The Issue: State government spending has grown from $16 billion annually in 2005 to more than $25 billion this year. In fact, Louisiana tops the Southern states on U.S. Census reports of state and local government per capita spending. The state spends an estimated $5,577 per person each year, ranking #16 nationally. Yet, Louisiana has been in a budget deficit since 2009, often totaling hundreds of millions of dollars annually and requiring regular unanticipated mid-year budget reductions.
While some efficiencies have certainly been achieved and some areas of state government are smaller today than several years ago, the State General Fund reductions have disproportionately fallen upon critical state services such as higher education and health care, leading the Louisiana Legislature to raise more than $700 million in new revenue to close the gap in 2015. Despite this significant tax increase, the deficit projections persist, and they will continue in the years ahead until the failed budget structure of Louisiana state government is addressed.
LABI Position: Support fiscal reforms that promote the growth and diversification of the state’s economy. Promote enactment of long-term reforms to the structure of the state budget that require government to annually review all spending, prioritize services and rein in budget growth. Support tax and spending reforms to restore voter confidence in state government, including:
- Efforts to manage budget deficits without new or increased taxes or fees;
- Gradually shifting to local governments the primary responsibility of funding local services; and
- Achieving cost savings through the elimination or consolidation of programs and/or agencies that would not have a detrimental impact on the delivery of needed services.
Reasoning: The reasons for Louisiana’s chronic budget deficits are many. Some are unavoidable, such as the temporary rise and fall of tax revenues following Hurricanes Katrina and Rita; the national recession that began in 2008; and most recently, the extreme drop in the price of oil. However, other reasons for the budget deficit were caused by deliberate decisions of policymakers such as the reversal of the “Stelly plan” in 2007 and 2008. Similarly, legislators and administrations over many years have created a budget structure and process that favors short-term decisions, honors historical spending, guarantees inflationary increases, and fails to prioritize.
Billions of dollars in annual dedications and operations are funded without legislative review year after year. State agencies and local government benefit from this system, leaving some departments and nearly all local funding without any reductions – even as other statewide priorities suffer. Additional revenues will not permanently correct this problem, but only alleviate it temporarily and postpone real decision making. Only comprehensive reforms of both the tax code and the state budget will address these fundamental, long-ignored challenges.
The Issue: Despite increasing revenues, funding state priorities and balancing the state budget continues to be an on-going challenge.
LABI Position: Oppose any proposal that increases or has the effect of increasing the tax burden on business.
Reasoning: If the business community is forced to pay additional taxes to maintain the current or even higher levels of government spending, we will have fewer resources available in the private sector to continue to create jobs, invest new capital in our businesses, and make the other necessary investments for them to grow and expand the private sector. A healthy, vibrant private sector is in the best interest of everyone, including the government/public sector, which benefits from the generation of private sector tax revenue.
Jobs and Economic Development: Continue advances in economic development by:
- Supporting measures that encourage industrial and business investment, and that create and retain jobs in our state; and
- Opposing new or increased business taxes or fees.
Businesses in Louisiana continue to pay a disproportionate share of the tax burden as compared with other states. For example, business pays about 70% of all property taxes in the state, primarily due to the generous $75,000 homestead exemption for residential homeowners, which is one of the highest in the country. Business also pays 100% of the corporate income and franchise tax, over 50% of all state and local sales taxes, significant charges in the form of fees to governmental agencies, and small businesses pay a substantial portion of the personal income tax on their flow-through business income.
In holding the line on any business tax or fee increase, LABI will:
- Support efforts to limit or reverse judicial and regulatory expansion of the business tax burden.
- Continue to educate the public, the media and public officials regarding: (a) Louisiana’s tax structure, (b) the imbalance in the tax burden borne by business, (c) the benefits of a competitive, properly balanced and predictable tax system, and (d) needed fiscal and spending reform.
- Oppose the imposition or increase of any taxes or fees that would increase the imbalance in the tax /economic burden borne by business in Louisiana.
- Oppose the imposition of any oil and gas taxes and fees, including but not limited to an oil and gas processing tax, a hydrocarbon transportation or refinery tax or fee on minerals, a first-use tax, or a coastal wetlands environmental levy.
- Protect and maintain the state sales tax exemptions for natural gas, electricity, water, steam, and other energy sources, and oppose any attempts to impose the sales tax on these or any other energy sources. Support legislation which will clarify the definition of “energy sources” to assure that all are excluded from state sales and use tax.
Fiscal/Tax Policy: Support legislation and tax policies that would:
- protect the historic interpretation of the sales and use tax exclusion for raw materials purchased for further processing;
- exempt from sales/use tax all property associated with the manufacturing of property for sale, including all machinery, equipment, utilities, raw materials, catalysts, process chemicals, and other consumable items;
- affirm the historic treatment of natural gas used at the lease and at gas processing plants as not subject to sales/use tax;
- confirm that the sourcing of sales for corporate income and franchise tax purposes should be based on the ultimate physical delivery of the product to the purchaser in the state of Louisiana;
- eliminate the corporate franchise tax;
- eliminate the tax penalties resulting from having a commercial domicile in the state of Louisiana;
- establish appropriate appraisal methodologies for determining the fair market value of all property subject to property tax, including taxable subsurface oil and gas equipment;
- eliminate the local sales/use tax on repairs to property that will be shipped out of state; and
- ensure the proper implementation of the exemption from sales/use tax and lease tax for trucks and trailers.
