MASON: Tax Timing And The “Year Of Tax Relief”

Editor’s Note: a guest post by John Mason, Candidate for State Representative, District 80 and a budding expert examiner of tax policy.

Introduction

Louisiana is ranked 44th out of the 50 states by The Tax Foundation in its 2019 State Business Tax Climate Index.  To understand why so many of our southern sister states are in the top twenty, while we’re in the bottom ten, a good place to start is the LABI’s (the Louisiana Association of Business and Industry) sobering six-page list of all the new permanent and temporary taxes that have been passed from 2015 (when Governor John Bel Edwards was Minority Leader of the Louisiana House of Representatives through July, 2018.  Take a second to think about that – it takes six pages (of fairly tiny print, I might add) to merely summarize all the new taxes that the Louisiana legislature has passed since 2015.  In Part I of this series,  Zombie Taxes and Louisiana Businesses, we talked about how zombie taxes can put the pinch on Louisiana businesses and the consumer at the same time.

My Readers Write, and They’re Pretty Savvy About Taxes

In Part II of this series, I wanted to discuss some of the entries from LABI’s excellent six-page summary.  I’ll still get there, but I got an email from someone that read Part I in The Hayride that wanted to know when the .45 percent “temporary” sales tax is going to expire.  Just to recap, 0.5 percent of the “temporary” sales tax was due to expire in June 2018, but the state legislature decided to only let 0.05 percent expire, while continuing to collect the other 0.45 percent.  The 0.5 percent was passed in 2016, so it was only supposed to last two years.  She also wanted to know how a tax could be extended in an even numbered year, because the Article III, Section II(A)(3) of the Louisiana Constitution forbids discussing fiscal matters in even-numbered years.  Those are both excellent questions, so I’m going to spend the remainder of this article giving you the answers and talking about the timing of taxes in Louisiana.

Timing is Everything

The answer to the second part of the question is in the wording of the Louisiana Constitution, which states that fiscal matters cannot be considered during a regular session of the Louisiana legislature during an even-number year.  That’s why Governor Edwards calls so many special sessions, to get around the prohibition of discussing taxes during even-numbered years.  Since a special session is not a regular session, enacting taxes gets around the constitutional ban.

The answer to the first question is simple to give, but its ramifications are subtle and far-reaching.  As just mentioned, the original 0.5 percent was supposed to last for two years, from 2016 to 2018.  The zombie tax of 0.45 percent was extended from 2018 to 2025, so it’s with us for another seven years.

Hopefully, some of you are wondering where the legislature got the seven-year figure from.  Let’s consider a few facts.  First off, there are elections for every Louisiana legislator every four years.  That means that EVERY Louisiana Senator and EVERY Louisiana Representative has to be either elected or reelected.  This year our primary elections are on Saturday, October 12, 2019.  Our next House and Senate primaries will be in 2023.  That means that in 2025, when the zombie sales tax of 0.45 percent is set to expire is an odd numbered year, which means that fiscal matters can be considered in the regular session.  Perhaps more importantly, 2025 is NOT an election year.  That means that the tax can be renewed or made permanent, and our oh-so-brave legislators don’t have to face the music for raising taxes for two years.  Of course, they’re probably banking on the voters forgetting about the renewal by then.  You know the old saying about voters and short memories.

The Year of Tax Relief

You’re probably thinking that if politicians can only increase taxes in odd years, but they don’t like raising taxes in an election year, then there should be very few taxes passed in odd years that are also election years.  Such a year could be called a “Year of Tax Relief,” since there wouldn’t be very many new taxes.  Wait a minute, 2019 is both an odd year and an election year.  Is that blowhard Mason correct about this?

Here’s a link to all of the bills introduced by the 2019 Louisiana Legislature.  You’ll notice that the summaries of all the bills that were introduced only takes 35 pages.  Clearly we need more laws on the books.  Fortunately, you can click on the “Passed” tab to see only the bills that passed.  Fortunately that only takes 26 pages to summarize.  Here’s a table of all the Acts that were signed into law that effect paying taxes:

Act Number Description
169 Authorizes City of New Orleans to tax short-term occupancy rentals (think Air B-n-B).  Can’t exceed 6.75% of rent or fee paid.  Requires voter approval.
304 Redefines how businesses pay taxes on Net Operating Losses (NOLs).  Restores how NOLs are treated to the pre-2015 way, because the 2015 changes were very complex.  Only effects businesses which are LOSING money.
360 Reenacts Louisiana’s “Remote Seller Law”, which was passed last year.  The 2018 version was poorly written and depended on the outcome of a U.S. Supreme Court case.  The Court didn’t rule on the issue, so the law had to be rewritten.  Nice job legislature.  This tax may not be collected until 2020!
442 This is tough to explain to a non-attorney, but it involves the Federal SALT deduction cap for S-Corporations and partnerships.

 

That’s it, a grand total of four, one of which nullifies a law passed in 2016 and one which rewrites a law passed just last year!  Furthermore, one affects only the City of New Orleans (and only if the voters approve it), and one affects only S-corporations and partnerships.  So, in effect, zero new taxes on businesses in 2019.  The “Remote Seller” reenactment (Act 360) WILL raise taxes for out of state corporations that sell more than $100,000 of goods and services in Louisiana, but the newly formed commission must collect taxes by July 1, 2020.  This means that lawmakers standing for reelection don’t have to face any negative consequences for their acts.  In fairness, this was a popular tax, with almost every Republican voting for the original (Act 5 of the Second Special Session of the 2018 Louisiana Legislature, including my opponent Polly Thomas).

There ARE a few sales tax exemptions (see Acts 359, 432) and tax incentives for areas with high unemployment (Act 203) and opportunity zones (Act 251).  See this article from the Louisiana Law Blog for more information on 2019 tax bills.

In effect, 2019 is a Year of Tax Relief, because incumbents don’t want to face the heat for raising taxes.  Remember that two dozen permanent and temporary taxes were passed from 2015 to 2018 by the Louisiana legislature.  That averages six per year (although there are almost always more in odd years due to that pesky Louisiana Constitution), compared to effectively zero this year.

Summary

Tax timing is very important to incumbents that count on short-term voter memory.  This article shows a few examples of how politicians time these taxes to avoid having to provide an accounting of their actions to the voters.

I’d like to end this article by quoting Grover Norquist, the founder and president of Americans for Tax Reform: “Governments create wealth like ticks create blood.”  Please remember that when you head to the polls on October 12, 2019.

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