By: Stephen Waguespack
The fiscal special session to raise revenues mercifully ended last week. Many individual and business taxpayers were left dangling in the wind as their financial futures were debated ad nauseam. It was chaotic and controversial, filled with enough name-calling and finger-pointing to ensure everyone received some of the blame and none of the credit for its outcome.
Throughout the session, a handful of loud voices harped excessively that businesses were to be blamed for all that ails Louisiana. (Editor’s note: business has not yet been blamed for the LSU passing game). In fact, to some, there is no problem out there for which business cannot be blamed.
The loudest allegation of late is that businesses do not pay taxes. The facts tell a different story.
According to the independent Council on State Taxation, Louisiana businesses pay 43 percent of all state taxes and 58 percent of all local taxes for a total of just less than half of all taxes collected in Louisiana. In 2014, Louisiana business taxes added up to $8.9 billion for state and local government. Of note, Louisiana businesses fund state and local government above the national average.
|Business Share of State Taxes||43%||41%|
|Business Share of Local Taxes||58%||52%|
|Business Share of All Taxes||49%||45%|
|Business Tax Annual Increase||5.3%||2.2%|
In Louisiana, the largest categories of taxes paid by business are on property and sales of goods and services used in production. Businesses also pay severance taxes, excise taxes, insurance taxes, mandatory unemployment insurance, individual income tax on business income and occupational licenses, among others.
In the most recent year data is available, Louisiana’s state and local tax burden on business increased by 5.3 percent, which ranked No. 4 in the country for business tax increases. Obviously, the Louisiana ranking will likely go even higher due to the last two legislative sessions, where roughly 20 separate business tax bills were enacted to generate billions of new dollars for state government over the next few years.
The focus of much attention in the fiscal legislative session was on lower than expected corporate income tax collection, which state economists project will be more than $300 million when the current fiscal year ends in June. Corporate income tax collections are volatile in most states, and business income often appears on personal income statements, not corporate. Multiple economic recessions, three amnesty programs and a higher-than-normal utilization of credits in 2015 due to legislative deadlines triggering reductions also affected Louisiana’s corporate collections.
Tax exemptions are also frequently blamed for Louisiana’s current budget crisis. Exemptions overall have certainly grown and contributed to the problem, including $2.9 billion in sales tax exemptions, $2 billion for individual income tax exemptions, and $1.7 billion in corporate exemptions.
Of the $1.7 billion in corporate tax exemptions, more than half a billion dollars is the Sub-Chapter S Corporation exemption. This category of businesses report income on their personal income taxes and not on corporate income taxes; this is an accounting exemption that must exist to avoid double taxation. That brings the total down to $1.2 billion in corporate exemptions.
Another major corporate tax credit is the $452 million credit for the reimbursement of inventory taxes paid to local government – a tax that penalizes investment and growth and is only collected in a handful of states. The state credit is intended to avoid this unorthodox tax the Legislature deliberately chose in order to maintain a subsidy for local government. In effect, businesses loan funds to local government and the state reimburse them. When this credit is removed, the total exemptions from corporate income and franchise tax decrease to $717 million.
With the removal of these two exemptions from the calculation, then corporations pay roughly half of corporate taxes and roughly half are exempt. This is nearly identical to the sales tax ratio of collections to exemptions and to the total collections vs. exemptions the state has chosen for individuals and businesses alike.
In 2016, the Tax Foundation ranked Louisiana’s corporate income tax rates, structure, brackets, base and credits at No. 38 of the 50 states. Exemptions have been used in Louisiana to help overcome one of the highest corporate income tax rates in the country as well as the imposition of the franchise tax on top of that, which less than 20 states impose. This session, the Legislature actually expanded the franchise tax rather than phase it out, a move that flies in direct contrast to the trend of other states.
The business community wants to do its part to ensure Louisiana has a stable government structure AND a strong economy. It has stepped up and will continue to do so, despite the challenging economic conditions they currently face. Louisiana is their home and they take pride in all that it stands for. Considering this annual investment by Louisiana employers in our great state, it is a shame they are usually demonized, rather than thanked, by a growing chorus of political and media voices. If recent history is any judge, don’t hold your breath for that rhetoric to change anytime soon.