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Edwards: business must pay its fair share


March 29, 2017
By Greg Hilburn
Originally Posted on The News Star

Louisiana's largest businesses would bear the brunt of the cost of a tax package Gov. John Bel Edwards rolled out Wednesday.

Edwards said his proposals would stabilize and modernize the state's tax structure for years to come, but it quickly met resistance from some business groups like the Louisiana Association of Business and Industry, whose CEO called it "tone deaf."

The central component of the proposal would be a corporate sales tax that would impose a 0.35 percent tax on total revenue, or gross receipts, of businesses with annual revenue of $1.5 million or more. Edwards calls it a Commercial Activity Tax. Smaller businesses would pay much less, from $250 to $750 a year.

It's designed to replace the temporary 1-cent sales tax passed on consumers last year to avert a budget crisis but making Louisiana the highest sales tax state in the nation. The Commercial Activity Tax would raise up to $900 million, the administration believes. The 1-cent sales tax generates about $880 million per year. "We all knew the penny was a short-term fix," Edwards said.

"We have the blueprint to get this done," Edwards said of his plan.

When asked if he thought businesses would push back against the proposal, Edwards said the Commercial Activity Tax would ensure businesses "pay their fair share."

"The central piece of the plan involves leveling the playing field that has been tilted toward the big guys," said Edwards, who noted his plan would also phase out the corporate franchise tax over 10 years, a nugget in the proposal for businesses.

The governor said in 2015 fewer than 20,000 of the 149,287 business who filed corporate taxes paid any state taxes.

CAT wasn't part of the Task Force on Structural Changes in Budget and Tax Policy recommendations released last year, but the governor said other components of his plan are.

Among them: eliminating the federal income tax deduction and lowering individual income tax rates to 1 percent, 3 percent and 5 percent; expanding the sales tax base to include some services like landscaping and pet grooming but not professional services (attorneys, CPAs, etc.); remove exemptions from existing sales taxes; and make permanent temporary reductions to credits and incentives.

In all, the plan would raise about $1.6 billion, Revenue Secretary Kimberly Robinson said, while dropping about $1.3 billion from the rolls, a net tax increase of about $300 million.

"I'm not putting the tax recommendations (of the task force) on the shelf," Edwards said. "I'm including the recommendations and (adding) the Commercial Activity Tax."

Edward said he pivoted toward the CAT after realizing any tax force recommendations that would raise income taxes would be doomed in the Legislature.

"We wanted to find something that would provide better policy, but also something that can pass," Edwards said. "There is no appetite in the Legislature to do anything with personal income taxes that would create more revenue."

The Louisiana Association of Business and Industry's top executive said the state should focus on curbing spending rather than increasing taxes on any group.

“The governor's latest tax proposal seems tone deaf to economic reality," said Stephen Waguespack, LABI's chief executive. "After substantial revenue increases last year, state government should work harder to efficiently deliver services in a way our economy can afford.

“Before asking for even more revenue under the guise of reform, taxpayers deserve an explanation for how the additional $1.3 billion in state revenue is being spent this year when priorities like TOPS remain unfunded.”

Others like Michael Olivier, chief executive for the Committee of 100 for Economic Development, were warmer to the plan, calling it "a bold approach."

"We have to analyze and see how it would impact the broadest base of business sectors, but it's a bold approach that will stimulate a lot of debate, and it's about time that happened," he said.

Good government groups like Public Affairs Research and CABL reserved judgement, but were optimistic.

"It takes in a lot more (task force) recommendations that we were expecting by broadening the base and reducing rates," said CABL's Barry Erwin, who acknowledged the Commercial Activity Tax "is the big elephant in the room."

But Erwin called it "a good start."

PAR's chief executive Robert Travis Scott said Edwards "is trying to hit a grand slam" with the plan.

"If the Legislature thought it could daydream its way through the session (that begins April 10), it just got a wake up call," Scott said.