Bills adjusting Louisiana corporate tax advance in House committee

Bills would repeal deduction and set 6% flat tax

Centralized sales tax commission approved by lawmakers
The Louisiana Capitol Building, April 8, 2021. (Wes Muller/Louisiana Illuminator).

The Louisiana House Ways and Means Committee advanced a pair of bills Wednesday that would adjust Louisiana’s corporate tax structure by repealing the state-allowed deduction for federal income taxes paid by businesses and establish a flat corporate tax rate of 6%.

House Bills 292 and 293, sponsored by Rep. Neil Riser, R-Columbia, are companion bills among a larger tax reform agenda by GOP leadership in the Louisiana Legislature this year. Those lawmakers are trying to simplify the state’s tax code to make it more attractive to businesses without reducing net tax revenues. The committee approved both bills, but House Bill 293 was opposed by Democrats and approved in a 10-6 vote.

Under current tax law, Louisiana allows corporations to deduct the amount they pay in federal income taxes from their state tax bills. In an interview Tuesday, Robert Travis Scott, president of the Public Affairs Research Council of Louisiana, said that when federal corporate tax rates increase, Louisiana’s corporate tax revenue often decreases because corporations have larger amounts to deduct from their state tax bills. The inverse holds true as well. 

On Wednesday Riser pointed out that the corporate tax cuts under former President Donald Trump led to higher tax revenues for Louisiana in 2018. Now however, with President Joe Biden pushing to reverse those cuts, Riser said the state could have lower revenues. 

“One of the things we hear the most is we don’t have stability,” Riser said. 

Repealing the deduction would mean less volatility for the state’s coffers and easier budgeting for lawmakers without impacting the tax burden on businesses, he said.

“From the business perspective, it’s a seesaw,” Riser said. “You’re just paying it one way or the other. If it goes up on the federal side, you pay less on the state side and vice versa.”

Louisiana has multiple corporate tax rates, from 4% to 8%, depending on a company’s income. The second bill, House Bill 293, would establish a single flat rate of 6%, which would mean a lower rate for most businesses and a higher rate for some others.

Several GOP lawmakers on the committee said the top rate of 8% is too high compared to other states and that it makes businesses shy away from Louisiana. Most states have rates lower than Louisiana’s, and 13 states have higher rates, according to the conservative Tax Foundation, a nonprofit business-friendly think tank.

Even though he voted in favor of HB 293, Rep. Barry Ivey, R-Central, said taxes are not the sole reason why Louisiana struggles to attract businesses.

“Louisiana struggles to attract high-paying employers for different types of jobs because we struggle with our educational outcomes. We struggle with transportation infrastructure. We struggle with what I refer to as the quality of life metrics,” Ivey said. “So I want to caution us as we do proceed with tax reform — and I’ve authored these bills before — is that there’s another side of it that gets missed. If we just chase a business tax climate ranking, we’ll still fail our children.”

Riser said he designed the bills to offset each other. But with the overwhelming majority of Louisiana’s corporate tax revenue coming from businesses at the top of the bracket, a flat rate of 6% would mean a sizable cut into state revenue. House Bill 292 would increase tax revenue by $276 million over five years, while House Bill 293 would decrease tax revenue by $365 million over the same period, according to the legislative fiscal notes.

The nearly $90 million deficit between the two bills caused several Democrats on the committee to oppose them. 

Rep. Marcus Bryant, D-New Iberia, said he was disappointed to have to vote on pieces of the tax reform package that are not revenue neutral even as GOP leaders promise that, when factored together, all the tax reform bills will prove to be revenue neutral.   

“I don’t know,” Bryant said, “It seems disingenuous, but it may not be. We were committed, and the whole deal was we would be revenue neutral this session…I’m not against it, I’m just against the way it’s coming at us. I just thought we could do it a better way.”

In order for the tax changes to become law, two-thirds of the legislature would have to first approve a constitutional amendment, which a majority of Louisiana voters would have to approve at the ballot box.

On Tuesday, the Senate Revenue & Fiscal Affairs Committee approved a similar measure, Senate Bill 159, sponsored by Sen. R. L. Bret Allain, R-Franklin, that would repeal the state-allowed federal income tax deduction for both corporations and individuals in exchange for lower tax rates. 

The House Ways and Means Committee had also planned to consider House Bill 444 on Wednesday, a sunset measure that would terminate numerous tax credits, exemptions, deductions, exclusions and other incentives. However, the bill’s sponsor, Rep. Stuart Bishop, R-Lafayette, voluntarily deferred the legislation and elected to propose it at a later date. 

“You can’t give away the farm just to keep the house,” Bishop said. “And that’s basically what we’re doing. We have credits on there that make zero sense. They shouldn’t even be on the books anymore.”

Holding a thick book of statutory tax incentives, Bishop said he counted 183 various sales and use tax incentives that Louisiana has on its books.

Bishop’s bill is still awaiting a fiscal note that will tell lawmakers how much money it would save the state. Bishop said he was also postponing consideration of the bill in response to the sizable number of lobbyists who showed up Wednesday to oppose it. 

Those opposed to the measure included the Louisiana Bankers Association, Louisiana Chemical Association, Louisiana Mid-Continent Oil & Gas Association, Louisiana Budget Advisory, Phillips 66, Louisiana Insurers’ Conference, Gray Insurance, and Louisiana Industrial Development Executives Association. 

“I want you all to pay attention to who’s opposed to this,” Bishop said, forcefully. “And I want you to remember.”

House Bills 292 and 293 will likely return to committee for a second review before advancing to the House floor.

Also as part of tax reform, the committee advanced House Bill 199 on Tuesday. That bill would create a centralized state agency to streamline sales tax collections in the state and replace the currently fragmented system of collections by individual cities, parishes and other agencies.