29 April 2021
“Tax Reform” has been one of the hottest topics in Louisiana in the months leading up to the 2021 Legislative Session. Legislative leadership including Senate President Page Cortez, House Speaker Clay Schexnayder, Revenue and Fiscal Affairs Chairman Bret Allain, Ways and Means Chairman Stuart Bishop, as well as several other key legislators have been working for months to put together a package of bills they believe will help simplify Louisiana’s tax structure.
“Our tax burden on businesses and individuals is really more middle of the pack. We should be rated closer to 25th, 26th, 27th amongst the Tax Foundation,” said Chairman Bret Allain in an early conversation on tax reform. “But because of our structure, we’re anywhere between 42nd and 44th. When we question them on it, they talk about adding predictability and simplicity to the tax structure.”
The array of tax reform items seen so far in the 2021 session have primarily been aimed at the issue of bad tax policy, using “band-aids” instead of simplified and holistic solutions, which is what brings Louisiana down in many national rankings. If the legislature can pass some of the more holistic solutions, such as streamlined sales and use tax, a reduced and flat income tax rate, and more, it can finally begin to work towards making Louisiana more competitive in our region and attracting new business, capital investments and high-paying jobs.
The challenge, however, has been keeping these plans “revenue neutral.” To pass such bold changes, even considering how much business and capital these changes alone would attract to the state, the legislature has also been tasked with finding ways to offset these costs. While many of these plans have already passed their first hurdle that is the Ways and Means and Revenue and Fiscal Affairs Committees, only time will tell which of these plans holds steady through the process.
Now that we are about a third of the way through the legislative session, we are starting to see which bills are gaining the most traction and attention.
The first major piece of legislation that has already made some serious headway through the process is Speaker Schexnayder’s HB199, a constitutional amendment to provide the framework for streamlining Louisiana Sales and Use Tax. While many believed this issue would be met with immense opposition from local collectors and communities, its success thus far can be attributed to the enormous footwork on the front-end.
The HR31 Centralized Sales and Use Tax Study Group, chaired by Advantous Partner Jason DeCuir, made history by bringing all stakeholders together to agree on the constitutional framework of the bill. Key in the bill’s success has also been Speaker Schexnayder and Representative Beau Beaullieu’s tireless effort to travel the state, speaking with sheriffs, mayors, school board officials and may others to address any lingering issues with the bill.
Last Wednesday, April 21st, HB199 far surpassed the 2/3 threshold to pass the constitutional amendment on the House floor with 97 yeas and only 4 nays. HB199 will be making its way over to the Senate next week starting with the Senate Committee on Revenue and Fiscal Affairs.
Also moving quickly through the process have been Chairman Bret Allain’s tax reform package he has worked together on with Chairman Bishop. These bills include the following:
- HB278 by Sen. Allain and Rep. Bishop reduces the tax rates on all personal income tax brackets and modifies certain deductions
- HB274 by Sen. Allain and Rep. Bishop eliminates the FIT deduction for corporations
- SB159 by Sen. Allain and Rep. Bishop repeals the FIT deduction for individuals and establishes a max personal income tax rate of 5%
- SB157 by Sen. Allain and Rep. Bishop exempts certain mobile workers who spend 25 or fewer days in the state from personal income tax
- SB160 by Sen. Allain conforms state partnership reporting adjustments to federal taxable income to current federal partnership audit adjustments
- SB161 by Sen. Allain extends the sunset date of the corporate franchise tax exemption on the lowest tier of capital until 2025
- SB171 by Sen. Allain provides for severance tax exemptions and sit-specific trust funds for certain orphan wells
The Senate bills received wide support on the Senate floor and are now pending introduction in the House Ways and Means Committee. HB278 and HB274 have been reported from Ways and Means and are pending House floor debate.
There is also a set of tax reform items that are quickly moving forward on the House side by Chairman Bishop, Representative Riser, Representative DeVillier and Representative Ivey. These bills include the following:
- HB275 by Rep. Riser, a constitutional amendment to repeal the FIT deduction for corporations
- HB292 by Rep. Riser, the statutory companion to HB275
- HB293 by Rep. Riser provides for a flat corporate income tax rate of 6% (amended to 6.5%)
- HB369 by Rep. Ivey, a constitutional amendment to set flat personal income tax rate
- HB376 by Rep. Ivey sets the flat personal income tax rate at 4.25%, while raising standard deduction and eliminating the earned income tax credit and FIT deduction
- HB202 by Rep. Bishop requires a 2/3 vote of both houses to enact a new tax exemption exclusion, deduction, rebate or credit and all new credits to expire in four years.
Some of the themes we have seen in both packages and as well as in other bills include eliminating the FIT deduction, providing an exemption for Louisiana workers who do not primarily live in the state, reducing income tax rates and creating flat taxes and eliminating many state credits and exemptions.
A few bills not reflected in this list by Rep. DeViller would have significantly cut credits and exemptions across all industry sectors. While the thought was that these bills would provide revenue offsets for the state to be able to phase-out the corporate inventory and franchise tax, they ultimately did not make it out of committee.
Eliminating the Federal Income Tax (FIT) Deduction, specifically, has been a widely agreed upon idea this session. While state revenue rises when federal income taxes are cut due to this deduction, such as was the case last year with President Trump, the system is unstable and could cause the reverse if federal taxes are raised. This is just one example of policy that will offer greater predictability and simplicity to Louisiana’s tax structure and budget.
In addition to these main tax reform package bills, there are also many other tax bills making their way through the legislature that are causing some buzz around the capital.
On the infrastructure front, the House Ways and Means Committee favorably reported two bills on Tuesday that are tackling how to fund infrastructure improvements in Louisiana. HB616 by Rep. Freiberg was amended to focus on creating a tax on electric and hybrid vehicles that would be deposited directly into the Construction Subfund of the Transportation Trust Fund. Rep. Davis and Sen. Ward also brought forth HB696, which would dedicate a percentage of the temporary (.45%) state sales tax into the Construction Subfund. In 2025, It would reduce the sales tax rate from 4.45% to 4.40% percent and dedicate it to the Subfund until 2031. These two bills are expected to be heard on the House floor soon.
Several other potential state revenue-raisers are HB697 by Rep. Stefanski, which provides for the taxes on sports wagering both in-person and online, and HB514 by Rep. Magee that levies a state sales tax on the marijuana flower for medical, therapeutic use.
To keep up with these bills and more, follow Advantous on Twitter @AdvantousLA for live updates from the Louisiana Legislature. If you have any questions about the tax legislation in the 2021 session and how it may affect your business, feel free to contact our government affairs team at Advantous Consulting and let us put our knowledge and experience to work for you!