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By Nushin Huq
The Louisiana governor’s cornerstone plan to prevent a budget gap in the upcoming fiscal year has been killed by state lawmakers.
The House Ways and Means committee voted April 25 to defer a bill that would create a commercial activity tax (CAT). If it had passed, the companies would either have paid their corporate income tax or the new CAT, whichever is higher.
It is now incumbent on House leadership to come up with a solution to the state’s revenue problem to avoid a predicted $1.3 billion fiscal cliff in July, Gov. John Bel Edwards (D) said during a news conference after the vote.
There is still no plan the Legislature can rally around to fill the expected budget gap, Edwards said. He urged House members to pass bills that take recommendations from a tax task force that many committee members said they supported. These measures would broaden tax base while lowering the tax rates.
“This was one bill in our package,” Edwards said. “There are many, many others. Those come from the task force, and those should be well received.”
Revenue Secretary Kimberly Robinson said the CAT bill was an important component of Edwards’s plan, but the DOR’s attention remains focused on moving the remainder of the package through the legislative process.
“These bills are consistent with the recommendations of the Task Force on Structural Changes in Budget and Tax Policy for reforms that would lower tax rates and broaden the base,” she told Bloomberg BNA in an email. With the deferral of the CAT bill, “we will continue seeking to identify other ways to keep the state from careening off the fiscal cliff when hundreds of millions of dollars in temporary revenue measures expire in 2018.”
During a two-day committee meeting on H.B. 628 it seemed likely, from committee members’ comments, that the CAT bill wouldn’t pass. Rep. Sam Jones (D), the bill’s author, moved to voluntarily defer the bill April 25.
The CAT bill was the only measure discussed during the April 24 and April 25 meetings. On the second day, speakers representing businesses spoke out against the bill, saying it would hurt businesses and added taxes would be passed on to consumers.
On April 24, many seats were empty, suggesting that many committee members may have already made up their mind on how to vote on the bill. Lawmakers blamed the state’s tax system for a recent decision by Exxon Corp. to locate a new petrochemical plant in Texas.
Jones countered, however, that Texas also has a similar tax, which it refers to a margin tax.
“The fate of this bill was decided long before we unveiled it,” Edwards said.
The proposed bill was originally expected to bring $416 million into the state coffers, according to Legislative Fiscal Office estimates. Amendments to the bill eliminated some groups, such as passthroughs, from the tax and brought the estimated revenue down to $233 million. While critics of the bills applauded those changes, they remained skeptical of the bill and its impact on the state’s business environment.
“I had some some conversations with people beyond this room,” Jones told the committee during his closing statement on the bill. “We need to do this once and for all, and maybe this isn’t the way to do it.”
Jones then pulled his bill from consideration.
Jones also sponsored a bill that would impose a margins tax while repealing the corporate income tax, and another bill that would require a minimum corporate income tax. Those bills were also scheduled for discussion on April 25, but were deferred for a later date.
About 39 percent of the state’s revenue comes from sales tax, Edwards said in his news conference. Another 39 percent comes from personal income tax. Corporate income tax and franchise tax make up only 3 percent of the state’s revenue. The purpose of the CAT was to raise revenue for the state and restore some fairness to the system, Edwards said.
The remnants of the governor’s plan now include broadening the sales tax base to include a tax on certain services, like in Texas.
Edwards said sales taxes on goods have been limited due to the increasing number of remote sales, which aren’t taxed.
In January, Amazon Inc. began collecting tax for online sales in Louisiana. But those collections aren’t making a huge impact on sales tax revenue for the state because they only apply to sales in which products go through the company’s distribution centers, which is a small percentage of total Amazon sales, Edwards said.
A growing number of states, including Texas, are mulling plans to tax marketplace providers like Amazon to capture sales made through affiliated third-party sellers. Just this year, at least five states have proposed measures to impose collection obligations on those marketplace providers. No state has enacted a law holding them liable for tax on in-state sales facilitated through their platforms, but many expect that this approach will have mass appeal for states in due time. New York’s bill has already died this session.
To contact the reporter on this story: Nushin Huq in Houston at nHuq@bna.com
To contact the editor responsible for this story: Ryan C. Tuck at firstname.lastname@example.org
Text of H.B. 628 is at http://src.bna.com/oeX.
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