Oppose legislation and tax policies that would:
- result in the taxation of by-products and/or intermediate materials for sales and use tax purposes;
- undermine the current protection of oil, gas and associated mineral rights from the imposition of property and other taxes; and
- increase the tax compliance burden on business, including expanding requirements for withholding at the source.
Property Tax/Homestead Exemption: Oppose measures to increase the homestead exemption, which would further shift the property tax burden to business. Louisiana businesses continue to pay a disproportionate share of the tax burden as compared with other states. Business pays approximately 70% of all property taxes in the state, primarily due to the generous $75,000 homestead exemption for residential homeowners, which is among the highest in the country.
Property Tax Millages: Support legislation to limit or restrict the rolling forward of property tax millages following a mandatory millage roll-back.
Industrial Tax Exemption: Oppose efforts to restrict the availability of the industrial property tax exemption program, including efforts to tie the exemption to considerations not directly related to industrial development.
Inventory Tax Credit: Support repeal of the local inventory tax. It is contemplated that local taxing authorities would initially receive state funding to offset the loss of this revenue stream until a local mechanism is established for the replacement of such state funding. Oppose efforts to repeal or restrict the inventory tax credit program so long as the local inventory tax exists.
Special Funds: Oppose raiding of legislatively dedicated funds that were created and are funded by industry fees paid to accomplish specific regulatory and other purposes. Industry fees for regulatory services or other purposes should not be diverted to support the general operations of state government. If self-generated revenues are in excess of the cost of a regulatory or other program, the Legislature should reduce the fees accordingly and/or reduce the scale of such regulatory or other program. (See also Energy Council Program, page 32.)
Property Tax Assessments: Support legislation to promote uniformity and to simplify the procedures for contesting property tax assessments. Oppose efforts by assessors to assess salt caverns as other than land. Oppose efforts to undermine the Louisiana Tax Commission’s constitutional authority to oversee assessments, including change orders, omitted property assessments and supplemental assessments. Support legislation to clarify existing law concerning assessment procedures, including change orders, omitted property assessments and supplemental assessments. Study and support appropriate and necessary reforms to the property tax system. Support legislation and changes in the Louisiana Tax Commission rules and regulations to improve the accuracy and fairness of the methods and procedures used in the assessment and valuation process. Oppose efforts by assessors to tax component parts of motor vehicles. Support the current use value system for determining the assessed value of property that is classified as agriculture, timberlands, horticulture and marshlands.
Salt Cavern Assessments: Oppose efforts by assessors to assess salt caverns until uniform valid valuation methodologies are adopted by the Louisiana Tax Commission.
Tax Incentives: Support the availability of fair and equitable tax incentives for economic development, including those for job retention, job creation, and facility modernization. Support business tax measures that encourage the retention or relocation of jobs and businesses to this state. Oppose efforts to weaken Louisiana’s existing economic development incentives.
Sunsetting Exemptions: Support the continuation of the statutory business tax incentives, exemptions and exclusions as they are scheduled to expire.
Statewide Centralized Collection: Support measures to promote consistency in the administration of the state and local sales tax systems, including measures to promote statewide centralized collection and administration of local sales taxes.
Vote Requirement for Tax Relief: Oppose restrictions on the ability of the Legislature to lower taxes or grant tax relief.
Sales Taxes: Oppose measures to levy or authorize additional statewide sales taxes, or to levy or authorize local sales taxes without voter approval.
Statewide Taxing Districts: Oppose measures to create a statewide taxing district, whose boundaries are coterminous with the state, which has the authority to levy sales, use, or any similar tax for any purpose.
Tax Administration: Support measures to eliminate abuse of authority by state and local tax collectors. Support measures restricting the imposition on taxpayers of attorney fees and audit costs of state and local governments in tax cases. Support measures that would prohibit state and local governmental agencies and taxing authorities from entering into contingency fee contracts, or from employing outside counsel, auditors, or consultants to be paid by the taxpayer or whose compensation is dependent on the outcome of the audit, award, or settlement in tax cases. Support legislation to limit the use of summary procedure, and to provide standards to correct assessments that are based on error of fact or law.
Refund Procedures: Support taxpayers’ fundamental right to a prompt refund of taxes not due to a taxing authority.
Tax Elections: Support a reduction in the excessive number of local tax election dates to afford taxpayers a reasonable opportunity to evaluate the merits of tax proposals.
Expenditure Limit: Lower the limit on state government spending to relate to the current budget. Continue to support the provisions of 2008 Act 734, which implemented a reasonable formula for the determination of the expenditure limit. Once an expenditure limit has been established for any fiscal year, oppose efforts by the Legislature to increase that limit, unless such increase is for the purpose of appropriating monies from the constitutionally restricted surplus, and the instrument for appropriating such surplus clearly states that the temporary increase in the spending cap will not affect the computation of the expenditure limit for the following fiscal year.
