Louisiana’s 2015 regular legislative session ended last Thursday at 6pm, and it’s a good thing it’s finally over. What do you get when you mix a term-limited governor, nearly 30 term-limited legislators, and a $1.6 billion budget deficit? I’m still not sure, but I think it’s called the SAVE Act (more on that here). This legislative session proved to be one of the roughest, most tax-happy exercises in Louisiana politics in a very long time. Over the past few years much has been made about the impact of budget cuts to health care and higher education systems. With statewide and legislative elections taking place this fall and Gov. Bobby Jindal eyeing a run for the White House, lawmakers were dead set on patching the budget deficit by generating new revenue while likewise attempting to avoid the perception of increasing taxes—especially avoiding the perception of raising taxes on individuals. Many legislators were not reluctant to increase taxes—to the tune of several hundred million of dollars—on businesses. At the onset of session the governor and many legislators proclaimed that businesses have enjoyed generous tax credits over the past few years and it’s now time for business to foot the bill for a year or two. While the governor and many legislators claim they didn’t technically raise taxes (again, see the SAVE Act…or save yourself a headache and don’t), many small and large business owners, managers, and accountants will likely beg to differ over the course of the next year. Below is an overview of the major bills of interest this session:
GRAD Act changes
- HB 766 by Rep. Adams provides relative to the operations of public colleges and universities and exemptions from specified regulations (GRAD Act). The bill in its original form contained language that would have authorized universities to select architects for professional services contracts valued at $1million (an increase to the selection threshold from $500,000). AIA-LA worked with the governor’s office and legislators to amend the bill on the House floor to delete the provision that increased the dollar limit under which higher education institutions have the authority to select architects for professional service contracts.
Historic rehab tax credit extension
- HB 387 by Rep. Walt Leger, D-New Orleans, extends the sunset date from January 1, 2018 to January 1, 2022 for the tax credit for rehabilitation of historic structures located in downtown development or cultural districts. The bill limits the total amount of credits allowed in any taxable year to no more than $5 million. The amount allowed for credit after January 1, 2018, will be 20% of eligible costs. It is currently 25% of eligible costs. While the provision limiting the amount of credits allowed was not considered optimal by bill proponents it should be noted that many other bills carrying a negative fiscal note were soundly defeated this year. AIA-LA supported this bill along with many other interested parties throughout session.
The biggest tax revenue generators:
- HCR 8 by Rep. Jack Montoucet, D-Crowley, suspends for one year the one-cent state sales tax exemption for business utilities, steam, water, electricity, and natural gas. Because this legislation is a resolution it bypasses the governor’s desk and only required passage of both chambers to become enforceable. The suspension becomes effective July 1, 2015 and expires August 5, 2016 (60 days after adjournment of 2016 regular legislative session). All told HCR 8 is expected to generate $103 Million in tax revenue over the next year. The resolution never received two-thirds (70) votes in the House; this is important because most people outside of legislative leadership believe that a two-thirds vote is constitutionally required to pass a new tax. It remains to be seen whether impacted businesses (mostly manufacturers) will pay this tax under protest or file a lawsuit challenging the resolution.
- HB 119 by Rep. Harold Ritchie, D-Bogalusa, is the cigarette tax increase that finally passed after years of going up in smoke. At one point in the session, this legislation would have increased cigarette taxes to the national average of $1.54. This bill was heavily amended and debated at length in both chambers. At the end of the session, the cigarette tax increased 50 cents, from 36 cents per pack to 86 cents per pack. In addition, the legislation establishes a tax on “vapor products” and electronic cigarettes. The fiscal note is $108 million for the next fiscal year. This bill was the only pure tax increase to receive two-thirds vote in both chambers.
- HB 624 by Rep. Katrina Jackson, D-Monroe, imposes a 28 percent reduction on several corporate income tax exclusions and deductions. The big-ticket items in the bill are net operating losses, depletion deductions, and the exclusion of interest and dividend income. The fiscal note is $87 million for the next fiscal year. As with a few others, this bill did not receive two-thirds (70) vote in House. The law sunsets on June 30, 2018.
- HB 629 by Rep. Jackson reduces a wide variety of income and corporation franchise tax credits by 28 percent for returns filed after July 1, 2015. The 28 percent reductions will sunset on June 30, 2018. The fiscal note on this 60-page bill is $26 million for the next fiscal year. This bill was originally much broader in scope but some late-in-the-game amendments removed some of the major items (such as inventory tax credits) covered in other bills making their way through the process. This bill did not receive two-thirds (70) vote in House.
- HB 635 by Rep. Jackson reduced the percentage of rebates to Louisiana Department of Economic Development administered programs such as Quality Jobs, Enterprise Zones, and others. The bill does not affect existing contracts or credits where advanced notification has been provided to LED. It only applies to rebates after July 1, 2015, and the new law sunsets on June 30, 2018. The fiscal note is $0 for the next fiscal year. This bill did not receive two-thirds (70) vote in House.
- HB 805 by Rep. Bryan Adams, R-Gretna, makes changes to the inventory tax credit. The bill specifically changes it—for returns filed on or after July 1 2015—from a 100 percent refundable credit to one in which 75 percent of excess credit amounts which exceed taxpayer liability shall be refundable and 25 percent of the excess credit amounts may be carried forward against subsequent income or corporation franchise tax liability for up to five years. A small business amendment was added so that ad valorem tax amounts of less than $10,000 will be refunded 100 percent. These provisions do not apply to an amended return. The fiscal note is $129 million for the next fiscal year. This bill did not receive two-thirds (70) vote in House.
