Eliminate some of Louisiana’s more than 200 sales tax exemptions. Tax digital goods consumers buy online. Expand the list of services that get taxed in Louisiana.
Those moves, Department of Revenue Secretary Richard Nelson contends, might just be enough to help the state weather an impending fiscal cliff and help pay for a reduction he says is needed to the state’s personal and corporate income taxes.
Nelson on Tuesday laid out his broad vision for tax policy changes before a panel of state lawmakers that convened at the State Capitol just two weeks after the close of the regular legislative session.
The revenue secretary and one-time gubernatorial candidate told lawmakers his department was “combing through” the state’s 200 exemptions, each of which, he acknowledged, has its own "political constituency" and thus, might be difficult to cut.
His office will make recommendations to the Legislature on which tax exemptions should be eliminated ahead of any future session held on fiscal reform, said James Lee, the revenue department's legislative liaison. A session could be scheduled yet this year or next year, a decision made at the discretion of the governor and legislative leadership.
If the state expands its sales tax base, it can afford to “buy down” personal and corporate income taxes, Nelson said.
"If you don't look at (Louisiana's tax structure) comprehensively, it's a hard problem to solve," Nelson told the House Ways and Means committee. "It's kind of like a giant Jenga puzzle, and if you pull out one block, the whole thing will fall over."
Rep. Julie Emerson, R-Carencro, the committee’s chair, said Tuesday that Nelson’s proposals were meant to start a broader conversation and to help inform committee members, many of whom are freshman legislators. She also said she convened the panel at House Speaker Phillip DeVillier’s request.
“I think if we do try to do major tax reform and policy changes, it’s not going to be something that we can just throw a bill together and think that we can pass it in two weeks,” Emerson said. “It’s going to take a lot of work and a lot of working with stakeholders — local government, industry, but also public buy-in.”
Looking ahead
That committee members were summoned back to the Capitol at the start of the Legislature's summer break could signal momentum behind efforts to overhaul Louisiana's tax system.
The discussion comes at a time when lawmakers are anticipating sunsets on a temporary 0.45% sales tax and temporary 2% sales tax on business utilities, which are scheduled to end July 2025. Those temporary taxes passed in 2018, and lawmakers next year will have to decide what do about them and the revenue they generate.
The 0.45% tax generates about $455 million annually, the 2% tax generates about $211 million, and the estimated state budget shortfall without this revenue is $558 million for the 2025-2026 fiscal year, according to Department of Revenue data.
“This is probably going to be the biggest challenge of your term,” Nelson told lawmakers Tuesday. “The next four years is going to be fixing this tax structure that was a big challenge seven years ago, and they said, ‘Well, maybe seven years from now we’ll figure it out.’ So, welcome to the jungle.”
Aside from adding new sales taxes and cutting income taxes, Nelson also wants to eliminate the "antiquated" corporate franchise tax and adjust the state's inventory tax, he said.
Looking back
Nelson took a slightly different approach this week than he has in the past when championing similar ideas. A full repeal of the personal income tax formed part of his policy-making agenda as a state lawmaker, and then it became central to a failed bid for governor last year.
This week he told lawmakers he wants to reduce the personal income tax rate but didn't mention a full repeal. However, he told The Advocate that the revenue department is still working out its plan to “clean up” revenue triggers in state law that determine when personal income tax rates can be reduced or even eliminated.
A phase-out of the state's income tax would be in line with a plan by the Gov. Jeff Landry's transition committee on economic development and fiscal policy outlined earlier this year, which cast the state’s tax code as too complex, too antiquated, and an impediment to economic growth.
Landry appointed Nelson to the top revenue secretary post after Nelson dropped out of the governor's race and endorsed Landry.