BATON ROUGE, LA (July 14, 2016) – The Louisiana Association of Business and Industry (LABI) released a summary report of the impact on employers of new laws passed in the second special session of the Louisiana Legislature, which adjourned on June 24 after a record-breaking 19 weeks in 2016. The summer gathering was also the third fiscal legislative session in a one-year period – June 2015, March 2016, and June 2016 – focused again on raising taxes in an effort to close what has become a perpetual deficit in state government.
In the most recent fiscal session, the Louisiana Legislature passed roughly a dozen new tax bills that primarily targeted business income taxes and related credits, totaling more than $90 million annually for state programs and services.
LABI President Stephen Waguespack notes: “The newest changes to the tax code come swiftly on the heels of more than $1 billion raised on employers for Fiscal Year 2017 in the prior two fiscal sessions over the past year. Despite more than $4 billion in new taxes on both individuals and employers that the state is projected to take in over the next five years, state officials consistently declare that still more revenue is needed to fully fund government.”
For the Louisiana business community, the combined impact of taxes raised in the 2015 and 2016 legislative sessions are as follows:
$575 million tax increase on employers in Fiscal Year 2016
$1.33 billion tax increase on employers in Fiscal Year 2017
$1.35 billion tax increase on employers in Fiscal Year 2018
LABI’s new report calls particular attention to the assault on Louisiana’s manufacturing industry. At a time when Louisiana manufacturers are already grappling with ever-expanding federal regulations, funding new health care mandates, and fighting excessive litigation, state officials have now enacted three rounds of tax changes that take direct aim at this vital sector of the state’s economy.
In 2015, Louisiana’s manufacturers felt the impact of across-the-board reductions to corporate income tax credits, the dramatic re-definition of deductions for Net Operating Losses that now makes Louisiana stand out nationally, and the 25 percent reduction to the refundable inventory tax credit. In March 2016, sales taxes were reinstated on business utilities and manufacturing machinery and equipment – again making Louisiana one of small minority of states to impose these taxes on major manufacturing inputs. In June 2016, a critical sales tax exclusion on materials for further processing was limited, and manufacturers that participate in the Industrial Tax Exemption Program (ITEP) are no longer eligible to utilize the refundable inventory tax credit. Finally, Gov. Edwards acted within hours of the adjournment of the Legislature to administratively constrain the ITEP itself and will now require multiple levels of local approval of contracts, which is expected to severely curtail the program.
“The impact of these tax changes number in the hundreds of millions of dollars annually for Louisiana manufacturers who represent one-fifth of the total economic output of the state and employ nearly 150,000 workers in Louisiana with an average salary of $82,150,” Waguespack said. “With over 19,000 jobs lost in the past year, state officials should be working overtime to improve conditions for manufacturers to create more high-skilled, high-paying jobs – but the wants of state government have clearly prevailed over the needs of the Louisiana economy.”
Other new laws passed in the second special session will reinstate the full inventory tax credit for certain small businesses while removing refundability above $1 million; change the apportionment formula for corporate income tax; enact market-based sourcing; create a tiered system at a reduced level for net capital gains deductions; and decrease the interest owed to taxpayers by the state in refunds for overpayments. (LABI’s report details every bill and the fiscal impact on employers.)
While some major new tax laws affecting employers are permanent, the new sales taxes and the reductions to some corporate income tax credits will sunset on 30 June 2018. The Legislature is scheduled for a fiscal session in the spring of 2017, at which point officials will need to decide if they will extend these temporary taxes, increase other taxes, and/or overhaul the tax code entirely.
Waguespack concludes: “The time for short-term revenue quests with little regard to the real-world impact must end. Getting the long-term solution right is absolutely critical as the Louisiana economy struggles through a recession. A predictable and stable tax climate and state budget is in the best interest of both the public and the private sector. In 2017, comprehensive tax reform with lower rates, fewer exemptions, and a broader base must accompany comprehensive budget reform with fewer dedications and better prioritization of limited dollars.”
In addition to the summary of recent laws, LABI’s new report illustrates how the numerous tax changes have contributed to an uncompetitive tax climate and made Louisiana an outlier in tax policy. For example, only three states cap carry-forwards of Net Operating Losses, only nine states tax manufacturing machinery and equipment, and only 10 states levy an inventory tax. Louisiana has the highest corporate income tax rate in the South and the second highest corporate franchise tax in the nation. Furthermore, the Tax Foundation ranks Louisiana’s business tax climate at No. 37 overall and dead-last specifically for sales tax due to high rates, a poor base structure, and administrative complexity – even before the new laws passed in 2016.
The Louisiana Association of Business and Industry (LABI) is the largest and most effective business advocacy group in the state, representing more than 2,500 business members of every size, in every sector and region.