More than 100 business leaders and members of the Louisiana Association of Business and Industry gathered this morning for a breakdown of how the more than $3.5 billion new taxes passed during the recent legislative special session will affect them over the next five years.
What they heard wasn’t pretty.
“The recent tax changes will be a compliance nightmare only for the few who don’t give up on trying to comply,” said Chris Dicharry, a board certified tax attorney at Kean Miller who was one of three panelists at the LABI-sponsored post-session wrap-up. “Louisiana’s revised sales tax system looks like the progeny of a nutria and a watermelon.”
Increases and expansions of state sales taxes and corporate income and franchise taxes were the primary mechanisms enacted into law. Panelists noted the focus of tax experts and employers alike has now shifted from the Legislature to the administration, as the Department of Revenue attempts to interpret and enforce the complex new laws now on the books in Louisiana—arguably the most complicated and confusing in the entire nation.
Experts also pointed out that the limited topics and short timeframe for major decisions in the special session ultimately led to a temporary approach focused solely on raising new revenue, rather than comprehensive reforms to budgeting or tax policy.
While some changes to corporate income and franchise taxes are permanent, the sales tax changes have sunset dates in 2018.
“The short-term focus of Louisiana’s recent tax changes has created extreme uncertainty for businesses,” said Ferdinand Hogroian, senior tax and legislative counsel for the Council on State Taxation. “Coupled with extraordinary complexity and bad fiscal policy choices—like taxing in-state purchases of machinery and equipment—these changes also put Louisiana out-of-step with other states and at a competitive disadvantage.”
The tax on manufacturing, machinery and equipment, or MM&E, is a particularly glaring example. In the 1990s, the Legislature created an exemption on MM&E to stimulate manufacturing in the state. During the special session, lawmakers removed the exemption and imposed a 2% tax for the remainder of the current fiscal year and a 1% tax for the next two years.
“That is causing a lot of consternation among people who are getting ready to make very large investments in the state of Louisiana,” Dicharry said. “It’s easy to say, ‘It’s only 1%.’ But when you’re talking about 1% of $2 billion, you’re talking about a heck of a lot of money.”
Dicharry also highlighted inconsistencies in the increased sales tax on everything, from tangible personal property to repairs on equipment, and from proprietary software to leases, all of which will negatively affect business to say nothing of the administrative nightmares it will create. Some members of the audience asked if the Legislature might take corrective action to address some of the problems it inadvertently created in its rush to create new revenue.
“I’d love to believe we can,” Dicharry replied. “The problem is we’re in a regular, nontax session so we can’t do it during the regular and I can’t wait to throw this in a special session where they’re trying to raise more taxes.”
—Stephanie Riegel
