Sweeping tax overhaul in Louisiana hits snag on sales tax expansion

BATON ROUGE, La. — Louisiana lawmakers on Thursday postponed a vote on a key bill in Gov. Jeff Landry's sweeping and complex tax reform package.

Most of Landry's proposed bills, granting approximately $2 billion in income and corporate tax cuts, have moved smoothly through the House of Representatives during the state's third special legislative session of the year. But lawmakers have raised more resistance to a sales tax on dozens of services such as lawnmowing, getting tattoos and using coin-operated laundry machines.

Tabling the bill, which would have raised an estimated $500 million to plug the revenue hole created by the tax cuts, raises questions about whether Landry and his allies have rounded up enough support. The GOP-dominated House requires 70 of its 105 members to vote in support of the bill.

“I think the bill is on life support if it isn’t dead already,” said Republican Rep. Joe Stagni.

Exiting the House chamber on Thursday evening, Landry denied there were not enough votes to pass the bill.

“Don’t ever go in the kitchen halfway through the meal being cooked, judge it once it’s cooked," Landry said.

Rep. Julie Emerson, who is responsible for several of the tax reform bills, said some of her colleagues were opposed outright to the entire bill increasing taxes on services, while others had issues with specific services being taxed.

In committee hearings, lobbyists have argued the proposed services to be taxed, including for property repairs and maintenance, would raise costs for small businesses and elevate insurance rates.

But House lawmakers voted 71-23 to make a temporary 0.40% sales tax increase permanent. Lawmakers shaved off 0.05% to bring the state’s proposed overall sales tax rate down to 4.40%. They also planned to repeal dozens of tax breaks, but would keep household groceries from being taxed.

That sales tax expansion would raise around $820 million in annual revenue.

“With a sales tax, a person has a choice," said Republican Rep. Mark Wright, who sponsored the increased sales tax bill. “With an income tax, there is no choice.”

Some fiscal conservatives have indicated opposition to levying new sales taxes on services, with a small group of Republicans voting against making the sales tax increase permanent.

A group of Democratic lawmakers have also argued that the sales tax expansion will weigh more heavily on lower-income households.

Louisiana’s tax system is one of the most regressive in the nation, with lower-income families paying a higher percentage of their earnings toward income and sales taxes than wealthier households, according to research from the left-leaning Institute on Taxation and Economic Policy. A study funded by a coalition of non-partisan economic policy groups found the proposed reforms would make the existing system modestly more progressive, but did not factor in potential increases in local sales taxes.

Landry has said the tax reform is modeled after policies adopted by states like North Carolina and Texas, which he says are out-competing Louisiana economically. He has said passing the tax reform package will make the state more attractive for job-generating businesses, and his allies point out that the Tax Foundation, a conservative think tank, currently ranks Louisiana as 40th in terms of tax competitiveness.

Some lawmakers have questioned whether the proposed taxes on numerous services can be effectively enforced.

Republican Rep. R. Dewith Carrier, representing several southwest Louisiana parishes, said in a committee hearing on Nov. 13 that he did not believe his constituents would fully comply with the new sales taxes.

“Don’t count on my district to do it, them boys they take cash, they’ll trade it for a fifth ... of vodka or food stamps,” he said.

On Wednesday, the House passed a bill to reduce corporate income tax from a 7.5% to 3.5% flat rate and another to add new taxes on digital goods and services like online streaming sites, expected to bring in around $40 million a year. They have also passed bills to eliminate the 0.275% corporate franchise tax — worth more than $500 million in annual revenue — and to flatten the individual income tax to 3%, costing the state approximately $1.3 billion in revenue.

The House is scheduled on Monday to vote on the tabled proposal to expand sales taxes to dozens of services.