Louisiana Scraps Gross Receipts Tax Proposal

It was a busy time last week in Baton Rouge, where legislators on Monday and Tuesday heard testimony on Governor John Bel Edward’s (D) proposed gross receipts tax, dubbed the “Commercial Activity Tax” (CAT). The bill ultimately was withdrawn (voluntarily deferred) by its sponsor, as covered here by Maria Koklanaris at State Tax Notes:

[Rep.] Jones pulled the bill after two days of overwhelmingly negative testimony before the Ways and Means Committee. Representatives from the oil and gas industry, the supermarket industry, the chemicals industry, and a small business association testified that paying taxes on every sale they make would be crippling.

Scott Drenkard of the Tax Foundation, which has criticized the CAT idea for poor structure and design, told the committee that “all gross receipts taxes are undesirable due to the phenomenon they create called ‘tax pyramiding,’ or taxes on taxes; the structure of this gross receipts tax is uniquely complex in its administration and calculation.”

Part of the reason for the complexity of the CAT in H.B. 628 was Edwards’s attempt to make it more palatable by including various exemptions. The final amendments to the bill, put in the day it was killed, would have exempted passthrough business income. Previously, the bill contained a separate tax structure for passthroughs. But that did not help H.B. 628’s prospects — it may have even made them worse by sharply lowering the amount of revenue the bill was expected to create. The original bill, filed April 17, was estimated to bring in at least $800 million. By the time all the amendments were added, that expected revenue was down to less than $300 million.

There is some question about where the state will go next. Legislators could close out the current session by passing a standstill budget; however, next session the budget gap will open up to $1.3 billion as the temporary sales tax increase known as the “clean penny” expires mid-2018. Legislators will have to either address that issue this session, or wait to call a special fiscal session in 2018.

In my testimony to the House Ways and Means Committee on Tuesday (video here starting at 10:45), I suggested looking to expand the sales tax base to consumer services, and looking at unifying the base of the state’s 4 percent sales tax with the 1 percent sales tax (the two operate in practice as different taxes, applying to a different basket of transactions). If the state sufficiently broadens the sales tax base, rate reductions might be possible while still bringing in the same amount of revenue as under current policy.