Budget Stabilization Fund: Maintain and protect the concept and integrity of the fund
, and the current constitutional restrictions on distributions from the fund. Oppose efforts to use the fund as security or collateral for increasing state debt.
2004 Acts 1 and 2 (First Extraordinary Session): Protect the state sales, use, and rental tax exclusion for manufacturing machinery and equipment, effective July 1, 2009, and encourage the exclusion at the local level. Oppose efforts to restrict the application of the manufacturing machinery and equipment sales tax exclusion in connection with repairs, maintenance and refurbishment of machinery and equipment, including tangible personal property used in the repair, maintenance and refurbishment of machinery and equipment. Protect the exclusion of long-term debt from the corporate franchise tax base. Protect the immediate elimination of long-term debt from the corporate franchise tax base (Act No. 27) for businesses in the hurricane-impacted areas, as passed during the 2005 First Extraordinary Session. Support legislative and regulatory changes that strengthen these provisions and further the legislative intent of improving economic development opportunities in this state.
Taxpayer Protection and Fairness: Protect and maintain enactments addressing taxpayer protection and fairness issues, including: (1) 2010 Act No. 1029 relative to local sales tax contract auditors; (2) 2009 Act No. 493 and 2010 Act No. 929 relative to attorney’s fees charged by tax collectors; and (3) 2010 Act No. 1019 relative to local sales tax arbitrary assessments.
Inheritance Tax and Gift Taxes: Protect and maintain the repeal of the inheritance tax and gift tax as enacted by 2007 Act No. 371 and 2008 Act No. 822 respectively.
“Fiscal Only” Legislative Sessions: Support the continuation of a system of alternating fiscal/non-fiscal legislative sessions.
Business Activity Tax: Oppose legislation that would impose additional or new taxes on business through a business activity, gross receipts, value-added, or any other similar taxing scheme, thus decreasing our ability to attract and retain jobs and investment in this state.
Combined Reporting (Unitary Tax): Oppose efforts to impose mandatory combined reporting for corporate income tax purposes, as the imposition of this reporting method would have a detrimental impact on economic development in the state.
Constitutionally Dedicated Expenditures: Oppose efforts to redirect trust fund dollars (those with a dedicated revenue source) to expenses other than those to which they are constitutionally dedicated.
Fees For Services: Support legislation codifying present jurisprudence, which provides that the imposition or assessment of charges or fees, by or for the benefit of the state or any board, department, or agency of the state, should not either: (1) have raising revenue as its primary purpose, or (2) clearly and materially exceed the cost of regulation or conferring special benefits upon those assessed (Audubon Insurance, et al v. Bernard, et al) (La. 1983).
Property Tax – Public Service Property: Support a reduction in the ad valorem tax on property acquired by public service entities after deregulation of those companies has been implemented. Any revised system of public service property taxation should not result in a shifting of the property tax burden from regulated to non-regulated businesses.
Advance Collection of Sales Tax: Protect and maintain the elimination of the advance sales tax collection program as enacted by 2007 Act No. 393.
Direct Pay Permits: Support measures to expand the availability of sales and use tax direct pay permits at state and local levels to all businesses.
State and Local Taxes: Support a competitive business tax environment for Louisiana’s industries that are subject to substantial interstate competition.
Cost Savings in Government: Support the creation of an ongoing “Cost Savings in Government” coalition, focusing on identifying potential cost savings in government.
Government Efficiency: Support efforts to operate state government in a more efficient, cost-effective and fiscally responsible manner, including privatizing state government services where feasible.
Annexation: Support legislation to require municipalities to notify affected property owners before annexing any property.
Highway Priority Program: Support the use of objective criteria, including fostering economic development, to prioritize funding for state highway construction projects. Oppose allowing the Legislature to add or substitute projects in the final construction program.
Retirement Systems: Support consolidation and reform of state retirement systems, including elimination of early retirement after 20 years of service regardless of age for future state employees. Oppose any expansion of benefits or coverage in order to help ensure fiscally responsible funding and actuarial soundness of Louisiana’s public retirement systems. Support legislation that would raise the retirement age and/or increase the years of service needed for new state employees to retire. Support the use of surplus funds to pay down the unfunded accrued liability of the state retirement systems.
Prevailing Wage: Oppose any attempts by the Legislature to re-enact a prevailing wage law, which would result in the state or local governments paying more for goods and services than is paid by businesses in the private sector.
Mineral Property Taxes: Support legislation and/or regulations that will establish the fair market value for oil, natural gas, and oil and natural gas equipment for taxation purposes.
Hazardous Waste Tax: Oppose new or increased taxes on the generation, transportation, storage, disposal, incineration, recycling, injection or treatment of hazardous waste or any permitted emission.
Jim Patterson serves as Director of the Taxation and Finance Council. In this capacity his responsibilities include tax and fiscal matters that impact Louisiana's businesses and Louisiana's economic development.
Director, Tazation and Finance Council, LABI
Chair, Taxation & Finance Council