BATON ROUGE – Legislation with the key portion of Gov. John Bel Edwards’ tax reform package was filed Monday, April 17 at the State Capitol.
The Commercial Activity Tax (C-A-T) ensures that all business entities in Louisiana pay their fair share of taxes, while protecting Louisiana’s small businesses. The C-A-T is part of a broad tax and spending reform package proposed by Gov. Edwards to avoid the fiscal cliff on July 1, 2018.
The proposal, House Bill 628, was introduced by state Rep. Sam Jones, (Democrat, Franklin). The package includes providing a tax cut to more than 90 percent of individual income tax filers in the state and replacing revenue the state will lose by the removal of the fifth penny of sales taxes that will expire in Fiscal Year (FY) 2019.
“Right now, individuals in Louisiana are overly burdened by our current tax and budget structure, while too many businesses use costly credits and exemptions to avoid paying any corporate income taxes,” Gov. Edwards said. “The current system just isn’t working when higher education, K-12 education and programs like TOPS are at risk of deep cuts. This new proposal will level the playing field and provide a tax structure that’s fair and predictable for everyone in Louisiana. Under the comprehensive plan I have proposed, more than 90 percent of individual income tax filers will see a tax cut, and the 80 percent of corporate income tax filers who paid nothing in 2015 will start do their part for doing business in Louisiana. This is the most responsible way to balance our state budget while still funding the priorities our constituents want and deserve.”
Gov. Edwards modified the C-A-T to further protect Louisiana’s small businesses and “pass through entities,” those businesses that choose to be taxed at the individual level, rather than the corporate level.
In fiscal year 2015, 80 percent of Louisiana corporations, or 80,000 out of 101,000, did not pay any state income tax. A C-A-T of 0.35 percent would be leveraged on those corporations with receipts over $1.5 million.
Under the modified plan, pass through entities would be assessed a flat tax based on the amount of taxable gross receipts. These business models include Limited Liability Companies (LLCs) and partnerships.
For example, if a gas station in Louisiana operates as an LLC and has gross receipts of less than $500,000, their income tax – the M-C-A-T – would only be a flat $250. A doctor’s office that operates as a partnership chooses to be taxed at the individual level with gross receipts of $2.5 million would pay a flat $1,500 C-A-T.
According to the Louisiana Department of Revenue, in fiscal year 2016, 39 percent of Louisiana’s revenue came from individual income taxes, 39 percent came from the sales tax, while only 3 percent came from corporate taxes.
Edwards’ comprehensive plan includes:
- Allowing the fifth penny of sales tax to be removed in FY 2019
- Cutting state income taxes for more than 90 percent of individuals in Louisiana while eliminating the deductibility of federal income taxes
- Cleaning the remaining pennies of sales tax and expanding the sales tax base to apply to more services, as recommended by the bipartisan task force created by the Louisiana Legislature