Despite high rankings, Jindal pressing for tax reform in 2013

Louisiana’s business climate has improved over the past five years, according to a number of national studies, rankings and surveys. The accounting firm KPMG and magazines including Business Facilities and Area Development view Louisiana highly. For example, according to Area Development magazine, “Louisiana has taken a very aggressive, targeted approach to improve its business climate over the past 5 years, and those efforts are clearly paying off.” Despite these improvements, a new study by the Tax Foundation, a nonpartisan tax research group, shows Louisiana still has work to do.

In the new Tax Foundation study, 2013 State Business Tax Climate, Louisiana is ranked 32nd in the nation overall on five different tax categories; corporate, individual income, sales, unemployment insurance, and property. While Louisiana fared well in several of the categories, its sales tax ranked 49th.

Unlike most states, sales tax in Louisiana can be collected at both the state and local levels. Different parishes have different sales tax rates, and different laws regarding sales tax. According to John LeBlanc, director of the Taxation and Finance Council at the Louisiana Association of Business and Industry (LABI), this is a deterrent to businesses because of its complexity and lack of cohesiveness. But LeBlanc does not believe that fixing this problem is politically feasible. The average local sales tax in the state is 4.86%, the highest in the nation. Louisiana’s combined average local and state sales tax is 8.86%, with only Tennessee and Arizona having a higher combined rate.

According to Stephen Moret, secretary of Louisiana Economic Development, the 2013 State Business Tax Climate evaluates states “based on the extent to which they conform to the Tax Foundation’s philosophical ideal tax system, i.e., a system with flat rates and no exemptions, and ideally one that lacks one of the major tax types, such as the income tax.” Because Louisiana has hundreds of exemptions and all major tax types it ranks poorly in the study. Many find the tax code complex and this “discourages economic development, job growth, and the ability of our citizens to start and grow businesses”, says Moret. Furthermore, businesses and other job creators “often perceive Louisiana’s complex tax structure to mean higher tax burdens.”

But higher tax rates don’t necessarily equal higher tax burdens. Moret explains that “While tax rates often are higher in Louisiana than in many other states, the effective rates that families and businesses pay tend to be considerably less than the ‘advertised’ rates because of the 468 tax exemptions available to families and/or businesses in Louisiana.” For example, in Fiscal Year 2011 Louisiana’s state sales tax revenue totaled $2.7 billion. But in that same year, there were approximately $2.5 billion in state sales tax exemptions.

Another Tax Foundation study, Location Matters, looked at corporate tax burdens but took factors such as exemptions into consideration. Compared with other states, Louisiana had the second- and 10th-lowest state/local tax burdens for new and mature businesses, respectively. Furthermore, an additional Tax Foundation study, Annual State-Local Tax Burden Ranking, found Louisiana to have the fourth lowest state/local tax burden for citizens.

Additionally, Area Development magazine’s 2012 Top States for Doing Business survey of consultants who work with business clients nationwide puts Louisiana as sixth best. According to the survey, this includes incentive programs such as tax credits for certain industries and the elimination of certain business taxes. Gov. Bobby Jindal hailed the study’s conclusion, saying the state has “removed burdensome taxes on business, reduced government spending, enhanced our governmental ethics laws.”

Notwithstanding these positive findings, Jindal says the state “won’t stop until we’re number one and that means taking on our next challenge of reforming our tax code so that it’s fairer, flatter and simpler.” It is widely expected that tax reform will be the Jindal administration’s primary goal in the 2013 Louisiana legislative session. In a recent Advocatereport, Tim Barfield from the Department of Revenue addressed the need for reform, pointing out that it is the “sticker price” and not the actual tax burden that is hampering “Louisiana’s efforts to attract businesses.”

Additional studies that rank Louisiana favorably include the U.S. Chamber of Commerce’s Enterprising States 2012 report which puts Louisiana in the top ten for taxes and regulation. It is based on a “reasonable tax code and a sensible, predictable regulatory environment…” KPMG’s Competitive Alternatives report found New Orleans and Baton Rouge to have the most cost-competitive tax structure among mid-sized and small-sized cities, respectively. Finally, Business Facilities 2012 State Rankings Report placed Louisiana in its top spot for Business Growth Potential and fifth for best business climate. According to Editor in Chief, Jack Rogers, “Business climate and growth potential go hand in hand.”