The Louisiana Legislature is being asked to consider reducing or eliminating a controversial business tax break for some of the state's highest-earning companies. The proposals, which have not yet been determined in terms of their impact on the bottom line of the state and local governments and individual taxpayers, are being spearheaded by Sen. Brett Allain, R-Franklin.
Sen. Allain has proposed two measures to reduce Louisiana's inventory tax credit. Senate Bill 4 would eliminate corporate income taxes for companies in the state's highest tax bracket, while another proposal would codify changes to the Industrial Tax Exemption Program. This bill would reduce rates in the first two corporate income tax brackets and eliminate the top bracket altogether, which currently carries a 7.5% tax on income above $150,000.
Sen. Allain says that the bill is revenue neutral as it would partially repeal the state's inventory tax credit to offset the revenue loss. The Legislative Fiscal Office's staff is still calculating the fiscal impact of the bill. The inventory tax credit has been a long-standing issue in the legislature as it is seen as a drain on state finances and a way for businesses to shift their tax burdens onto residents and homeowners.
The Louisiana Constitution authorizes local governments to collect inventory taxes, but the state reimburses businesses through the inventory tax credit. Allain's legislation offers a compromise by giving corporations lower income taxes in exchange for getting rid of the inventory tax credit, which costs the state an annual $280 million. However, not all businesses would lose the credit, as sole proprietors, partnerships, and limited liability companies would still be able to claim it, with about 75% of the credits currently being claimed by corporations.
While the state might break even with this proposal, it could benefit wealthy businesses that carry little or no inventory and stand to gain from the elimination of the top corporate tax bracket. The Louisiana Budget Project's Jan Moller questioned the impact of the proposal on other taxpayers, asking "If profitable corporations are going to pay less, who's going to pay more?" The net revenue from Louisiana's corporate income tax was approximately $567 million in the 2020-2021 fiscal year, but it is unclear how much of that might be lost if the top bracket is eliminated.
Sen. Allain also has an alternative proposal in the form of Senate Bill 2, which proposes a constitutional amendment to phase out the inventory tax over a five-year period and cap ITEP exemptions at 60% for local school board property taxes and 80% for all other property taxes. This would indirectly phase out the inventory tax credit without leaving businesses to cover their local tax bills, but would also deprive local governments of a significant source of their revenue. To mitigate this impact, the bill offers a permanent version of some of the 2016 ITEP reforms, which reduced the amount of the property tax exemption and added local control to the approval process.
Erin Hansen from Together Louisiana, an umbrella organization of nonprofits that has opposed ITEP, says that the bill fails to retain the most important aspects of the 2016 reforms, calling it a "bad deal for the locals." Sen. Allain counters by saying that guaranteeing 20% for local governments is better than the alternative, which could be nothing if the legislature continues to fail to act on the ITEP issue.