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Volume XI, Number 19

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Louisiana Governor Calls Special Legislative Session to Address Tax Issues and Looming “Fiscal Cliff”

It’s now official.  Louisiana Governor Jon Bel Edwards (D) has finally released his Call for a special legislative session to begin February 19th and conclude March 7th.  The Call, released today, February 9, 2018, is intended to allow the Louisiana legislature to address the long-term issue of its current taxing and spending structure, as well as the short-term issue of the $1 billion “fiscal cliff” looming in the upcoming fiscal year.

It was anticipated that Governor Edwards would call a special legislative session in either February 2018 or later in 2018 (after the regular legislative session) to solve the fiscal cliff and again discuss long-term tax reform.  The Governor previously cautioned, however, that he would not call a special session unless he felt those issues could (and would) be resolved following discussions with legislative leadership.  Is seems now the Governor is confident that there is enough of a “growing consensus” among the legislature to warrant a February special session.

The fiscal cliff in next year’s budget results from the scheduled roll-off of incoming revenue from the additional 1% “clean penny” state-level sales tax, as well as the sunset of several temporary haircuts to various exemptions and credits.  These measures, which were put in place during the 2015 and 2016 legislative sessions, were considered “temporary” while the legislature worked toward longer-term taxing and spending reform.

The 2018 regular session is a non-fiscal session; thus, tax legislation is not germane.  As a result, the Governor (or the legislature) is required to call a special session either before or after the regular session if any new tax bills are to be entertained by the legislature in 2018.  If no special session was called, then the legislature would have been forced to address the upcoming fiscal cliff solely with budget cuts.

In a corresponding “Plan of Action,” the Governor explains that he is “not calling for net new tax revenue,” but rather is advocating to replace the temporary revenue measures enacted in 2015 and 2016.

The Governor’s issued Plan of Action is taken directly from his draft 2018 Tax & Budget Priorities, and the Governor has again proposed taxing measures consistent with those previously recommended by the legislative Task Force on Structural Changes in Budget and Tax Policy.

The Governor’s self-described “aggressive but balanced approach” to address the upcoming fiscal cliff and enact long-term tax reform includes:

  • Making permanent reductions to tax credits, deductions and rebates (Act 109, Act 123, and Act 126, of the 2015 regular session).

  • Compressing individual income tax brackets and reducing the excess itemized deduction to 50%.

  • Cleaning all four pennies of the state-level sales tax based on the currently available “clean penny” exemptions.

  • Taxing business utilities at 4% (full state-level permanent sales tax rate) and industrial utilities at 2% (50% state-level rate).

  • Expanding the sales tax to certain services.

Specifically, the Governor’s current Plan of Action proposes the following:

Make Permanent Reductions to Tax Credits, Deductions, and Rebates

  • Act 109 of the 2015 regular session provided limitations on the credit for taxes paid to other states to those states that provide a similar tax credit for Louisiana income taxes paid on certain sources of income.  These limitations would be made permanent.

  • Act 123 of the 2015 regular session temporarily reduced the value of several corporate income tax exclusions and deductions, including depletion and dividend income.  These would be made permanent.

  • Act 126 of the 2015 regular session temporarily reduced the value of the following rebate programs:  Quality Jobs Program, Corporate Headquarters Relocation Program, and the Competitive Projects Payroll Incentive Program.  These reductions would be made permanent.

Compress Individual Income Tax Brackets and Reduce Excess Itemized Deductions to 50%

  • Current law allows and individual income tax deduction for 100% of excess federal itemized personal deductions.  Excess federal itemized personal deductions are defined as the amount by which the federal itemized personal deductions exceed the amount of the federal standard deduction.

  • The Governor’s proposal would reduce the amount of the deduction from 100% to 50%.  The proposal would also compress individual income tax brackets.

Clean All Four Pennies of State-Level Permanent Sales Tax Based on Currently Available “Clean Penny” Exemptions

  • The Governor’s proposal would expand the sales tax base on the permanent 4% state-level sales tax (the “permanent pennies”) by mirroring the current sales tax base of the temporary additional 1% “clean penny” state-level sales tax.

Tax Business Utilities at 4% and Industrial Utilities at 2%

  • Under Act 25 of the 2016 first special session, business utilities are currently subject to state-level sales tax at the rate of 3% through June 30, 2018 and 1% through March 31, 2019.

  • Business utilities are subject to the 1% “clean penny” state-level sales tax through June 30, 2018, pursuant to Act 26 of the 2016 first special session.  The total state-level sales tax rate for business utilities through June 30, 2018 is 4% and then 1% through March 31, 2019.

  • The proposal will tax business utilities at 4% and create a “special rate” for industrial users at 2%.

Expand Sales Tax to Services

  • The Governor’s plan would expand the sales tax base (likely the state and local sales tax base) to include services such as:

    • Debt collection services

    • Insurance services

    • Data processing services (similar to Texas)

    • Information services (similar to Texas)

    • Cable and satellite services

    • Repairs to real property (immovables)

As previously noted, 2019 is a gubernatorial election year in Louisiana. Therefore, budget issues, tax reform, and the raising of taxes will surely continue to be infused with a heavy dose of politics from all sides.

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© 2020 Jones Walker LLPNational Law Review, Volume VIII, Number 46
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About this Author

Matthew Mantle, State, Local Tax, Louisiana, Jones Walker Law FIrm
Partner

Matthew Mantle is a partner in the firm’s Tax & Estates Practice Group and practices with the State & Local Tax Team out of the firm's New Orleans office.

Matt concentrates primarily on state and local tax matters in Louisiana, Alabama, and on a multistate basis, representing firm clients throughout the Gulf South in all areas of state and local tax. His practice includes tax and business planning, audits, administrative appeals, judicial appeals, identification and utilization of tax incentives, governmental relations, and tax legislation. He has also represented firm...

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