Conversations moving away from Edwards’ commercial activity tax

Ten days into the legislative session, some Louisiana lawmakers are turning to reforming sales taxes as a starting point to avoid a $1.3 billion budget shortfall next year.

And many, including House Democrats, are looking for alternatives to Gov. John Bel Edwards’ commercial activity tax proposal, a gross receipts tax on businesses that represents the bulk of the governor’s tax reform plan.

Rep. Gene Reynolds, D-Minden, chair of the House Democratic Caucus, says the CAT does not appear to be garnering support in the lower chamber. Instead, he’s hoping to negotiate some mix of changes to sales, income and corporate taxes as well as spending cuts to solve the state’s chronic budget problems. Republicans are increasingly looking to freeze the budget to keep funding levels the same as this year, but would still have to find hundreds of millions of dollars to offset temporary taxes that expire next year.

“That’s not gaining traction,” Reynolds says about the CAT tax. “You’ve got to have something in the mix to work on.”

A sales tax bill by Rep. Tanner Magee, R-Houma, has sparked conversations and attracted early interest among lawmakers. In its current form, it would cut the sales tax to two cents and wipe off all exemptions, making them “clean pennies.” Early projections show that Magee’s bill, if passed, would widen the state’s budget hole next year to more than $2.5 billion.

But Magee says the bill is simply a starting point, adding he wants to work backwards to add pennies and exemptions as necessary while reforming the tax code. He’s met with the governor, Republicans and Democrats, and says he has been well-received.

“I think (the Edwards’ administration) has come to realize this may be the best opportunity to accomplish reform and prevent the fiscal cliff,” Magee says. “Their attitude recently has changed dramatically to their willingness to … be open to the conversation.”

But to break even Magee’s bill would need major changes, and most lawmakers think they will have to delve into personal income taxes and corporate taxes as well. Some of the ideas proposed are rooted in recommendations from a tax and budget task force that advised the Legislature to broaden the tax base and lower rates.

That would mean taxing things that are not currently subject to sales tax, and there are a host of bills that would alter rates and what is taxed.

Magee says he’s still undecided on the CAT tax, and Edwards spokesman Richard Carbo says the administration still is working on getting information to lawmakers about the proposal. Edwards has not abandoned the idea, Carbo says.
“There are still a lot of legislators interested in getting information on it,” he says. “But if legislators aren’t going to be interested in task force recommendations, and they aren’t going to come up with their own plan, it’s simply irresponsible to just say ‘no.’”

But Magee’s bill is a good place to start examining the sales tax, Carbo says, adding the administration is open to working with representatives on legislation outside of Edwards’ tax agenda.

But philosophical divides over the size of the budget still exist. And options are limited, says Senate tax committee chair Sen. JP Morrell, D-New Orleans. Reeling in tax credits, a topic Morrell’s committee exhaustively studied last year, does not bring in immediate savings, as most have a long shelf life. Sales tax reform also cannot raise enough to cover the fiscal cliff, he says, adding that early conversations have been constructive.

Rep. Chris Broadwater, R-Hammond, says he is interested in Magee’s ideas for reforming the sales tax. Broadwater, along with other lawmakers involved in the talks, is pushing his own bill that would similarly reduce Louisiana’s highest-in-the nation sales tax rate.

“To the extent we can lower rates and simplify things, that would be a positive,” he says. “I think we’re having some good exchange of ideas. But exchange of ideas is great until you need to get some agreement on ideas. That’s the tricky part.”

—Sam Karlin

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