Like many business owners, Eric Lane supported Gov. John Bel Edwards’ push for a one-cent sales tax increase during the special session called earlier this year to balance the state budget.
As Business Report details in the cover story from its new issue, it’s not that the president of Gerry Lane Enterprises—which has Buick GMC, Cadillac, Chevrolet and FUSO dealerships in Baton Rouge—was particularly excited about the prospect of a sales tax hike. But given the $750 million budget shortfall lawmakers had to fill before the current fiscal year ends June 30, he didn’t see much choice.
In the final few hours of the session, however, the Legislature not only passed the penny sales tax but simultaneously removed dozens of exemptions and exclusions from the existing sales tax rolls.
The result was not only a higher sales tax but a dramatically altered tax code that places a liability on all sorts of transactions that were not previously taxed.
In the case of car dealers, among the new taxes they have to collect is a 4% tax on manufacturer rebates, which makes no sense in Lane’s opinion. A rebate is a discount customers apply to the purchase price of their vehicle.
“Nobody ever actually takes the cash,” Lane says.
Nevertheless, dealers now have to collect tax on the rebate as if it were a cash giveback. Worse still, when the new fiscal year begins July 1, the 4% rate changes to 2%, where it will remain for the next two years.
“So all the car dealers have to reprogram all our computer systems to account for this new tax,” he says. “Then, 90 days from now we’ll have to reprogram the computers again.”
It may sound like a little thing in the face of the big budget problems the state is grappling with, but little things add up. In the case of the rebate tax, hiring an IT consultant to reprogram the computers at Lane’s three dealerships will cost an estimated $10,000. It’s just one of many administrative expenses the dealership will incur as a result of the new taxes it must now collect from its customers—to say nothing of the higher utilities and sales taxes for which it is now liable as a taxpayer.
Lane isn’t alone in his frustration. Two months after the special session ended, business owners across the state are still trying to make sense of the new tax code, what they’re responsible for and how much it is going to cost them. Most of them still have no idea.
The reason there’s so much confusion is largely because the changes, made in haste, are dizzyingly complex. There are multiple and varying tax rates on different products and services, each with different expiration dates. No one has any idea how the Louisiana Department of Revenue plans to enforce compliance. More troubling, no one can say for sure how much revenue all these new taxes will raise.
What is fairly certain is that businesses individually and the state’s business climate will collectively suffer.
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