The 2015 Louisiana Tax Study Group, which was commissioned by the Louisiana Legislature and led by Dr. Jim Richardson, finally presented its much-anticipated report and recommendations today in a joint meeting before the House Committee on Ways and Means and the Senate Committee on Revenue and Fiscal Affairs.
The executive summary of the 2015 Louisiana Tax Study report can be found here. The full final report will be released later this year.
This tax study was requested in order to examine the current tax structure in Louisiana and provide comment and recommendations on suggested changes to the Louisiana tax laws.
The stated goals of the study are to “establish the appropriate level of public expenditures” without “deter[ring] economic development of the state” or imposing a “disproportionately large and possibly counterproductive tax burden on any one segment of the community.”
According to the study, the tax structure should also be as simple and transparent as possible and compatible with the local tax structure.
The running mantra of Dr. Richardson’s presentation today, and in fact the study in general, was a focus on broadening the tax base and lowering the tax rates.
With this focus in mind, the 2015 Louisiana Tax Study group provided the following recommendations:
Personal Income Tax:
- Lower tax rates to 1%, 3%, and 5% (from 2%, 4%, and 6%, respectively)
- Eliminate Louisiana’s federal income tax (FIT) deduction and excess itemized deductions
- Limit tax credits allowed re: taxes paid to other states (limited to potential tax liability in Louisiana)
- Repeal net capital gains exclusion
- Examine and review other major exclusions (for retirement, social security, and others)
- Moratorium on new tax credits
- Sunset other tax credits absent legislative renewal
- Decouple state earned income tax credit (EITC) from the federal EITC
Corporate Income and Franchise Tax:
- Change corporate tax rates to a single 5% rate
- Eliminate the corporate franchise tax (realistically, cap and include all businesses)
- Eliminate the federal tax deduction
- Enact addback statute
- Move to single sales factor apportionment
- Move to market based sourcing for services
- Reduce/eliminate NOL carryback period and maintain NOL carry forward period
Sales and Use Tax:
- Do not increase state rate
- Expand sales tax base to include certain personal services (but do not tax business services)
- Moratorium on any new sales tax exemptions
- Removal of sales tax holidays
- Sunset other tax credits over a 5-year period, absent legislative renewal
- Move toward centralized tax administration system
- Move toward uniform tax base that will allow for membership in Streamlined Sales and Use Tax Agreement
- Maintain tax credits for food for home, nonresidential electric power, gas and fuel, prescription drugs, state/local governments, residential electric power, and machinery and equipment
- Eliminate horizontal drilling credit
- Designate revenues from Tuscaloosa Marine Shale for “permanent trust fund”
- Do not change severance tax rates or base
- Examine and review taxation of oil and gas, with goal of realigning tax rates and exemptions as appropriate
- Possibly reconvene to study severance tax separately and more carefully
- Maintain but do not increase homestead exemption
- Reduce Industrial Property Tax Exemption from 100% to 80% and limit the exemption to one 7-year period
- Require parish endorsement for any exemptions
Exemptions and Tax Credits:
- Limit inventory tax credit to 75%
- Work towards phasing out the property tax on inventories, with appropriate revenue replacement
- Convert motion picture tax credit to an expenditure program subject to annual appropriation
- Eliminate Enterprise Zones program and limit and reform Quality Jobs programs
- Align (i.e., raise) excise tax on alcohol, tobacco, and motor fuels to national or regional averages
The Jones Walker SALT Team will continue to watch the tax developments at the Louisiana Legislature unfold during this fiscal session (including those relating to this tax study report), and we will be sure to keep you posted!