DALLAS – Louisiana would replace billions of dollars in annual revenue from state income and business taxes with a higher sales tax and fewer exemptions under a revised tax code outlined to legislators Thursday by Gov. Bobby Jindal.
Jindal said he will propose the reforms when the Legislature convenes April 8.
He did not specify the sales tax rate he will seek or which tax exemptions are slated for elimination. The state levies a 4% sales tax, but local taxes bring the statewide average to 8.85%.
“We are meeting with every legislator over the coming weeks to discuss the details of the tax reform plan,” Jindal said. “Our goal is to eliminate all personal income tax and all corporate income tax in a revenue-neutral manner.”
The state collected $2.6 billion in fiscal 2012 from the sales tax and $2.5 billion from the personal income tax. Corporate income and franchise taxes totaled $374 million.
Ending the income tax would make the state more competitive with non-income tax states such as Texas and Florida in attracting new jobs and industries, he said.
“The bottom line is that for too long, Louisiana’s workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity,” Jindal said. “It’s time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs.”
Tim Barfield, executive counsel for the Louisiana Department of Revenue, said the proposed maximum sales tax rate could be as high as 7%.
The proposed new code will retain the sales tax exemptions on food, utility bills, and prescription drugs provided by constitutional amendments approved by voters in 2002, Barfield said in a conference call with reporters.
Exemptions in the current sales tax cut fiscal 2012 revenues by $2.5 billion, including $700 million from the constitutional provisions.
The sales tax base may be broadened to include some services not currently taxed, Barfield said, and taxes on cigarettes and other discretionary spending may go up.
The changes in the reformed tax code will make it simpler than the current one, he said.
“One of the goals here is to be very competitive from a state economic development standpoint,” Barfield said.
Swapping the income tax for a higher sales tax rate will hurt the state’s poor families, said Jan Moller of the Louisiana Budget Project.
“While we are glad the governor plans to keep the existing exemption on food, drugs and residential utilities and rebate programs for low-income workers, we fear these steps won’t be enough to cushion the blow on the state’s most vulnerable citizens,” Moller said. “At a bare minimum, a tax overhaul should not be an excuse to make the state’s poorest citizens pay more, and they would suffer the most from the governor’s proposal to raise sales taxes.”