Wednesday, May 22, 2024

Louisiana lawmakers could eliminate state’s corporate franchise tax

by BIZ Magazine

By Victor Skinner | The Center Square contributor

Several Louisiana lawmakers want to eliminate the state’s corporate franchise tax, which experts contend penalizes investment and burdens new businesses.

Louisiana is one of only 16 states that levy a corporation franchise tax, also known as a capital stock tax. Unlike a corporate income tax, which falls on profits, these taxes are levied on a business’ net worth, or accumulated wealth.

That means “the tax tends to penalize investment and requires businesses to pay regardless of whether they make a profit in a given year, or ever,” said Janelle Fritts, policy analyst with the Tax Foundation. “This especially burdens new businesses which have not yet turned a profit and all businesses in times of economic downturn.”

Louisiana has worked to reduce the burden in recent years by exempting the first $300,000 of taxable capital and reducing the tax rate, with revenue triggers in place to continue rate reductions in the future.

Now, legislators are considering eliminating the tax altogether. The effort is tied to a broader analysis of the state’s tax structure by the House Ways and Means Committee leading up to the legislative session that begins next week.

Louisiana lawmakers have so far pre-filed at least six bills to repeal or phase out the state’s corporate franchise tax, which is currently at $2.75 for each $1,000 in excess of $300,000 of capital employed in Louisiana.

House Bill 197, filed by Rep. Phillip DeVillier, R-Eunice, would phase out the tax over a five year period, before going to zero on Jan. 1, 2028.

Another DeVillier bill, House Bill 214, would repeal the corporate franchise tax, along with personal income, estate and trusts, and corporate income taxes. HB 214 would also repeal tax credits associated with those taxes.

Rep. Richard Nelson, R-Mandeville, filed House Bill 363 to phase out corporate income and franchise taxes over four years, gradually reducing both before eliminating them entirely on Jan. 1, 2027. The bill would also phase out available tax credits, deductions, and exemptions by 25% each of the next three years, before eliminating them on the same date.

House Bill 364, filed by Rep. Stuart Bishop, R-Lafayette, would phase out the corporate franchise tax only over four years starting on Jan. 1, 2025, which would eliminate the tax on Jan. 1, 2028.

Bishop also filed House Bill 387 to repeal the corporate franchise tax on Jan. 1, 2025, along with 21 credits for corporate taxes.

In the Senate, Sen. Bret Allain, R-Franklin, filed Senate Bill 1 to eliminate the corporate franchise tax effective Jan. 1, 2025, as well as credits associated with the tax.

“The franchise tax brought in $270 million in FY 2021 according to the Louisiana Department of Revenue, so lawmakers will need to determine if the state can afford an immediate repeal or if a longer phase out is necessary,” Fritts said. “If the state were to repeal the tax completely, it would move Louisiana in the direction of a more neutral tax code, encouraging business investment and lifting a burden off of new or struggling firms.”

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