Louisiana Governor Bobby Jindal today unveiled to lawmakers his new budget proposal for the next fiscal year.
As was anticipated, Governor Jindal’s “recipe” for Louisiana’s current revenue and budget woes is, in part, to alter some of the state’s various refundable tax credit programs. These proposed changes are being suggested by the Governor to help plug a projected $1.6 billion hole in the upcoming state budget and lessen projected budget cuts for public colleges and health services.
Specifically, the Governor recommended that, as part of the state tax reform plans, the state should convert from refundable to non-refundable the following 12 tax credits:
- Inventory Tax Credit
- Wind and Solar
- Research and Development
- Ad Valorem for Offshore Vessels
- Musical and Theatrical
- Telephone Co Property Tax Credit
- Ad Valorem for Certain Natural Gas
- Vehicle Conversion to Alternative Fuel
- Sugarcane Trailer Conversion
- Milk Producers
- Angel Investor
- Historic Residential Rehab
Governor Jindal’s goal with these changes is to reduce state expenses by $526 million “without raising taxes.” The savings would be split, with $150 million going to health care and the remaining $376 million going to higher education.
The Governor, however, has noted that he is not targeting the Earned Income Tax Credit or the School Readiness Tax Credits, which are aimed at helping low-to-moderate-income families and children.
Approximately 75% of the $775 million in refundable tax credits issued by the state each year (i.e., approximately $590 million) is in the form of refunds to taxpayers. By converting these credits from refundable to nonrefundable, the state would no longer refund the taxpayer any credit amount over the taxpayer’s own tax liability for the same tax year (thereby limiting the amount of money the state would actually pay out in cash).
The two largest refundable tax credit programs are the Inventory Tax Credit Program (which provides $377 million in refunds that do not offset taxes paid) and the Wind & Solar Tax Credits Program (which provides $57 million in refunds that do not offset taxes paid).
Considering that 83% of the Inventory Tax Credit amount is refunded to taxpayers as opposed to offsetting any income or franchise tax liability, those retailers, wholesalers, and distributors that pay local property tax on inventory will be heavily affected.
A copy of Governor Jindal’s presentation outlining his budget proposal can be found here.
The Jones Walker SALT Team will be closely following the Governor’s budget proposals and any resulting tax legislation, and we will be sure to keep you posted on new developments as they unfold.