House reveals its newfound love for tax increases
Leadership in the House of Representatives saw fit last week to muscle through passage of possibly the largest tax increase in Louisiana history via a package of bills sponsored by a range of authors (total value of the package is around $677 million). Partisan politics were somewhat set aside as leadership urged passage of 11 major bills off the House floor. Yes there was some resistance, but the message from leadership was clear: the package of bills was going to pass regardless of opposition. When the chairmen of the House GOP delegation, the Democratic Caucus, and the Black Caucus all appear to be singing from the same songbook (written by the Speaker of the House and the chair of Ways and Means), there is obviously little room for external influence on the process. Interestingly enough, the total projected revenue generated from last weekâs House-passed bills is not enough to close the $1.6 billion deficit. That means either more revenue or additional cuts (or some combination thereof) must take place in order to balance the budget.
Following is a synopsis of the big-ticket items that passed from the House floor last Thursday:
⢠HCR 8 by Rep. Jack Montoucet, D-Crowley, suspends for one year the tax exemption for business utilitiesâspecifically the .97 percent state sales and use tax levy for sales of steam, water, electric power or energy, and natural gas. This concurrent resolution is veto-proof because by nature a legislative resolution may be implemented simply by passage of the legislature. While many in industry view this is as an obvious tax increase the House leadership posits it is merely a temporary suspension of a current tax exemption and not a tax increase. The resolution claims, âthe financial condition of the state is such that monies lost due to these exemptions are critically needed to avoid cessation of vital services to the citizens of the state.â The measure passed from the House floor on a vote of 63-41. It is worth noting that this resolution passed with fewer than the 70 votes (two-thirds) needed to pass a new tax increase in the form of a bill (rather than a suspension via resolution). This resolution is expected to generate roughly $107 million for the next Fiscal Year, which begins July 1, 2015.
⢠HB 624 by Rep. Katrina Jackson, D-Monroe, reduces by 20 percent the amount of corporate income tax deductions and exclusions on a variety of items. It specifically targets the credit union stock transfer tax, various banking institutions, electric cooperatives, interest on state & local obligations, public transportation corporations, oil and gas well allowance for depletion, net operating losses, corporate income tax refunds, dividends from banking corporations, certain expenses disallowed for federal taxation, S-corp exclusion, dividend income, and hurricane recovery benefits. HB 624 is expected to generate around $194 million beginning in FY 15-16. It passed on a vote of 64-36.
⢠HB 629 by Rep. Jackson, reduces certain income and franchise tax credits by 20 percent beginning with all forms filed on or after July 1, 2015. The bill also reduces certain tax incentives by 20 percent beginning with all claims filed on or after July 1, 2015. Major categories of tax credits in the bill include the premium tax credit, the inventory credit, the solar credit, net income paid to other states credit, the citizens assessment credit, and the rehabilitation to historical structures credit, among many others. Tax incentives in the bill include the entertainment incentives, including film, brownfields, technology commercialization, green jobs credit and others. HB 629 is expected to generate around $223 million, and it passed from the floor on a vote of 66-35.
⢠HB 635 by Rep. Jackson reduces rebate payments by 20 percent for a few Louisiana Economic Development (LED) programs such as Enterprise Zone, Mega-Project Energy Assistance, Quality Jobs Program, Headquarters Relocation, and Competitive Projects Payroll. The rebate reduction applies to contracts entered into on or after July 1, 2015. The immediate impact of HB 635 is negligible, but its fiscal impact grows to around $5.3 million in FY 16-17. The bill passed from the House floor on a vote of 65-38.
⢠HB 805 by Rep. Bryan Adams, R-Gretna, is considered part of Gov. Jindalâs package. The bill provides for the carry forward rather than the refund of the tax credits for ad valorem taxes paid to local governments. Specifically, it modifies the statutory provisions specific to three refundable tax credits by deleting language that provides for the refund of credit amounts in excess of tax liabilities, and allowing 75 percent of the excess of credit over tax liabilities to be refunded while the 25 percent balance is allowed to be carried forward as a credit against subsequent tax year liabilities for up to five years. Affected credits are: local property taxes paid on inventory, natural gas used in storage facilities, and offshore vessels. Credits are applied against the income tax and the corporate franchise tax. This bill is applicable to all claims for these credits on any return filed on or after July 1, 2015, regardless of the taxable year to which the return relates. This bill is expected to generate $118 million, and it passed the House floor on a vote of 58-42.
