By Victor Skinner | The Center Square contributor
Legislation to phase out the state’s corporate franchise tax moved closer to reality on Monday with approval from the House Ways and Means Committee.
Committee members unanimously approved Senate Bill 1, sponsored by Sen. Bret Allain, R-Franklin, to eliminate the corporate franchise tax over four years.
Allain pointed to an analysis from the Tax Foundation that shows Louisiana is one of eight states with an uncapped tax on business capital stock, which he described as “the worst tax Louisiana has on the books” because it disincentives investment.
Unlike a corporate income tax, which falls on profits, the franchise tax is levied on businesses’ net worth, or accumulated wealth.
By phasing out the tax, the state would move from 39th to 37th nationally on the Tax Foundation’s Business Tax Climate Index, increasing competiveness with Texas that doesn’t impose a franchise tax and Mississippi, which is phasing out the same.
Changes to the corporate income tax three years ago that limited net operating losses has increased revenues from about $650 million to $1.46 million last year. Revenues are forecast to be about $1.1 billion this year, Allain said.
The increase, coupled with $140 million saved through a reduction of the capital portion of the state’s quality jobs program — a cash rebate on corporate investments — would more than cover the roughly $250 million to $300 million generated by the franchise tax each year, Allain said.
He pointed to a Revenue Stabilization Fund balance of $1.6 billion that could be used to cover any shortfall in an emergency. SB1 is also structured to halt the 25% per year reduction in the franchise tax if corporate income tax revenues fall below $600 million, Allain noted.
“I just don’t see corporate taxes going down again,” he said.
SB 1 is tied to Senate Bill 6, legislation to phase out the capital portion of the quality jobs program at half the rate of the franchise tax reduction, which also cleared the House Ways and Means Committee on Monday without objection. The reduction would only apply to new contracts starting next year. Both bills cleared the Senate last week with a vote of 38-0.
“The reason I tied them together is I believe rolling back the incentives while we’re eliminating the tax is a good swap,” Allain said. “I think we’re overall improving our competitiveness if we do that.”
SB 1 and SB 6 were among 20 tax related bills reviewed by the committee.
Others involved exempting certain real estate investment trusts from the corporate franchise tax; reinstating a Second Amendment tax holiday on firearms, ammunition, and hunting supplies; extending the sunset of a research and development tax credit; net capital gains deductions for individual income tax; changes to the Angel Investor Tax Credit Program; and extending a sunset for the Louisiana Tax Free Shopping Program, among others.