Louisiana’s average combined state and local sales-tax rate of 10.02 percent is the highest in the nation. The state's portion of that is roughly half, 5 percent, but one percent of that is set to expire June 30.
Lawmakers this week began their third special session to decide whether any part of that sunsetting penny sales tax should be extended.
Leading business groups and tax watchdogs say reform should be part of that discussion.
The Washington, D.C.-based Tax Foundation ranks Louisiana as having the worst sales-tax structure in the nation.
“Not only does Louisiana have an extremely high tax rate, it also has an extremely complex sales tax system,” Morgan Scarboro of the Tax Foundation said. “Local sales tax bases don’t conform to the state sales tax base. There’s also variation between local bases themselves, causing complexity for businesses and individuals alike.”
High sales taxes can lead consumers to seek lower-tax alternatives and make fewer in-state purchases, the Tax Foundation reported in its 2018 State and Local Taxes study.
Mississippi, which borders Louisiana, has a combined average sales tax of 7.07 percent, nearly three cents on the dollar less than Louisiana’s combined rate. Out-of-state shopping can translate to lost profits, jobs and tax revenue, the Tax Foundation said. Manufacturers have also been known to not locate in states because machinery would be subject to state sales taxes.
Stephen Waguespack, president and CEO of the Louisiana Association of Business and Industry, wants state spending cut.
“Legislative discussions over the last few weeks have been about whether to extend state sales tax by one-third, one-half or something in between,” Waguespack said. “As they work on the piece of that puzzle, they should also work just as hard to implement smart reforms to strategic reductions to the budget.”
To keep Louisiana competitive with other states, Waguespack wants business utilities taxed at no more than two percent as well as tax exemptions for manufacturing machinery and equipment. He also sees a need for tax reform.
“Once we get out of this session, the Legislature and governor must get to work on the long-term structural reforms to our budget and constitution needed to stop this ridiculous and destructive cycle,” Waguespack said.
Having the highest combined states and local sales-tax rate in the U.S. is obviously bad for the state’s businesses, Waguespack said.
“The rate is one thing, but the nuances within that tax structure are what really hurt businesses and their ability to provide quality employment,” he said. “Louisiana received a 'D' on a national report for failing to exempt major business inputs from taxes. That not only severely hinders our ability to remain competitive, it can translate to lost jobs for existing businesses. When you raise overhead, something’s got to give.”
During the sales-tax renewal debate, Will Green, president of Louisiana Association of Auto Dealerships, said he’s concentrating on defending sales-tax exemptions that prevent auto dealers and customers from double taxation.
“Business pays a huge portion of the sales tax, so any extension of the increased sales tax will affect our members,” Green said. “For that reason, we want to work with the Legislature to find a common-sense solution to the deficit.”
Gov. John Bel Edwards is pushing for half of the expiring one cent sales tax to be extended permanently to close a $648 million budget gap. Some Republicans have supported a temporary extension of a third percent of the expiring penny.
The budget year begins July 1.