- HB 218 by Rep. Chris Broadwater, R-Hammond, eliminates the three-year carryback provision of the net operating loss deduction for calculating corporate income tax liability. However, the bill increases the carry forward period from 15 to 20 years. The bill applies to all claims for the net operating loss deduction of any return filed on or after July 1, 2015, regardless of the taxable year to which the return relates. The fiscal note is $29 million for next fiscal year.
- HB 402 by Rep. Julie Stokes, R-Kenner, adds requirements for eligibility for the individual income tax credit for taxes paid to another state. Louisiana residents who earn income in other states are currently allowed a full credit against taxes paid on that income to the nonresident state. HB 402 provides, among other things, that the credit for taxes paid to another state shall not be allowable in an amount that is the lesser of the tax paid to the other state or the amount of Louisiana tax attributable to the income taxed to the other state. The bill does not apply to an amended return timely filed on or after July 1, 2015 relating to an original return that was filed on or prior to July 1, 2015 and properly claimed an exemption, credit, rebate or deduction. The bill received language that repeals this new law on July 1, 2018 (i.e., it sunsets June 30, 2018). The fiscal note is $34 million for the next fiscal year.
- HB 466 by Rep. Taylor Barras, R-New Iberia, eliminates retail, restaurants and hotels from participation in the state’s Enterprise Zone Program. The fiscal note is $7 million for next year.
And a few more:
- HB 549 by Rep. Major Thibaut, D-New Roads, alters the severance tax exemption for production of oil and natural gas from a horizontally drilled well or recompletion well by changing the amount of the exemption from 100 percent to an amount based on the price of oil and natural gas. HB 549 phases out the incentive by certain percentages dependent on the price of oil and gas in the previous year. The fiscal note is zero for the next fiscal year but that could change in future years as the price of oil increases to more than $70 per barrel.
- HB 779 by Rep. Erich Ponti, R-Baton Rouge, was one of the hottest bills of session and it heavily reduces solar energy systems tax credits. The bill caps the amount of solar credits that may be issued. The fiscal note is $19 million for the next fiscal year.
- HB 829 by Rep. Joel Robideaux, R-Lafayette, caps at $180 million annually the amount of film tax credits that can be claimed as income tax credits or transferred to the state. This bill was another of the most heated pieces of legislation debated this year. There is no language about how this will be administered. Provisions of this bill will sunset June 30, 2018. The fiscal note is $77 million for next fiscal year. The conference committee report of this bill did not receive two-thirds (26) vote in Senate.
Bad bills for business that died:
- HB 531 by Rep. Stokes required that certain otherwise deductible interest expenses and costs, and intangible expenses and costs be added back to a corporation’s computation of its net income in Louisiana. This bill failed to pass the House floor on a vote of 41-48.
- HB 758 by Rep. Jay Morris, R-Monroe, provided for “tax expenditure” reporting and for “tax expenditures” to be appropriated. Specifically, it would have required each department that grants or administers a tax exemption program to report monthly to the Revenue Estimating Conference (REC), Legislative Fiscal Office, and the Division of Administration (DOA) on each tax credit and rebate program. It also would have required the executive budget and HB 1 to have an appropriation for each tax expenditure program in the same section of law as the department that grants or administers the program. It further attempted to add limits to the amount of each tax credit or rebate to the amount appropriated in the General Appropriation Bill for each fiscal year. This bill failed to pass from the House floor on a vote of 39-62.
- HB 775 by Rep. Stokes would have created a new system of reporting—namely, combined unitary reporting—for businesses operating in Louisiana. It mandated that corporate tax returns be filed on a unitary basis for businesses that make up a single economic enterprise of entities that are interdependent, integrated, and interrelated through their activities. The bill required the determination of taxable income or loss in the combined report and the share to be apportioned to the state. This bill received heavy opposition in the House; it was twice returned to the calendar on the House floor, where it eventually was left to die.
- SB 219 by Sen. Ed Murray, D-New Orleans, provided for equal pay regardless of gender and prohibited discrimination based on gender. This bill would have created new causes of action against employers. SB 219 made it further than its multi-year predecessors before being defeated in House Labor Committee.
- SB 269 by Sen. Robert Adley, R-Benton, was similar to Rep. Stokes combined unitary reporting bill. It would have required corporations subject to Louisiana income or franchise tax that have either corporate gross revenues everywhere of $8 billion or $8 million of assets everywhere to file combined returns and limits their NOL deduction to 50 percent of tax liability. This bill made it out of Senate committee but was returned to the calendar on the Senate floor, where it remained for the rest of session.
- SB 270 by Sen. Adley was similar to Rep. Stokes bill dealing with add-backs of deductible expenses. It would have required that corporations which have either $8 billion of combined gross revenue or $8 million of combined assets to add back certain otherwise deductible interest expenses and costs and intangible expenses and costs in the computation of Louisiana net income. This bill was defeated in Senate committee.
Good bill for business that failed to pass:
- HB 828 by Rep. Cameron Henry, R-Metairie, would have phased out the corporate franchise tax over the course of the next five years. This bill gained traction in the House before losing steam in the Senate. It failed to get much play in the Senate due to its fiscal note of -$36 million.
Fall elections are around the corner and campaigns will be heating up soon. Louisiana will have a new governor and a host of new legislators heading into 2016. Elections for all other statewide offices (Lt. Governor, Treasurer, Attorney General, Secretary of State, Agriculture and Forestry, and Insurance) will be held this fall as well.