Louisiana Senate committee votes to make higher sales tax rate permanent, adds business tax break

Committee votes to reinstate old business tax exemption

Tax reform would reduce tax rates and enact tax cut triggers
The Louisiana Capitol Building, April 8, 2021. (Wes Muller/Louisiana Illuminator).

Louisiana’s Senate Finance Committee voted 7-4 for a proposal that would make a higher state sales tax rate permanent while phasing in a business tax break that was eliminated five years ago.

House Bill 514 was initially focused on applying the state sales tax to smokable medical marijuana if that product becomes legal, but the legislation was amended late last week to make other sweeping changes to Louisiana’s tax code. 

Under the new version of the bill, Louisiana residents would continue to pay a 4.45 percent sales tax indefinitely, even as a 2 percent tax on business utility bills was phased out. The smokable medical marijuana tax of 4.45 percent would also go into effect if it was passed.

Currently, the state’s sales tax is scheduled to drop from 4.45 percent to 4 percent in 2025, but under this legislation, it would remain 4.45 percent permanently. Starting in 2025, the extra .45 percent would fund large transportation projects, including the construction of another bridge over the Mississippi River in Baton Rouge.

If the bill passes, the state business utility tax would also start to drop for manufacturing and utility companies in the next budget cycle and would be phased out completely by 2032. Other types of business would see their utility taxes go away completely in 2025.

The Louisiana Association of Business and Industry, Louisiana Chemical Association and other business groups are in favor of the rewritten version of the bill. 

House Speaker Pro Tempore Tanner Magee, R-Houma, sponsored the original legislation that focused on a medical marijuana tax, but Sen. Rick Ward, R-Port Allen, and Senate President Page Cortez, R-Lafayette, are pushing the revamped version of the bill.

Prior to 2016, businesses did not have to pay sales taxes on utilities. This legislation would restore that old tax break over the next several years. 

The business utilities tax and the higher sales tax rate were adopted in 2016 and again in 2018 in order to prevent massive cuts to higher education, health care and prisons. 

Critics are concerned if this bill passes that it could limit the options of lawmakers in 2025, who might want to keep the higher sales tax rate in place to cover higher education and health care costs again — instead of using it for transportation funding.

A fiscal analysis of the most recent version of the bill had not been completed Wednesday, but a previous version of the legislation would have cost the state $38 million in the next budget cycle due to a partial rollback of the business utility tax.

A previous version of the bill also would have put $378 million toward transportation projects annually starting in 2025 — money that is currently used to fund higher education, health care and public safety. Those numbers are not expected to change significantly, even with recent changes made.

“Our concern is not where the money is going but where the money is taken from,” said Jan Moller, executive director of the Louisiana Budget Project, a left-leaning think tank who opposes the legislation.

Moller said $378 million annually is a lot of funding for the state. The Louisiana Department of Children and Family Services state budget only used $215 million in state funding in this budget cycle, he said.

“I think it is unfair that we continue to provide relief for industry and we expect roads and bridges to be funded by poor people [who pay sales taxes],” said Edgar Cage, with Together Baton Rouge, a faith-based organization lobbying on behalf of low-income people.

The legislation may have a hard time getting approved. The newly formed House Conservative Caucus, a group of 41 lawmakers, has said most of its members won’t support the measure. Some lawmakers in the Legislative Black Caucus are also skeptical of the proposal. No tax bill can reach the required number of votes to pass in the House if both of those groups refuse to support it.

House Conservative Caucus chairman Jack McFarland, R-Jonesboro, is in favor of raising the state gas tax to generate more money for transportation projects, but said he doesn’t think it is appropriate to use the sales tax for transportation needs. Not everyone who has to pay the sales tax has a vehicle or drives on the roads frequently, he said.

Correction: This story previously suggested that House Bill 514 expanded to a new set of companies a proposed business tax break that existed before 2016.  The bill expands the number of companies classified as manufacturing entities but not the number of businesses that benefit from the proposed tax break.