The Tax Foundation has released its 2013 State Business Tax Climate Index. It ranks Louisiana in the bottom half of states at 32nd (the lower the number, the better the score in this index). The Tax Foundation data is timely. Louisiana’s budget problems (many of them self-inflicted) continue to mount, and some in the Legislature are demanding that businesses pay higher taxes. A special legislative committee has been formed to study tax exemptions and is currently in the process of engaging in that review. There will undoubtedly be many bills introduced in the 2013 legislative session to raise taxes on businesses instead of using the crisis to structure state spending in line with traditional revenue growth. Lost in the media coverage of the issue is the fact that state revenues are growing, not declining. Interestingly, the Tax Foundation currently ranks Louisiana’s individual state and local tax burden 9th lowest in the nation. Individuals are doing quite well in tax treatment, while businesses continue to pay a higher share when compared to states we are competing with for jobs.
On the positive side, Louisiana excels in one area in the index: Unemployment Compensation (U.C.) taxes rank fourth best among the states. The Bayou State is able to levy smaller U.C. assessments on employers because our U.C. Trust Fund is one of the most solvent in the nation. After the fund went bankrupt in the 1980s, business and labor joined together to demand solvency in the fund to prevent the high taxes and diminished benefits that other states have had to endure in the recent recession. Everyone in Louisiana should be proud of this success story that strengthens our business climate.
At the other end of the spectrum, Louisiana ranks 49th in the sales tax category. In fact, when state and local sales taxes are combined, our state has the highest rate of sales taxes in the nation. Local sales taxes average 4.86 percent in Louisiana, higher than the state government’s 4.0 percent rate. Businesses are huge payers of sales taxes and that affects our national business tax climate rankings.
Unfortunately, the Tax Foundation Index doesn’t tell the full story of how much we are out of line with other states when it comes to sales tax treatment of businesses. Most states have a single collector of sales taxes—the state. Businesses have one form to fill out, one set of regulations to follow, and a single auditing process with which to comply. Louisiana has almost 60 collectors of the sales tax. There is no total uniformity of what is subject to being taxed and, unlike in any other state, scores of auditors from the various local taxing authorities can audit a business. No state treats businesses as poorly in sales tax governance as Louisiana does. Louisiana has removed the state sales tax on manufacturing machinery and equipment, and that is a plus. Unfortunately, the tax still applies at the local level and, since we have the highest local sales tax rates in the nation, it remains a severe problem for manufacturers.
While some progress has been made to improve Louisiana’s business climate, the Tax Foundation’s 2013 Business Tax Climate Index clearly shows that more work needs to be done. The clamor for higher tax revenues that will soon reverberate in the State Capitol needs to be filtered with the understanding that higher business taxes will only put Louisiana at a greater disadvantage when it comes to recruiting and retaining the jobs and investment that fuel the tax revenues going to state and local governments.