House committee advances most of Louisiana tax overhaul

By David Jacobs | The Center Square

The Louisiana House’s tax-writing committee narrowly advanced most of a complex tax overhaul Tuesday that even skeptics called “bold,” though one piece of the package didn’t quite make the cut.

House Bill 526 and the associated bills by Rep. Richard Nelson, R-Mandeville, would amend the Louisiana Constitution to phase out income taxes and corporate franchise taxes; impose sales taxes on residential utilities, medicine and food for home consumption; significantly lower the state’s homestead exemption to allow local governments to collect more in property taxes; phase out a $90 million fund that sends payments to local governments; and cut state spending for K-12 education.

Broadly speaking, the goal is to create a tax structure similar to the one in Texas and push more money and authority from Baton Rouge to the local level. Nelson said he was trying to fix problems that started during the 1930s under former governor and senator Huey Long, whose goal was to centralize power in the state Capitol so that “if anybody wanted to pay for anything in Louisiana, you had to come here and beg for it.”

Nelson is proposing to increase the state sales tax from 4.45% to 6.1% but enforce a local sales tax cap of 3%. Louisiana currently has an average combined state and local sales tax rate of 9.52%, second-highest in the nation behind Tennessee’s 9.55%, according to the Washington-based Tax Foundation.

Nelson also wants to broaden the property tax base by slashing the homestead exemption from $75,000 to $20,000, noting that in some parishes, the vast majority of properties are tax-exempt under the current system. He also would sunset the state’s industrial property tax exemption program, which he called a “Band-Aid on our broken tax system.”

Nelson’s package would reduce the state’s baseline allocation for K-12 education, known as the Minimum Foundation Program or MFP, by about one-third, while allowing for an automatic creation of a property tax millage for local governments to replace the lost revenue. It would shift funding for some health care costs to local taxpayers and prohibit state capital outlay funding for nongovernmental organizations.

House Bill 520, which called for phasing out corporate income and franchise taxes, failed to advance on a 7-7 vote. That proposal would have cost state finances about $239 million over five years, according to the Legislative Fiscal Office estimate.

The LFO noted it could not put a dollar value on some of the proposed changes, such as those related to how local governments would respond.

“The annual net revenue and expenditure consequences to the state and to local governments can not be readily determined,” the LFO said of the total package.

The House Ways and Means Committee has approved several significant and competing tax changes that members will have to sort out on the House floor. Gov. John Bel Edwards has said he supports restructuring the state’s tax structure but will not sign off on any overhaul that doesn’t collect about the same amount of money as the current system.