The Louisiana Task Force on Structural Changes in Budget & Tax Policy recently released its recommendations to reform Louisiana’s sales and use tax, individual income tax, corporate income & franchise taxes, ad valorem property tax and economic development incentives. The highlights of the Task Force’s recommendations include:
Sales and Use Tax:
- Expand the sales and use tax base by:
- retaining the expanded state sales and use tax base adopted in Act 26 of the 2016 1st Extraordinary Session of the Louisiana Legislature, as amended by Act 12 of the 2016 2nd Extraordinary Session of the Louisiana Legislature (e.g., continue the tax on such things as custom software and business utilities);
- making certain services taxable similar to services taxed in Texas, and
- making certain digital transactions taxable (e.g., cable and satellite television, repairs to nonresidential and commercial property, web hosting and security services).
- Reduce the sales and use tax rate from its current 5% to no more than 4%.
- Align exemptions and exclusions, to the extent possible, at the state and local level.
- Create a uniform system of tax administration, collection and audit for state and local sales and use taxes.
- Allow local governments the ability to increase their sales and use tax rates without a vote of the state Legislature, but still requiring a vote of the people in the area being taxed.
- Recodify the sales and use tax laws to ensure greater clarity and ease of compliance.
Individual Income Tax:
- Option 1:
- Eliminate the state deduction for federal income taxes paid.
- Limit the excess itemized deduction for personal income to 50%.
- Decrease tax rates by 25%:
- 1.5% on the first $25,000 for couples ($12,500 single);
- 3% on $25,001 through $50,000; and
- 4.5% above $50,000.
- Option 2:
- Eliminate the excess itemized deduction.
- Compress rate structure at current tax rate levels:
- 2% on the first $25,000 for couples ($12,500 single);
- 4% on $25,001 through $50,000; and
- 6% above $50,000.
- Eliminate numerous income tax exemptions and credits.
- Impose a moratorium on any new tax credits or exemptions.
Corporate Income & Franchise Taxes:
- Eliminate the corporate income tax deduction for federal taxes paid as outlined in the proposed constitutional amendment on the November 2016 ballot (Amendment No. 3).
- Adopt combined reporting in place of the single-entity / separate return filing method.
- Restructure, phase out or eliminate the corporate franchise tax.
Ad Valorem Property Tax:
- Provide local governmental authorities a role in granting industrial tax exemptions.
- Expand use of payment in lieu of taxes (PILOT) arrangements for local governments considering property tax exemptions to attract economic development.
- Gradually eliminate inventory taxes over a 10-year period accompanied by the elimination over a five-year period of the state income and franchise tax credit paid on inventory.
- Limit the property tax exemption on property owned by non-profits to that used exclusively for the tax-exempt purposes of the non-profit.
Economic Development Incentives:
- Establish sunset review periods for all incentive programs and the elimination of underutilized or inactive programs.
- Louisiana Economic Development should continue to monitor and regularly report on the performance of all its incentive programs.
- Retain the Motion Picture Investor Tax Credit as a non-refundable tax credit incentive with both discounted redemption and transferability as alternative options for use.
- Implement a modified front-end cap to control the number of credits issued from inception and implement other mechanisms to encourage reasonably timely use of the credit.