Business groups are panning the tax plan unveiled by Gov. John Bel Edwards on Wednesday afternoon.
Though the governor says his new plan will bring the predictability and stability company CEOs so often say they want to see in the state’s tax code, business leaders say the new plan will only further harm the state’s competitiveness.
“We support a fair and flat treatment,” says Dawn Starns, state director of the National Federation of Independent Business. “We don’t see that in this.”
The biggest source of Starns’ and others concern is the centerpiece of Edwards’ plan: A Corporate Activity Tax—effectively a sales tax—that would apply to any business with gross revenues of more than $1.5 million. The 0.35% tax would be designed to make up for the $880 million the state will lose by not renewing a fifth-penny of the state sales tax, which is another element of the governor’s plan.
But the CAT disproportionately harms high-volume, low-margin business like retailers and restaurants, Starns says. Edwards says his administration will address that disparity in the coming days with additional tax policy. But that’s of little comfort to small businesses.
“You are rolling out a tax plan that does not address a large portion of businesses—and what about trial attorneys and their large settlements? How will that be treated?” Starns says. “What about developers, homebuilders? The may have a high sales volume one year but not the next. How does that really play out? There is no real modeling to show what that ends up looking like.”
Jim Patterson, the Louisiana Association of Business and Industry’s vice president for government relations, says there are other problems with the CAT as well. It leads to increased costs of production and an effective tax rate that is hidden from the consumer due to a pyramiding effect. It taxes the first dollar of receipts or revenue without regard to profitability or ability to pay, he notes. Few or no deductions are allowed in general, and there is the potential for double taxation by those companies that pay individual income taxes as business pass-throughs, he adds.
“Corporations would now be required to calculate both income tax and the gross receipts tax, further complicating an inefficient system,” he says. “Furthermore, the CAT encourages vertical integration, which drives companies to find vendors outside the state. Is this what we want for Louisiana employers?”
While the concerns of business groups are not unexpected, Edwards says it’s time to “level the playing field that has been unfairly tilted towards the big guys.” Of the more than 149,000 corporate tax filers in 2015, Edwards says 129,000 didn’t pay anything because of deductions and exemptions.
While LABI does not dispute those figures, it offers up its own data to argue against the tax proposal.
“Business is paying more than its fair share of taxes today. To allege otherwise is absolutely false,” Patterson says. “Employers in Louisiana pay the majority of property taxes in this state. Employers pay both individual and corporate income tax. Employers pay half of all sales taxes in the state—at the highest rate in the nation. Employers pay a franchise tax and an inventory tax in Louisiana, which most states don’t have. Employers pay excise taxes like severance tax and gas tax. It’s time to put political rhetoric aside and look at the facts.”