In 2004 the Legislature and Blanco administration enacted reforms to balance some of Louisiana’s tax laws that were out of line with other states.
The reforms started a phase-out of the state sales tax on manufacturing machinery and equipment, and the debt component of the corporate franchise tax. These two areas of our state’s tax structure were not competitive with other states, resulting in tax disincentives for jobs and capital in Louisiana.
Now, there needs to be a new focus on another aspect of our tax structure that sticks out like a sore thumb – – tax fairness. Many of Louisiana’s tax policies and procedures, some of which date back to the 1800s, actually stack the deck in favor of tax collectors and against taxpayers.
One of those tax policies slanted in favor of tax collectors is the area of private attorney fees. Negotiated agreements typically provide that the “prevailing party” will be awarded reasonable attorney fees by the losing party. In contrast, our tax laws award attorney fees only to the tax collector, and not the taxpayer. Louisiana is the only state that charges the tax collector’s private counsel fees directly to the litigating taxpayer.
Thus, the tax collector’s referral of cases to private counsel is without any risk – – the tax collectors will not pay attorney fees whether they win or lose. This simply encourages more litigation. A fair policy and a little common sense would dictate that both parties be placed on a level playing field – – either both parties have the right to recover attorney fees, or neither party does.
Another tax policy in need of significant reform is the fundamental fairness of the taxpayer’s right to be audited by a professional who does not have a financial self-interest in the outcome of the audit. Louisiana’s Taxpayer Bill of Rights already provides that each taxpayer has “[t]he right to be served by employees who are not paid or promoted based on the amount of tax dollars billed or collected.” However, local sales tax collectors continue to use contingency fee private auditors, despite state laws intended to prohibit such activity. The IRS, state Department of Revenue, and local tax collector in-house government auditors do not work on a contingency fee basis—neither should private auditors performing the same function.
Government auditors should have no financial stake in the outcome of an audit. However, the taxpayer does not have those same protections in the case of a private auditor working on a contingency fee basis. In that case, the private auditor is practically working for his own gain. This auditor must find additional taxes to collect or risk going out of business.
Local tax collectors favor this type of contingency fee arrangement because the private auditor is paid only when additional taxes are collected. While the tax collector and private auditor view this as a “win/win,” the taxpayer is subject to excessive, never-ending, harassment audits.
That gives the private auditor more opportunity to earn his contingency fee. In fact, the private auditor actually sends “referrals” to the local collector, requesting the opportunity to audit select taxpayers. Local tax collectors have no reason to deny such requests, if the audit will be at “no-cost” to the tax collector.
These policies that favor tax collectors have gone unchallenged for many years. Local government collectors are enjoying the status quo and will fight to keep it in place. These abusive policies are bad for taxpayers and business, and contribute to the negative business climate image of our state. Enacting long overdue reforms that treat taxpayers fairly will have a positive impact on the business climate in Louisiana.
(John LeBlanc, Director, Taxation & Finance Council contributed to this column.)
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