Louisiana to Gain Almost $230M From Federal Income Tax Changes

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Nushin Huq

Louisiana is expecting to see almost $230 million more in 2019, thanks to the new federal tax act.

Louisiana is one of a handful of states that allows residents to deduct federal income taxes paid from their state income taxes. Proponents of the 2017 federal law said most people would see their federal taxes go down, but for Louisiana residents, the unique deduction means their state taxes will go up.

The state Department of Revenue is still analyzing corporate tax changes from the 2017 federal tax act ( Pub. L. No. 115-97), but the estimated increase from individual income taxes is $226 million in 2019, DOR spokesman Byron Henderson told Bloomberg Tax.

However, that increase won’t help the state as it faces a potential $1 billion budget shortfall in July, when a number of temporary tax measures are expected to expire.

The Legislature meets in March, but under state law isn’t allowed to consider revenue-raising bills in an even-numbered year. Gov. John Bel Edwards (D) has indicated he will call a special session to raise revenue in February—but only if lawmakers agree ahead of time on how to fix the budget gap.

Edwards wants to make permanent some of the temporary cuts to incentives as well as expand the sales tax base to certain services.

On Jan. 30, Speaker of the House Taylor Barras (R) sent Edwards a letter outlining reform recommendations that House Republicans believe are critical to a final solution to the state’s budget problems. They would like a constitutional amendment changing the calculation of the state’s expenditure limit cap, Medicaid work requirement reforms, and an enhanced budget transparency website.

Edwards told local reporters that he viewed the proposal as a positive development.

Tax Code Changes

With the state’s current budget problems, it’s unclear if lawmakers and voters would make changes to the state income tax deduction for federal income taxes paid. Over the past several years, state lawmakers have tried and failed to decouple federal and state income taxes.

In 2016, Louisiana voters rejected a constitutional amendment that would have abolished the tax break allowing businesses to deduct federal income taxes paid. If that amendment had passed, corporations would have exchanged the tax break for a flat rate of 6.5 percent.

Lawmakers tried again in 2017 when the House passed a package of bills that would have implemented a flat rate of 3.95 percent for calculating personal income tax in exchange for eliminating the deduction for federal taxes paid. The package of bills died in the Senate.

To contact the reporter on this story: Nushin Huq in Houston at nhuq@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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