Ever since the governor’s commercial activity tax proposal died on the vine earlier this week, political chatter has turned to another potential option. It’s House Bill 648 by Rep. Kenny Havard, R-St. Francisville, which would levy a new tax on corporations called the “Louisiana Business Tax.”
That’s a more marketable name for a gross margins tax, which should not be confused for Gov. John Bel Edwards’ failed gross receipts tax.
For the gross margins tax, corporations would face a flat income tax somewhere between 1.5% and 2%, according to the legislation. Havard, though, says he is working on a set of amendments that would bring that figure to around 2%. He estimates it would generate about $200 million for the state next fiscal year, if passed by the Legislature.
In exchange for that new tax, the bill, as currently drafted, calls for the elimination of corporate income and franchise taxes as well as all corporate tax exemptions.
“I want businesses to have some predictability in what they will have to pay in the future,” Havard says. “When we left after last year’s sessions, we added a temporary penny to the state sales tax base with the understanding that we were going to come back this year to adopt real reforms. I intend to keep my word on that.”
The idea has yielded a neutral stance from Americans For Prosperity, a conservative-leaning group that has the ears of lawmakers.
“I’m intrigued by the bill but not ready to give a thumbs up or down,” says AFP state director John Kay. “It checks some of the boxes for tax reform that AFP Louisiana has laid out including a broad base and simplification of the tax code from an exemptions and credits standpoint. It also eliminates the franchise tax, a change that is long overdue.”
While Democrats appear to be warming to the concept, Republicans on the House Ways and Means Committee, where the bill will be heard next week, sound skeptical. Others in the business lobby are hesitant to get behind it as well.
“Now we know what the governor’s backup plan is,” says Stephen Waguespack, president and CEO of the Louisiana Association of Business and Industry. “I have a lot of unanswered questions.”
In particular, Waguespack says he was concerned that the bill would eliminate the inventory tax credit, which business interests have fought to protect in recent years.
A spokesperson for the Governor’s Office says the administration has not publicly taken a stance on the bill, hasn’t fully reviewed the proposal and is awaiting more information.