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John Bel Edwards’ commercial activity tax proposal released

April 17, 2017
By Julia O'Donoghue
Originally Posted on The Times Picayune

The centerpiece of Gov. John Bel Edwards' tax overhaul was filed Monday (April 17), two days before the final deadline to submit legislation and a week after the Louisiana Legislature's session opened. 

State Rep. Sam Jones, D-Franklin, has submitted House Bill 628, which would create the Commercial Activity Tax: a relatively low, but broad, tax on most business sales. Jones was the governor's best friend in the House, where the two men sat next to each other. 

"Every corporation, partnership, limited liability company, limited liability partnership, limited partnership, estate, trust, or association, whether domestic or foreign, exercising its charter, or qualified to do business or actually doing business in this state, or owning or using any part or all of its capital, plant, or any other property in this state, subject to compliance with all other provisions of law, shall pay an annual commercial activity tax," reads the bill. 

The initial version of the Commercial Activity Tax outlined three weeks ago was supposed to produce $800 million to $900 million, but adjustments have been made to the tax proposal since then. The Edwards administration could not provide Monday night an update of how much money the tax as drafted would produce. 

The governor believes individuals are sharing too much of the tax burden, while businesses, particularly corporations, are not doing enough. A 2015 tax study done by former Gov. Bobby Jindal's administration found that 80 percent of corporations in Louisiana didn't pay corporate income tax that year. Edwards said the Commercial Activity Tax would force more businesses to contribute. 

"Right now, individuals in Louisiana are overly burdened by our current tax and budget structure, while too many businesses use costly credits and exemptions to avoid paying any corporate income taxes," Edwards said in a written statement released Monday. 

The legislation calls for all companies or corporations selling at least $150,000 worth of products and services to pay some sort of new tax or fee to the state, though businesses with less than $1.5 million in gross sales would mostly pay a flat fee. 

The Commercial Activity Tax would be Louisiana's version of the gross receipts tax for companies making at least $1.5 million. It would work like a sales tax for businesses, except the business or person doing the selling would pay it instead of the customer. It would apply to both products and services sold.

Edwards wants to use this new tax to lower Louisiana's sales tax and income taxes for 90 percent of filers. If it passes, the governor has also said he would phase out the corporate franchise tax over the next decade. The state currently has the highest average sales tax in the country when local government rates are included.

Legislators, including traditional allies of the governor, have so far been cold to the tax. But many lawmakers were just waiting to see a proposal. New Orleans Sen. Troy Carter, a Democrat, said he didn't "know yet" whether he could support the Commercial Activity Tax that Edwards proposes. And Carter, typically a "yes" vote for the governor, is on the Senate Committee that oversees tax policy.   

Jones said the governor's team was working on addressing some concerns about the proposal over the past three days.

Any new tax needs two-thirds support from both the House and the Senate. 

"Every tax in here has an uphill battle," Jones said. 

Adjustments were made to make it more attractive to limited liability companies and partnerships, as well as businesses like grocery stores and retail outlets, which move a lot of products, according to the governor's office.  

Louisiana's business community is still opposed to the proposal. The Louisiana Association of Business and Industry released a statement opposing the Commercial Activity Tax minutes after the bill was released for review. 

"The CAT proposal, despite these latest attempts to improve it, ignores the reality facing employers and families alike," said Stephen Waguespack, the president of the business organization, in a written statement. 

If the Commercial Activity Tax isn't passed, the governor and lawmakers will likely have to look at renewing some of the state's high sales taxes or passing some income tax hikes. The sales tax is scheduled to automatically drop in July 2018. It and other tax changes taking place next year will create a $1.3 billion hole in the budget. At least some of that money needs to be replaced to avoid college and hospital closures around the state.