Editor’s Note: a guest post by John Mason, a candidate for State Representative in District 80.
It’s well known that Louisiana businesses have a tough time in today’s environment. The Tax Foundation just ranked Louisiana 44th out of the 50 states in it’s 2019 State Business Tax Climate Index. Louisiana and Arkansas are the only southern states ranked in the bottom ten. Our southern sister states of Florida (#4), North Carolina (#12), Texas (#15) and Tennessee (#16) all finish in the top twenty. To make matters worse, most of this regression has come in the last three years, under the John Bel Edwards administration, and the so-called Republican controlled legislature has permitted this to happen. Let’s take a look at what’s going wrong.
Zombie Taxes Live On
What’s a zombie tax? It’s a term created for this article, but it can be illustrated with two examples from the Federal Government.
In 1898 the U.S. Congress needed money to pay for the Spanish American War. It finally decided the best way to do this would be a temporary telephone excise tax. Since it was a temporary tax, it died. Congress missed the revenue, however, so this “temporary” tax was extended and repealed several times, until it was fixed at three percent and made permanent in 1990.
During the heart of the Great Depression, the U.S. Congress passed the Revenue Act of 1932, which introduced a temporary excise tax of one cent per gallon of gasoline sold. This “temporary” tax is still with us today and has increased over eighteen-fold. I could give you several more examples of “temporary” taxes that are still with us today. They are truly “Zombie Taxes” because they are brought back from the dead or have their lives prolonged through legislative voodoo!
Fair enough, I can hear you say, but what does this have to do with Louisiana businesses? Well, I’m sure everyone remembers the “temporary one cent sales tax” that was the cornerstone of John Bel Edward’s 2016 agenda. It took more than one special session to enact, but eventually it took effect on April 1, 2016, and gave Louisiana the highest combined state and local sales taxes in the nation. As embarrassing as this was, it wasn’t going to last long – after all it was just a temporary tax, right? A half-cent (0.5) of the one cent (1.0) increase was scheduled to expire in mid-2018.
During the 3rd Special Session of the 2018 Louisiana Legislature the so-called “Republicans” performed another legislative voodoo ritual and 0.45 of the 0.5 cent was kept! Only 0.05 of a cent was allowed to die! It became a zombie tax. Let’s take a closer look at the legislative voodoo that created this zombie tax, shall we?
Forty Democrats participated in this vote. All forty Democrats voted for the tax, a perfect 100% rate. There were 45 Republicans that participated. Thirty-one of them, including my opponent Polly Thomas, joined the 40 Democrats and voted for the tax. Fourteen Republicans stuck by their anti-tax small government principle, but their efforts were in vain, and the voodoo legislation created a zombie tax.
Louisiana businesses pay sales tax, just like you and me. I can hear you now saying “THAT’S NOT TRUE! In Louisiana businesses don’t have to pay sales taxes on the materials they use to make products!” That statement was largely true, but it changed with the passage of Act 3 of the 2nd Special Session of the 2016 Louisiana Legislature. This new tax, which I call a Baby (Fiscal) New Year Tax, reduces the exclusion of tax-free materials for Louisiana businesses. The Baby (Fiscal) New Year Tax and the Zombie Tax team up to wreck havoc on Louisiana businesses. How, you ask?
These taxes hurt Louisiana businesses in at least two ways. As just explained, more of the materials a business or industry requires to make a good or service are now subject to state sales tax. For example, let’s say my fictitious business, Mason Enterprises, combines two fictitious ingredients, say clary and spunt, to create my amazing Product X, which is extremely popular throughout Louisiana, even the part where they pull for the Dallas Cowboys (sadly, there is such a part of our beloved state). As a result of the zombie sales tax, the company now has to pay more in taxes to buy the amount of clary and spunt needed to make the amazing Product X. I now have a brand-new expense that hinders Mason Enterprises’ growth. Can I absorb the expense into the businesses? Does the business have to cut worker’s hours? Do I have to pass the cost on to you, my loyal and awesome, but sadly fictitious, customers?
It also hurts Mason Enterprises that YOU pay more in taxes. When you pay more taxes, that means less money in your pocket, and you may not buy as much Product X, even though it’s amazing. And this just considers existing businesses. A new start-up business that faces higher sales taxes has to pay more for necessary equipment and supplies, unless the equipment and supplies are specifically exempted from the sales taxes. It’s also well known that existing businesses are more reluctant to locate to high sales tax states.
This article has explored how zombie taxes can hurt all Louisiana businesses, small and large, can prevent new businesses from starting up, current out-of-state businesses from relocating here, and even interact with new taxes to create new burdens on our businesses and industries.
The next article in the series will focus on new taxes, which I’ve dubbed Baby (Fiscal) New Year Taxes and the crippling effect they can have on Louisiana’s economy.