rate in the country.

The bad news doesn’t end there. Louisiana easily has the most complicated sales tax system in the country, too, reports a Washington, D.C., group that tracks state taxes.

“Louisiana is in a class of its own,” said Scott Drenkard, director of state projects for the Tax Foundation, which did the ranking. “The rate is high and the administration is disjointed. I don’t hear problems in other states like I hear in Louisiana.”

Gov. John Bel Edwards wants state legislators to lower the 10-cent sales tax by not renewing a temporary 1-cent increase they approved last year that is due to expire in mid-2018. But he will ask legislators to make up for at least some of the lost revenue by extending the sales tax to a number of activities not subject to taxes today.

Among the items that would now be subject to sales tax: cable TV, concerts and football games, all of which are taxed in Texas but not in Louisiana.

Not renewing the 1-cent increase and extending the sales tax to those areas were recommendations from a blue-ribbon panel that spent most of 2016 studying the overall tax system and declared it “broken.”

Edwards will announce the details of his sales tax plan later this week, possibly Wednesday, as part of an overall package of bills designed to revamp the state’s tax system during the 60-day regular session that begins April 10.

What the Legislature decides will affect all Louisiana citizens and businesses because everyone pays sales taxes.

The state budget relies heavily on sales taxes — they provide about 33 percent of state-generated revenue — and the reliance has only grown since legislators and Gov. Bobby Jindal cut individual income taxes in 2008.

Liberals dislike the state’s system because sales taxes are regressive, disproportionately affecting poor people. But with conservatives opposed to changing individual income tax laws to raise more money, the Legislature has returned to sales taxes over and over as the only reliable revenue generator that lawmakers can agree upon.

Along with eliminating the temporary 1-cent tax and extending the reach of the sales tax, the 13-member blue-ribbon panel also called for a reform that might improve the Tax Foundation’s dim view of Louisiana’s Byzantine tax regime. That proposal would end the practice of the state exempting one set of transactions from sales tax and local governments exempting another.

Ending that practice is called unifying the tax base. Louisiana is one of only three states that don’t have a uniform sales tax base.

The Legislature has given local governments the authority to impose sales taxes on activities exempt from state sales taxes as a way to offset low property taxes.

But just how far Edwards will go in tackling that problem is not clear because of potential opposition from sheriffs and other local government interest groups — groups that have been strong supporters of his and that have sway in the Legislature.

Trade groups representing businesses also will fight to protect sales tax breaks, despite their frequent statements of support for a free enterprise system without distortions.

“The business community will take a state exemption over no exemption,” Don Allison, a business lobbyist, said recently during a public meeting.

Business lobbyists note that the Legislature reined in some business tax breaks in 2015 and 2016 as a way to raise money for the cash-strapped state. But the changes left Louisiana with various items subject to different rates of state sales tax. Local sales taxes vary, but they average five pennies across the state, leading to the average combined rate of 10 percent.

For example, the state taxes sales of Bibles at the full 5 percent, electricity for nonresidential use at 4 percent, new boats at 3 percent, new car rebates at 2 percent and the sale of equipment used for manufacturing at 1 percent.

“We have five (state) sales tax rates in the state, depending on the transaction, because of the bills passed in 2016,” said Greg Albrecht, the Legislature’s chief economist. The Department of Revenue spells out the different rates in a 25-page document.

State Rep. Julie Stokes, R-Kenner, who has spent countless hours learning the intricacies of the sales tax system, is planning to introduce a bill that would create uniform sales tax rates across the board.

“What we have now is the most convoluted system that has ever existed in the United States,” Stokes said.

The blue-ribbon panel also recommended having a single entity collect sales taxes instead of the current system, in which the state collects its sales taxes and most parishes separately collect theirs. But the chances of legislators allowing Baton Rouge to collect local and state sales taxes seem slim.

“The concept of local money going to Baton Rouge and trusting Baton Rouge to give us our money back is something we think will never fly with local government,” said Michael Ranatza, executive director of the Louisiana Sheriffs' Association. “We believe we do a good job at the local level of collecting the sales tax.”

In yet another recommendation, the task force said lawmakers ought to establish a single entity to audit sales tax returns, instead of the state having one auditor and local governments having their own set.

The troubled retailer J.C. Penney laid bare the complications when it said the company spends 21 percent of its tax compliance budget in Louisiana instead of the 2 percent typical in most states, Stokes said.

Reducing the combined local and state sales tax rate of 10 percent coupled with broadening the tax base and adopting a single sales tax collector sounds good in theory, which is why the task force endorsed the moves. But it will be easier said than done.

“Each tax exemption has a really strong constituency,” said Drenkard. “Once you enact them, you have an interest group around maintaining them.”

Stokes has been reminded of that time and time again while trying to forge a consensus on improving the structure. She has had the thankless job of chairing the Sales Tax Streamlining and Modernization Commission, created by the Legislature in 2015.

The commission has come to agreement on recommending to lawmakers that they unify all but 14 types of purchases that are taxed on the local level but are exempt from sales taxes at the state level. Those 14 categories involve agriculture and medical devices.

The commission sought to reach agreement on those 14 purchases at what was supposed to be its final meeting on March 15.

But the meeting broke down over a dispute between the interests of businesses and local governments, and the resulting stalemate reflects the challenges lawmakers will face when they try to redo the sales tax code this year.

In exchange for dumping the tax exemptions on those 14 transactions, the commission considered a proposal that would allow parish governments to begin imposing a sales tax on telephones. The state already imposes this tax, so this part of the tax swap would keep the tax base uniform as well.

But Dawn Starns, a member of the commission who is the state director for the National Federation of Independent Business, objected, saying the proposal would produce a net tax increase on businesses.

Stokes pointed out that the proposal would end Louisiana’s status as the only state that taxes agriculture and medical devices at the local level. But Starns was unmoved and accused local governments of refusing to budge on other tax measures that would cost them revenue.

A frustrated Stokes adjourned the meeting without the commission taking any action.

The commission was supposed to issue its recommendations on March 28. When it will issue its final report is now unclear.

“We’re trying to heal a fractured system,” Stokes said in an interview later. “If people are resistant to everything, there’s no way to bring the system into line.”

Editor's note: This story was updated March 26 to reflect that Gov. John Bel Edwards will unveil the details of his tax plan later this week, possibly Wednesday, rather than Monday.

Follow Tyler Bridges on Twitter, @tegbridges.