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Temporary extension of Louisiana’s temporary sales tax might be temporary fix

by Matthew Person on May 5, 2017

Temporary extension of Louisiana's temporary sales tax might be temporary fix

No one in the State Capitol says they want to renew a temporary 1-cent increase in the sales tax that is scheduled to expire in mid-2018.

“I continue to believe that (it) should roll off the books,” Gov. John Bel Edwards told reporters on Tuesday, in a comment echoed by state legislators of both parties.

Avoiding the Fiscal Cliff

But it’s becoming more and more likely that lawmakers will turn to extending at least a portion of the sales tax, if they ultimately settle on a solution to the so-called “fiscal cliff,” when $1.3 billion in temporary taxes expire on June 30, 2018.

Republican leaders of the House are pushing the broad outlines of a plan for the state to spend no more money next year than this year, but it saves enough money to get the Legislature only halfway toward heading off the fiscal cliff. Meanwhile, Edwards’ big revenue-raiser — the commercial activity tax — died before the House Ways and Means Committee on Tuesday.

The inability of either Edwards or the Republican leaders to explain at this point how they would solve the fiscal cliff has put the sales tax into play, especially because lawmakers say they have heard few complaints from constituents about it.

“I think it’s fairly unavoidable that we’ll renew at least a part of the penny,” state Rep. Julie Stokes, R-Kenner, said in an interview.

The appetite for extending the sales tax

The appetite for extending the sales tax will become clearer after the House Ways and Means Committee meets Monday to vote on measures that might raise more money and move the Legislature closer to fixing the fiscal cliff.

The committee members are scheduled to vote on a variety of measures as the Legislature begins the fourth week of its 60-day session.

The one attracting the biggest buzz is House Bill 648 by state Rep. Kenny Havard, R-St. Francisville. It would eliminate the corporate income and franchise taxes and replace them with a “gross margins” tax of about 1 percent. Eliminating those taxes would wipe out tens of millions of tax breaks that businesses tap.

The Tax Foundation, an influential right-of-center nonprofit in Washington, has endorsed the concept. Americans for Prosperity, a conservative Washington-based group funded by the Koch brothers, opposes it, according to John Kay, from the group.

“We’re waiting to see what finally passes Ways and Means and the House,” state Senate President John Alario, R-Westwego, said in an interview. Alario and his 38 colleagues in the Senate are mostly bystanders on tax matters until any revenue-raising bills emerge from the House.

Ways and Means Committee Chairman Neil Abramson, D-New Orleans, is planning to have his committee wait a week to take up bills sought by the governor that would implement the recommendations of a blue-ribbon panel that spent 2016 studying the tax code.

“A failure to act is not an option”

The panel called the tax system “broken” and concluded: “A failure to act is not an option.” Those bills would end tax exemptions coupled with lowering sales and income tax rates, and would extend the sales tax to a number of activities and transactions currently subject to taxation in Texas but not in Louisiana.

Two Democratic measures to watch for: House Bill 562 by state Rep. Katrina Jackson, D-Monroe, would make permanent a temporary reduction in business tax breaks. House Bill 655 by state Rep. Gene Reynolds, D-Minden, would extend the sales tax.

Legislators and Edwards agreed last year to raise the state portion of the sales tax from 4 cents to 5 cents for 27 months, until mid-2018, as part of a series of moves that cut government spending and temporarily raised other taxes to plug a $2 billion budget deficit they inherited from Gov. Bobby Jindal and the preceding Legislature.

The extra penny is generating about $850 million in tax revenue this year and has given Louisiana the nation’s highest combined local and state sales tax rate at an average 10 cents per $1.

Uncertainty over how legislators might offset that $850 million is driving discussion about extending the penny sales tax.

Overcoming the opposition of the House

Any effort to do so must overcome the opposition of the House Democratic Caucus, which consists of 41 members in the 105-member House. Renewing the sales tax would require a super-majority of at least 70 votes.

“We told the public that if we got the penny on until 2018, we would have time to come up with tax reform this year,” said Reynolds, who chairs the caucus.

Jackson, who sponsored last year’s sales tax increase, opposes keeping it. “It’s a regressive tax, and it was never meant to be a permanent tax,” she said.

But keeping at least a portion of the sales tax could be part of any solution to the fiscal cliff if other tax measures fall short.

“If we need that penny, we’ll have to renew it,” said state Rep. Terry Brown, an independent from Colfax. “Someone will have to fund the services that government needs.”

State Rep. Sam Jones, D-Franklin, is sponsoring House Bill 638, a measure to extend the sales tax until 2023. He said he doesn’t like the idea but filed the bill in case it’s needed.

Legislators believe any extension would be temporary, which is exactly what outside tax experts say they shouldn’t do. The Legislature patched the budget year after year under Democrats throughout the 1990s until the passage by voters of a major tax package in 2002. In 2016, the Legislature, under Republicans, returned to a temporary sales tax patch again.

Bond rating agencies cited the temporary fix as a reason for a recent bond downgrade that is costing the state about $1 million a year in higher interest rates until the state pays off the bonds.

State Sen. Blade Morrish, R-Jennings, said he would prefer not to renew the sales tax but said lawmakers might have no other solution.

“It would be a temporary tax for a temporary fix,” he said.

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