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Industry and other business sectors hope Gov. Jeff Landry's plan to eliminate the state's inventory tax succeeds, but some local governments are leery of losing that revenue. Facebook Twitter WhatsApp SMS Email Print Copy article link Save To help spur business growth in Louisiana, Gov.
Jeff Landry and others have pushed ways to get rid of a tax on business inventory imposed by local government. But a proposal being considered by state lawmakers to remove the constitutional protections on the power to levy that tax has ignited fear among some local officials. Louisiana’s business inventory tax, a property tax on tangible assets, generates revenue for parish governments, sheriffs’ offices and school boards.
But because the kinds of businesses and business activity vary widely from one parish to another, so does the resistance to changing the tax. It's a critical revenue stream in some parishes, providing tens of millions of dollars toward local budgets, while in others its value counts in the thousands and not millions of dollars, making up only a fraction of tax collections. Some local governments are worried the state could eventually erase their ability to generate revenue from the tax.
St. Charles Parish Assessor Tab Troxler said his "greatest fear" is the threat shifting the tax burden elsewhere, possibly by increasing other tax rates or through budget cuts. In St.
Charles, Troxler said, the business inventory tax is on track to bring in $38.8 million, or about 14% of total parish property tax collections. "That's a big a hole," he said.
But Department of Revenue Secretary Richard Nelson, the chief architect of Landry’s multipronged tax package now being considered by the Legislature, says the inventory tax is scaring off potential business investment. “It is a big disincentive for business not to come to Louisiana,” said Nelson. “It is an incentive for business to leave Louisiana.
” At the same time, because the tax is so critical to funding local governments, Nelson acknowledged: “This is the most difficult political problem, honestly, in this whole package.” Taxable inventory includes raw materials or goods that will be sold at retail or be used to produce a product. Chemicals, natural gas, cars and groceries are examples.
"We're one of nine states that fully taxes inventory," said Will Green, president and CEO of Louisiana Association of Business and Industry, "As we're looking to grow business here, attract business here and keep our best and brightest here, anything we can do to not be an outlier in our tax code is positive." "We're with the administration on a plan to try to get rid of the inventory tax," Green said. The plan Part of the slew of legislation during a 20-day special session, Nelson’s inventory tax proposal has several elements.
He wants to remove the business inventory tax from the state constitution, where it enjoys a high bar of protection, and put it into state statute, where lawmakers can more readily pass laws to change or even eliminate it altogether. He is also trying to weaken its popularity through an optional buyout. Under the plan, which passed the state House on Wednesday and moves to the Senate for vetting, each parish — with agreement from the local sheriff and school board — could decide between continuing to collect the tax or irrevocably ending business inventory tax collections.
Any parish that forever opts out would get a one-time, lump sum payment equal to three years’ worth of its business inventory tax revenue. However, the state would cap payment for yearly tax revenues at $15 million. Some parishes, though, collect well in excess of $15 million a year from the tax.
“For the larger parishes, it’s really gonna be an economic development argument of, ‘We want to attract business and become more competitive,’” Nelson told leery lawmakers from parishes where the levy could make or break local government services. “I think that getting rid of it would make you more competitive. I think you would have more businesses move in.
” Nelson’s proposal would also give parishes the option to phase out the tax over five years at a lower buyout rate from the state. The larger tax package also contains a separate but related plan to end an inventory tax credit program beginning in January. The inventory tax credit program is effectively a state subsidy for businesses that pay inventory tax to local governments, letting them claim a 75% or higher refundable credit against corporate income tax liability.
Promises “My commitment to you is that at each and every step we will work to ensure that our local governments are made whole,” Landry said in his opening speech kicking off the tax special session. Before the inventory tax plan was approved by the full House this week, a significant change was made: A new provision would be added to the state Constitution that says, “The legislature shall not enact any law mandating any taxing authority to exempt business inventory from ad valorem tax.” That means under the state Constitution, the Legislature wouldn't be able to force local governments to give up the revenue stream.
More changes to the plan are also in the works. In response to a question about how the state will financially support municipalities that risk taking a financial hit by forever giving up the inventory tax, bill sponsor Rep. Daryl Deshotel, R-Marksville, said on the House floor that he was working with Landry, Nelson and the Police Jury Association of Louisiana to solve that issue.
"I have a commitment from the governor and the governor’s staff that we will amend the bill on the Senate side to help fix that problem,” Deshotel said. While the details aren’t finalized, Deshotel said, the broad concept involves using an unrelated revenue source to “backfill those taxing districts that will be short” and make them whole “in perpetuity.".
