C100 Talk Taxes with Sen. Allain

TAX TALK…The Committee of 100 for Economic Development held an online discussion on the upcoming legislative session, specifically on taxation issues. Senate Committee on Revenue and Fiscal Affairs Chairman Bret Allain, R-Franklin, and Sen. Mike Reese, R-Leesville, addressed a group of more than 20 C-100 members. C-100 President Michael Olivier brought up the RESET Louisiana group, which is comprised of C-100, the Louisiana Public Affairs Research Council and the Council for A Better Louisiana, noting that the state made a similar reform effort, SECURE, during Gov. Mike Foster’s administration. “It’s been 25 years. We need to do it again,” Olivier said. 

Allain discussed the need to improve Louisiana’s tax structure and said leadership has met with the Tax Foundation, the Multistate Tax Commission, the Council on State Taxation and other groups. Louisiana consistently rates toward the bottom of states even though the applied burden on business and individuals should put the ranking more toward the middle. “They don’t give credit for poor tax policy,” Allain said. He indicated any changes to the inventory tax, which is collected at the local level and reimbursed by the state, must be done constitutionally. 

“We did the low-hanging fruit last year. This year, we will be bold and go for true tax reform package,” he said. The Senate is supportive of House Speaker Clay Schexnayder’s proposal for uniform sales tax collection and collection of sales taxes on internet sales. “There’s a lot of money to be captured,” Allain said. He said internet sales do require local and state sales taxes, and proposed changes could make the state Wayfair compliant. Louisiana has 63 separate tax collectors, and is the least compliant state in the U.S. “It’s a matter of fairness. It’s putting local mom-and-pop businesses at a disadvantage,” he said. 

The state’s score from COST and other groups improved somewhat after last year’s reforms, but there are two bills left to go regarding the administrative burden on mobile workers and employees. Both COST and Multistate have model bills to allow the exemption of taxation for either 20 or 30 days. 

The senator’s tax reform package addresses individual and corporate income tax rates, the corporate franchise tax, the inventory tax and the severance tax. Allain said he intends to push as many measures as possible statutorily, rather than “tie the hands” of future legislatures by passing constitutional amendments. The package is also being proposed entirely by the Legislature, rather than the governor or the agencies.

He proposes lowering individual and corporate income tax rates and eliminating the federal income tax deduction for state taxes paid, which will require a constitutional amendment. The plan will lower both rates, which is his top priority. Allain said rates will be lowered “top down” and brackets will be adjusted, while attempting to keep revenue neutral. 

The proposal reduces and simplifies the corporate franchise tax. Allain said they could “buy down rates for corporate if we are successful in eliminating the FIT. It’s a heavier lift than the first, but it has merit.”

It will also consider phasing out the property tax on inventory. “There’s a better way to do it,” he said. He indicated local governments are interested in changes to Industrial Property Tax Exemption Program, but discussions must include an inventory tax phase out. He said leadership is meeting March 1 with local stakeholders to discuss the issue. Both HCR 11 and SCR 6 in 2016 recommended phasing out the inventory tax; Allain said the Legislature is looking to do that without hurting local governments. He said the inventory tax cost the state about $300 million last year and has gotten as high as about $450 million. “Between that and the franchise tax, it’s a huge disincentive,” he said. 

Allain discussed simplifying and modernizing the severance tax system and said he is working with industry. He said Louisiana, at 12.5 percent, has the highest rate in the U.S. on vertical oil – twice as high as Texas, which admittedly charges a property tax on reservoirs, which Louisiana does not. He said 80-90 percent of the state’s fracking production is exempt and needs to be equalized. “We’re willing to work with industry,” he said. 

“Nothing we’re doing is going to please everyone,” Allain said. “Everyone wants to see a better tax structure, but there is something in it for everyone. We’re moving toward simplicity and predictability. I am hopefully optimistic.” He said there has been support of his package from PAR, CABL, COST, the Tax Foundation, the Pelican Institute and other groups (and hopefully local government after Monday). “We’re being honest brokers. There is no hidden agenda. We’re treating everyone fairly,” he said. “We’re looking at all possibilities. Everyone has to contribute something. We all have to pull on the wagon as we can afford to.”

He said the state has way too many tax credits that need to be lowered or limited. At the least, he supports sunseting the credits to allow the Legislature to review their efficacy from time to time. 

He said a gasoline tax is “good in concept, but politically unrealistic right now.” He advocated for potentially indexing the existing tax that was passed under the TIMED Act in 1998. “The 14 cents passed then are not the same now. If we had indexed us, we would not have this same problem now. We have to address infrastructure, but I don’t think the public will support a 20-cent increase,” he said. He also said the Transportation Trust Fund should just be spent on infrastructure projects, and the Louisiana Department of Transportation and Development should have to justify administrative expenses to the Legislature like other agencies. 

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Jim Harris
Harris, DeVille & Associates, Inc. 
jharris@hdaissues.com

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