The 2015 Louisiana Legislative Session concluded on June 11, 2015 and will no doubt be marked as one of the more memorable in the history of the state. This session literally came down to the wire with critical bills related to the annual budget being passed with only seconds to spare. Louisiana began the 2015 fiscal session with a roughly $1.2–1.6 billion deficit. Prior to the start of the session, Governor Jindal proposed closing the deficit by eliminating about 13 refundable credits and converting the credits to non-refundable. This proposal was estimated to generate about $530 million in revenue for the state. Of course, the largest of the refundable credits to be converted was the inventory tax credit, which alone accounted for about $450 million. According to Americans for Tax Reform (ATR), the Governor’s proposal would not violate his anti-tax pledge because refundable tax credits are considered a “spending program,” and converting them to non-refundable was not a tax increase in the eyes of ATR. As the Governor’s proposal unfolded, it had very little legislative support from the outset, and numerous plans began to emerge by different legislative factions. However, no matter what route the Legislature proposed to close the deficit, the Governor made it clear that he would veto any tax increase measure that did not have a corresponding offset or that did not fit within the ATR pledge.
The common feeling of legislators throughout the session was one of being pinched between making major cuts to higher education and healthcare or raising taxes in order to pass a balanced budget. Ultimately, the republican controlled legislature chose to raise taxes. However, since all state elections will be held this October, there was absolutely no will or support to raise taxes on individuals other than an increase to the excise tax on cigarettes. Therefore, by default, almost all the tax raising measures in the “budget deal” were those that impact business and industry. These instruments include partially reducing tax credits, exclusions, deductions, incentive programs, and suspending sales tax exemptions. The total impact of these tax increase measures for the 2016 fiscal year, which begins on July 1, 2015, amounts to $555,300,000.
Below is a summary of the passed legislation that the Governor has signed into law. Most of these bills were signed by the Governor on June 19, 2015. The one exception is HCR 8, which does not require the Governor’s signature because it is a suspension resolution and only has the effect of law for about a year. The summary below only focuses on those tax raising bills that will likely have the greatest impact to our clients. Also, please note the vote total when some of these tax measures were voted on by the full House. According to the Louisiana Constitution, it takes a two-thirds vote (70 is two-thirds in the House) to levy or increase a tax or to repeal an existing tax exemption. Therefore, the “current buzz” of taxpayers, its representatives, and many media outlets are that some of the measures initially passed by the House of Representatives may not withstand constitutional muster.
HB805/ACT133 by Rep. Bryan Adams (Property Tax)
- Bill Description: Provides for carry forwards rather than refunds of 25% of inventory tax credits for ad valorem taxes paid to local governments. The final bill does not apply to small businesses that receive less than $10,000 annually in inventory tax credits, ensuring these companies still receive 100% of these credits. Also, this bill converts the Research and Development credit from refundable to non-refundable with a five-year carry forward.
- 2015–16 Fiscal Year Impact: $129 million
- House Vote Totals: yeas 58, nays 39
HCR8 by Rep. Jack Montoucet (Sales Tax)
- Bill Description: Suspends the exemption for business utilities for 1% state sales and use tax from July 1, 2015 to 60 days after final adjournment of the 2016 regular legislative session (one year).
- 2015–16 Fiscal Year Impact: $107.2 million
- House Vote Totals: yeas 65, nays 38
HB624/ACT123 by Rep. Katrina Jackson (Income Tax)
- Bill Description: Reduces certain corporate income tax exclusions and deductions by 28% from July 1, 2015 to June 30, 2018. The final bill does not affect the S-Corporation exclusion.
- 2015–16 Fiscal Year Impact: $121 million
- House Vote Totals: yeas 64, nays 36
HB629/ACT125 by Rep. Katrina Jackson (Income Tax)
- Bill Description: Reduces certain income and corporate franchise tax credits and incentives by 28% from July 1, 2015 to June 30, 2018. The final bill does not reduce the inventory tax credit.
- 2015–16 Fiscal Year Impact: $34.2 million
- House Vote Totals: yeas 66, nays 35
HB402/ACT109 by Rep. Julie Stokes (Income Tax)
- Bill Description: Limits availability of tax credit for taxes paid in other states from July 1, 2015 to June 30, 2018. Subsection (A)(4) of this bill has a provision that no longer allows a credit to Louisiana taxpayers if a state does not offer a reciprocal credit. In light of the Wynne case recently decided by the United States Supreme Court, this legislation may be found unconstitutional if challenged by a taxpayer.
