Despite having a relatively lower average property tax rate than many U.S. states, Louisiana ranked poorly on a national tax climate study that concluded its property tax system is a drag on economic development in the state.
The Washington-based Tax Foundation's 2019 State Business Tax Climate Index ranked Louisiana's property tax structure No. 32 in the nation – among the bottom 20. That's lower than the state's ranking in 2016, when Louisiana was rated No. 28.
“Louisiana's taxes on real property, such as land and buildings, are actually very low, on average, compared to other states,” Katherine Loughead, a Tax Foundation policy analyst, told Watchdog.org in an email. “Louisiana's real property taxes are low both when measured in collections per capita and when real estate taxes are measured as a percentage of personal income.”
Both the Tax Foundation and WalletHub.com rated Louisiana's effective property tax rate at 0.51 percent of the home's value, the third-lowest rate in the country behind Hawaii and Alabama. By that measure, annual taxes on a $185,000 home would amount to $934.
But included in the Tax Foundation index's property tax measure are state taxes on company inventories, businesses' net worth and intangible property such as trademarks and stocks, according to Loughead.
“Specifically, Louisiana is one of only 16 states to levy a capital stock tax (or franchise tax) on businesses' net worth,” she said. “And Louisiana's franchise tax is the third-highest in the nation, discouraging capital formation and hindering economic growth and development.”
Louisiana local governments also levy taxes on business inventories, which are then refunded by the state through a complex credit system, according to Loughead.
“Repealing harmful taxes on businesses' net worth, inventory and intangible property would improve Louisiana's property tax competitiveness and make the state more attractive for business investment,” she said.
Homeowners seem to be the beneficiaries of the property tax structure. In addition to the low property tax rate on residential real estate, the state has no real estate transfer tax, no estate tax and no inheritance tax, the Tax Foundation reports.
“We hear about the need to eliminate our antiquated local inventory tax and the need for a fairer ratio on commercial properties versus residential,” Jim Patterson, vice president of government relations for the Louisiana Association of Business and Industry (LABI), told Watchdog.org.
But Patterson noted that changing Louisiana's tax structure is a challenge because it would require changes to the state constitution. That would require a two-thirds vote of the state legislature, he said.
“This includes the highest-in-the-country homestead exemption that removes a lot of residential properties from local taxation,” Patterson said. “But that's the elephant in the room that no one wants to discuss.”
He blamed Louisiana's declining rank on the Tax Foundation's property tax measure on legislative changes passed two years ago that are now being felt by the state's businesses. One example of the changes involves how manufacturers that currently receive what's called the Industrial Property Tax Exemption (IPTE) are no longer eligible to claim the state inventory tax credit, according to Patterson.
In addition, regulatory changes to the IPTE made by Gov. John Bel Edwards last year have created uncertainty among manufacturers applying for the exemption, he said.
“Louisiana experienced a substantial drop in the number of manufacturing projects for 2017,” Patterson said. “LABI worked with Louisiana Economic Development to remove some of the challenges created by the initial changes. We're hopeful these improvements will restore manufacturers' interest in investing in our state.”
The Tax Foundation report concludes that states which keep property tax rates low are better able to lure in new businesses and investment, but critics contend low rates translate to inadequate funding for public education, public safety and other state-funded programs.
The Pelican Institute for Public Policy in New Orleans is currently formulating a more detailed position on state property tax issues. Its CEO, Daniel Erspamer, sees a need for state officials to make wholesale reforms to the current tax system.
“Louisiana's tax system is outdated and fundamentally broken,” he said in an email to Watchdog.org. “If we want Louisiana to be more competitive with other states, while encouraging job growth and entrepreneurship, we must reform our tax system to make it fairer, flatter and more predictable.”
At No. 44, Louisiana ranked among the 10 states with the worst business tax climates, according to the latest Tax Foundation report.