A number of years back, the Louisiana Association of Business and Industry (LABI) set out to eliminate certain business taxes imposed in Louisiana but not collected by other states. Those taxes put Louisiana at a competitive disadvantage in the competition for jobs and capital investment.
The removal of these taxes would not give Louisiana an advantage over other states, but it would help remove some obvious disadvantages.
The taxes in question were: the corporate franchise tax assessed on a business’ debt; the state sales tax on manufacturing machinery and equipment; and the state sales tax imposed on business utilities.
Taxing a company’s debt is simply illogical. Businesses borrow money to start anew and to expand. Taxing debt hinders new job creation on both fronts. Manufacturing jobs are at the top rung when it comes to salaries and benefits for workers and the positive economic effect they create for local economies. Putting a significant sales tax on the extremely expensive equipment that manufacturers use is a big deterrent to attracting or increasing manufacturing jobs. And collecting a high state sales tax on rapidly rising business utility bills only adds to the high costs plaguing all businesses in Louisiana.
LABI first approached then-Governor Mike Foster about phasing out these anti-business taxes back in early 2003. Unfortunately, he expressed no interest in doing so. Not to be deterred, the organization made the removal of the business taxes a key issue in the elections that year.
During that campaign, Kathleen Blanco committed to begin phasing out some of these onerous taxes if she were elected. She was, and she did. During her first term, she had bills introduced to do a multi-year phase-out of the debt portion of the franchise tax, the state sales tax on manufacturing machinery and equipment, and all but one percent of the business utilities tax. I attended the bill signing ceremony at the site of a small but highly successful Louisiana manufacturing company in Lafayette.
During the 2007 gubernatorial election campaign, Bobby Jindal committed to speeding up the elimination of this trio of bad taxes during his first term as governor. In his second special session this year, the state sales tax on business utilities was reduced from 3.3 percent to 2.3 percent starting July 1 of this year. The other 2.3 percent will be gone next July 1. Also ending July 1 of 2009 (a year sooner than originally scheduled) will be the state sales tax on manufacturing machinery and equipment. And, last but not least, the tax on corporate debt will end effective January 1, 2011 (also advanced by one year.)
As noted before, the removal of these taxes imposed by Louisiana will not give our state a strategic advantage over other states from a taxation standpoint—but it will remove some critical disadvantages. There are still areas where Louisiana sticks out like a sore thumb from a taxation perspective. Firms that assist industries with location and expansion decisions still score Louisiana low when it comes to the proportion of state and local taxes paid by business.
They note that the property tax in Louisiana is—to a significantly larger degree than in other states—a business tax. And they absolutely are astounded by the huge number of local taxing authorities that collect sales taxes and have the power to individually audit companies. In almost every other state, there is only one collector of the sales tax and one auditing authority.
Progress has definitely been made on the business tax front in Louisiana, but challenges still remain.