- 2015–16 Fiscal Year Impact: $34 million
- House Vote Totals: yeas 96, nays 7
HB218/ACT103 by Rep. Chris Broadwater (Income Tax)
- Bill Description: Eliminates the three-year carry-back option for net operating loss deductions for corporate income tax and increases the carry-over period from 15 years to 20 years.
- 2015–16 Fiscal Year Impact: $29 million
- House Vote Totals: yeas 94, nays 10
HB549/ACT120 by Rep. Major Thibaut (Severance Tax)
- Bill Description: Changes the severance tax exemption for production of oil and natural gas from a horizontally drilled well or recompletion well by changing the amount of the exemption from 100% to an amount based on the price of oil and natural gas.
- 2015–16 Fiscal Year Impact: $0; the cost of this legislation is very dependent of the annual price of oil and gas
- House Vote Totals: yeas 75, nays 28
HB466/ACT114 by Rep. Taylor Barras (Incentive Contract)
- Bill Description: Changes eligibility requirements for enterprise zone contracts to receive sales tax rebates and income tax credits. Although this bill was signed by the Governor and purports to eliminate hotels from the program, HB 635 keeps hotels as a part of the enterprise zone program. Since HB 635 was passed after HB 466, HB 635 will supersede HB 466, and hotels will continue to be eligible.
- 2015–16 Fiscal Year Impact: $4.9 million
- House Vote Totals: yeas 97, nays 0
HB635/ACT126 by Rep. Katrina Jackson (Rebates for Incentive)
- Bill Description: Reduces certain tax rebates by 20% from July 1, 2015 to June 30, 2018.
- 2015–16 Fiscal Year Impact: $0 this fiscal year
- House Vote Totals: yeas 65, nays 38
HB829/ACT134 by Rep. Joel Robideaux (Incentive)
- Bill Description: Limits the amount of motion picture credits that can be claimed as income tax credits or transferred (redeemed) to the state at $180 million annually through June 30, 2018.
- 2015–16 Fiscal Year Impact: $77 million this fiscal year
- House Vote Totals: yeas 102, nays 2
HB779/ACT331 by Erich Ponti (Incentive)
- Bill Description: Reduces solar energy systems tax credits and provides a cap for both purchased and leased systems.
- 2015–16 Fiscal Year Impact: $19 million
- House Vote Totals: yeas 90, nays 13
Ryan would encourage taxpayers to pay close attention to the effective date language for each of the measures. For the most part, a taxpayer’s exemption could be impacted if the return is not filed by July 1, 2015.
The Governor has signed the above tax increase measures into law because a controversial credit to offset the overall tax increases was passed, which allows him to honor his ATR pledge. Attached to SB 93 was the Governor’s proposed “SAVE” credit. Basically, SAVE is a phantom credit created and transferred to institutions of higher education to be credited against an assessment placed on a student’s bill that the student will not have to pay. The SAVE credit has a $1.75 billion five-year fiscal note and is considered to offset the above tax increases such that the overall budget package is “revenue neutral.”
Although business and industry will be impacted by the above measures, Ryan played a critical role representing the major Louisiana business associations minimizing the impact of the several hundred tax increase measures filed by legislators. More specifically, Ryan aided in preventing similar instruments from having a multiplier effect on the same credit, deduction, exclusion, etc., increasing the refundable percentage of the inventory tax credit from 0% to 75% with a carry-forward, and creating sunsets for each of the tax increase measures to terminate in three years.
Ryan’s efforts were led by Jason DeCuir who joined the Firm on September 1, 2014 and is the former chief of staff and executive counsel for the Louisiana Department of Revenue. Gwen Evans of Ryan also assisted in these efforts. Ms. Evans participates in tax policy and legislative initiatives at state capitols across the country.
TECHNICAL INFORMATION CONTACTS:
Jason M. DeCuir
Director
Ryan
225.334.0040
jason.decuir@ryan.com
Gwen Evans
Manager
Ryan
972.934.0022
gwen.evans@ryan.com
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