Tax Restructuring Bills Advance

They call this a fiscal session and that was certainly apparent in the first week of the 2021 legislative session. The Legislature’s two tax-writing committees held five meetings between them and advanced a handful of the major tax reform bills of the session.

Bills that CABL is watching closely include:

HB 199 by House Speaker Clay Schexnayder: The processes Louisiana businesses must follow to collect and remit state and local sales taxes are perhaps the most complicated and cumbersome in the country. This bill doesn’t address all the problems associated with collecting those taxes, but it does seek to streamline the process and provide for a more centralized approach.

HB 292, & 293 by Rep. Neil Riser: Louisiana’s top corporate income tax rate is 8%, which is the highest in the region. But that high rate doesn’t reflect a much lower actual tax burden for companies. Louisiana is one of only three states that allows companies and individuals to deduct their federal taxes from state income taxes. The combination of these bills and an additional constitutional amendment eliminate the tax deduction which allows for a lower flat rate of 6%.

SB 159 by Sen. Brett Allain: This constitutional amendment is the starting point for doing much the same on the individual income tax. Louisiana has graduated tax brackets of 2%, 4%, and 6% based on income levels. This amendment seeks to cap the top rate at 5% in the constitution. Again, that lower rate would be paid for by eliminating the deduction for federal income taxes. A bill co-authored by Rep. Stuart Bishop and Sen. Allain envisions reducing the brackets to 1.85%, 3.51%, and 4.25%. That bill and others that propose different scenarios will be heard next week.

SB 161 by Sen. Brett Allain: Louisiana has an antiquated corporate franchise tax which is essentially a tax on a company’s assets, not its profits. Many states that had franchise taxes are moving away from that model and Louisiana should, too, if a way can be found to help mitigate the loss in revenues. The Legislature took a step in that direction last year by temporarily suspending the franchise tax for a large number of small businesses that pay the tax. This would extend the suspension for five more years.

There were also bills this week to clamp down or raise the bar for passing or extending various tax deductions, exclusions, and credits. HB 202 by Rep. Bishop would require a two-thirds vote of the Legislature to enact or renew any tax credit, deduction, or exemption – all of which reduce state revenue – just as a two-thirds vote is needed to raise revenue. That bill is also pending action on the House floor.

All of these bills are at the heart of the fiscal reform efforts lawmakers are undertaking this year. CABL supports them, and while there are still details to be worked out and things that could be improved, conceptually they represent approaches to tax policy that seek to make Louisiana more competitive, create a more favorable business climate, and do so in a way that is as close to revenue neutral as possible.

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