John Bel Edwards’ signature tax proposal killed in Louisiana House

By: Julia O’Donoghue

The lynchpin of Gov. John Bel Edwards' plan to overhaul Louisiana's tax system was killed in a Louisiana House committee Tuesday (April 25). Edwards couldn't muster enough votes for his commercial activity tax, contained in House Bill 628, even after significantly lowering the amount of money businesses would actually have to pay as a result of the measure.

Rep. Sam Jones, who was sponsoring the bill for the governor, asked that the legislation be "voluntarily deferred" -- rather than having a vote that would kill it. The move allowed Democrats and others on the committee -- who might not want to choose between supporting the Democratic governor and the business community -- to avoid having to make a decision on the bill at all.

When Edwards initially announced his plan for the commercial activity tax, it was supposed to raise between $800 million and $900 million annually. By the time it came before the committee Tuesday, it was only expected to generate $288 million annually. The House Ways and Means Committee, which oversees tax policy for the Legislature, still wasn't willing to vote for it. 

The commercial activity tax was essentially a gross receipts tax on the sales of goods and services. It acts like a sales tax except the seller, not the buyer, pays it. It also applies to many more transactions than the sales tax in Louisiana.

Over the 24 hours before it came up in committee, the Edwards administration made significant changes to the bill to try to generate more support for it. They removed S-corporations -- such as limited liability companies and partnerships -- from being subjected to it in an effort to answer the concerns of smaller businesses. They also lowered the amount of tax many of the remaining entities subjected to it would have had to pay. 

Still, representatives from the oil and gas industry, homebuilders, paper mills, a local restaurant chain and the state's small business association testified that it would devastate them Tuesday. "This bill is going to kill the very industry we depend on," said Chris John, of the Louisiana Mid-Continent Oil and Gas Association. 

Donny Rouse, representing Rouses Supermarkets, also said his business would be significantly affected by the commercial activity tax -- even though the governor's team had tried to amend it to ease the concerns of grocery stores. Rouse said he operates on too tight a profit margin to pay a tax on every item he sells in his 45 stores in Louisiana.

"This would double what we pay the state in taxes currently," he said in an interview. "This would be a tax, whether we make a profit or not." 

Edwards had proposed the commercial activity tax as a replacement to the higher sales tax rate that is set to expire on July 1, 2018. When the state sales tax rate drops from five percent to four percent, it will create a $880 million hole in the state budget. The governor and House Republican leadership have not reached an agreement on how to close that budget gap yet.