BATON ROUGE, La. (BRPROUD) — Candidates for Louisiana governor have a wide range of issues to answer for, and one topic will have major implications in their first year in office — the .45 cent sales tax that expires in about a year.
“It was a way to really keep the lights on in state government at the time when the state was really having a hard time balancing the budget,” said Jan Moller, executive director of Louisiana Budget Project.
The .45 cent sales tax was put in place early in the Gov. John Bel Edwards administration to fill some of the budget shortfalls he inherited. It started as a full cent tax and was reduced down to .45 in 2018. Now the sunset date is nearing in FY25. The next governor and legislature will have to decide how to replace the over $400 million a year it brings in or decide where to reduce spending.
“It’s traditionally health care and higher education,” Commissioner of Administration Jay Dardenne said. “This hasn’t changed in any of our discussions. Those are the most significant components of the state budget and those are the ones that have no constitutional protection.”
The state has been enjoying major surpluses to spend on one-time investments, and while some believe this could be the new baseline others say it isn’t promised. If lawmakers decide to replace the revenue there are several ways tax reform could come about such as altering the income tax, property tax or reducing some of the tax credits and exemptions the state doles out.
“If it’s not going to be property tax because of the homestead exemption, are you going to give locals the ability to have some kind of income tax or some kind of additional sales tax, and then you run right back into the same trap of sales taxes being too high already,” Dardenne said.
Also happening the same year as the roll-off, some of the vehicle tax revenue will be taken out of the budget and put only towards construction. This will add to the hundreds of millions of dollars that will no longer be available for the operating budget.
The legislature has been careful not to spend one-time dollars on recurring expenditures. Even if the surpluses continue it would be risky to use them to pay for the every year cost of running the state programs.
“We should have a conversation about whether we want to fund these services with sales taxes or some other taxes. That’s a very important conversation to have because the sales tax does fall hardest on low and moderate-income families,” Moller said.
Candidates in the governor’s race vary on what to do on the tax. Shawn Wilson and Hunter Lundy have said they’re for keeping the tax. Sharon Hewitt and John Schroder said they’ll let it roll off. Stephen Waguespack and Jeff Landry want to focus on changing the tax system to help reduce pressure on taxpayers which could come through in different ways.
“We promised the voters of this state and the people of this state that once we came out of this budget deficit, that it would expire and roll off and our sales tax rate would be lowered,” said Jason DeCuir, vice chair of the Louisiana Association of Business and Industry Board.
While the statewide sales tax is not very high compared to some states, when coupled with the local parish sales taxes it quickly adds up to some of the highest in the nation in some areas.
Some at LABI want to focus on restructuring the sales tax code to make up the lost funds. DeCuir believes the state not having a centralized tax collection system is holding it back from collecting millions in sales tax from online purchases.
“Our sales tax code is antiquated. Basically, it’s built on tangible personal property and a lot of these things are now being enacted or transacted in their digital form, and we’re not capturing that revenue we once captured,” DeCuir said.
A method of centralizing the sales tax collection was struck down by voters in the last fall election. DeCuir said the legislature should try again to get the measure on a ballot with more statewide races to draw in voters.
There have been bills in recent years trying to phase out the .45 cent sales tax but they have not made it far. With the next session being a non-fiscal year, a solution could still be far off. Ideas on how to replace the money or change spending will be something legislators and the governor will have to start planning for early on.