⢠HB 218 by Rep. Chris Broadwater, R-Hammond, provides with respect to the net operating loss deduction for purposes of the corporate income tax. It eliminates the carry-back of net operating losses (NOL) in corporate income taxation but also adds five additional years to the carry-forward option. The bill will eliminate refunds to companies who amend prior tax returns to apply current losses, and is expected to result in greater net corporate tax receipts than would be the case under current law. This bill is expected to generate around $29 million in FY 15-16, and it passed 93-11.
⢠HB 119 by Rep. Harold Ritchie, D-Bogalusa, increases the state cigarette tax by 32 cents per pack. This measure would raise roughly $68 million in new tax revenue. It is important to note that this bill is considered the only straightforward tax increase in that it generates new revenue based on an explicitly stated increase in taxes. It remains to be seen whether this bill can survive Gov. Jindalâs red pen, as he has vowed to veto any legislation that imposes a ânewâ tax. Some believe that if the legislature is willing to increase cigarette taxes despite a potential need to override a gubernatorial veto, then perhaps legislators should go higher than 32 cents to generate even more revenue and thereby reduce pressure on slashing business tax credits and exemptions. This bill passed with a veto-proof 78 yeas to 27 nays.
⢠HB 402 by Rep. Julie Stokes, R-Metairie, limits the availability of a nonrefundable credit on individual income taxes paid by Louisiana residents to other states. This bill is expected to generate around $34 million and passed 96-7.
⢠HB 779 by Rep. Erich Ponti, R-Baton Rouge, eliminated a tax credit used for financing solar energy systems through leasing; this bill would generate around $10 million. It passed 90-13.
⢠HB 829 by Rep. Joel Robideaux, R-Lafayette, capped the stateâs film tax credit at $200 million, which is $26 million less than the amount spent last year. It is unclear what type of fiscal impact this bill will have. What is clear is that the legislature is eager to see this program capped and become more predictable; it passed 102-2.
⢠HB 549 by Rep. Major Thibaut, D-New Roads, ended the full tax break for drilling horizontal oil and gas wells once prices rise to $70 per barrel. It is unclear whether this bill will have a fiscal impact until oil prices increase. It passed 75-28.
Some of the only silver lining from last weekâs actions came when HB 768 by Rep. Jay Morris, R-Monroe, was returned to the calendar after House leadership recognized they couldnât get the 70 votes needed for passage. This bill would impact a very broad range of industries by essentially reinstating a one-cent state sales tax on purchases of items that are currently excluded from taxation at the state level. It would reverse course for many of the sales tax exclusions that were fully phased-out in 2008. The bill doesnât just target manufacturers; it is Rep. Morrisâ attempt to broaden the tax revenue base through ostensibly lowering a tax rate and applying a one-cent state sales tax to nearly everything. The only problem is that many of the targeted exclusions this bill would hit became law after many years of attempting to make Louisiana more competitive with neighboring states (and beyond). This bill would raise $231 million. It is unclear when the bill will be rescheduled for debate on the House floor, and although it is unlikely it could in theory come back up for a vote on the House floor as early as Monday afternoon.
We expect to have a clearer idea early this week as to when the bills mentioned above will be scheduled for hearings in Senate Revenue and Fiscal Affairs Committee.
Two bills of concern on House floor next week
HB 720 and HB 766 by Rep. Bryan Adams were both debated on the House floor this week before being returned to the calendar due to questions related to impacts to the public bid law regarding architects and engineers (among others who provide contract services to public bodies. HB 720 authorizes the Board of Supervisors of the Community and Technical College System to enter into contracts with private nonprofit corporations for certain services including the financing, construction, procurement, maintenance, and management of facilities. HB 766 makes several changes to the GRAD Act with regard to operational autonomies for public universities. One change this bill seeks to make is to increase the dollar limit under which institutions have the authority to select architects for professional service contracts. AIA-LA is working to improve language in each of these bills, which are back up for debate on the House floor Monday afternoon, May 11th.