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Round Two for Reform: Get Ready!- March 10, 2008

• Louisiana’s state sales and use tax is 4% and is levied on property, including business capital investment.
• Louisiana is one of only three states in the country that taxes manufacturing machinery and equipment, and the only southern state that fully taxes this property (Mississippi and Alabama have reduced sales tax rates).
• With one of the highest average sales tax rates in the country (over 8%), Louisiana businesses, particularly manufacturers, are at a competitive disadvantage when it comes to the upfront cost of purchasing machinery and equipment.
• The tax on Manufacturing Machinery and Equipment will be completely eliminated by July 1, 2009 (FY 2010).

• Louisiana is one of the only states in the country to tax business debt. Taxing debt is an enormous disincentive to investment, expansion, and job creation, particularly for small and start-up businesses borrowing money for buildings, machinery, equipment, technology, and training.
• Louisiana businesses pay some of the highest franchise taxes in the country. Our businesses are at a competitive disadvantage with more than $40 billion of debt investments taxed in Louisiana.
• This tax particularly hurts small, family-owned, and closely held businesses trying to expand and compete with businesses in other states, which do not have this tax burden.
• The tax on business debt will be completely eliminated by July 1, 2010 (FY 2011).

• Louisiana’s sales tax on business utilities and natural gas penalizes all businesses in the state and does particular harm to large users of electricity and/or natural gas. This tax is not paid in either Texas or Alabama.
• It is important that we create a climate that not only attracts new business but rewards and supports established businesses already in the state.
• The “permanent penny” tax on business utilities will be eliminated.

• Providing individual income tax deductions for tuition associated with attendance at elementary and secondary schools and qualified educational expenses incurred by parents of homeschooled children recognizes the need for all students to have equal access to a high-quality education. (Capped at $5,000 per student.)
• These deductions allow for some educational expenses to be subtracted from taxable income prior to the calculation of tax liability, and they will make other educational options more affordable and enable parents to provide their children with a quality education at a school that meets their needs.
• A 50-percent tuition deduction will be provided eligible taxpayers, effective July 1, 2009.

• BACKGROUND: The New Markets Tax Credit (NMTC) program is a federal program funded through the Department of the Treasury. The program is designed to incentivize investment in low-to-moderate income areas. The NMTC program offers an investment incentive in the revitalization of Louisiana communities.
• Special federal NMTCs were allocated for the Gulf Opportunity Zone (GO Zone) by Congress. The State NMTC targets investment into low-income and Special GO Zone (heavily damaged) census tracts.  The program provides incentives to invest in areas in desperate need of revitalization helping to reestablish basic services and rebuild businesses.
• The 2007 Legislature made the state’s New Markets Tax Credits usable to investors, who quickly subscribed the entire $50 million in credits authorized. The market’s response shows investor interest in Louisiana’s low-income communities, particularly those still recovering from the 2005 storms. The program raised $200 million in investor funds directly, which are being deployed today.
• Since the program is at its limit, New Markets investors will now go to other states, such as Mississippi, which has authorized $105 million in credits facilitating over $400 million in New Markets investments.
• In order to continue Louisiana’s leadership in New Markets investments and carry on the same momentum generated so far, Louisiana’s New Markets Tax Credit will be reauthorized and get an investment of $50 million over three years in targeted key areas.

• The state of Louisiana has a $1.088 billion surplus from the 2006-2007 fiscal year.
  
  Of this total, $73 million is constitutionally required to be allocated to the Budget Stabilization Fund, commonly known as the state’s “Rainy Day” fund.
  This leaves $1.015 billion that Louisiana can use for one-time expenditures, as outlined in the state constitution.
• The governor has prioritized five categories for investment:

• With this allocation, Louisiana will fund projects in southeast and southwest Louisiana, making a critical contribution toward the state’s match to federal dollars.
• Projects include: contributing to the non-federal match for the 100-year level of protection for the Greater New Orleans Hurricane Protection System, Morganza to the Gulf, Larose to Golden Meadow, Southwest Louisiana Integrated Protection Plan, Vermilion Parish Hurricane Protection, Cameron-Creole Levee, Barrier Island Restoration/Shoreline Protection, Freshwater Diversions, Beneficial Use of Dredge Material/Marsh Creation, and improving science and technologies in the state to advance coastal efforts.

• Accelerate the current phase-in for revenues from vehicle license fees for trucks and trailers.  This will increase transportation revenues in FY09 by an additional $11 million and fully dedicate these fees altogether by FY10, a year ahead of schedule.
• For the first time, begin the phase-in of the dedication of vehicle sale taxes to transportation projects.  This will provide an immediate infusion of an additional $30 million in transportation in FY09 and over $250 million per year within five years.
• With our increasing transportation project backlog, the current level of funding cannot solely by relied upon to solve our needs.

• The Algiers Development District was created as a special taxing district comprised of all territory within the fifteenth ward of Orleans Parish by Act No. 242 of the 1992 Regular Session of the Louisiana Legislature.
• The original legislation required certain actions be taken with ten years of the creation date of the district. It is unclear that these actions were taken so the district may have lapsed. This will require corrective legislation.
• The project is estimated to retain 1,963 jobs and an additional phase 1 could possibly create new jobs of up to 1,400.  Total direct jobs could reach over 6,000.

• About 1.9 million Louisiana residents will qualify for federal rebate checks under an economic stimulus package that was signed into law by the President last month. The Treasury Department estimates that state residents can expect checks totaling about $1.6 billion, with some being mailed as early as May.
• Under the program, individuals are eligible for up to $600, and couples can get as much as $1,200. People with at least $3,000 in earned income, or those with at least $3,000 from any combination of Social Security, Railroad Retirement funds, and Social Security disability or veterans' benefits, would get $300 per individual or $600 per couple.
• These funds are intended to stimulate consumer spending and investment, and Louisiana will do its share to maximize the value of the rebate by not treating the checks as taxable income.

• The Insure Louisiana Incentive Program attracts new insurers to Louisiana to provide adequate and affordable insurance to property owners of this state, to encourage additional insurers to participate in the voluntary property insurance market in order to substantially increase the availability of insurance, to substantially increase competitive pressure on insurance rates, and to substantially reduce the volume of business written by Louisiana Citizens Property Insurance Corporation (Citizens).
• The program will grant matching funds through cooperative endeavor agreements to qualified property insurance companies.

• Last year’s changes to state tax law (Act 339 of the 2007 Regular Session) included certain machinery and equipment used primarily to produce news publications within the state sales and use tax exclusion for manufacturing machinery and equipment (MM&E).
• Due to a drafting error, the Department of Revenue is currently unable to ensure that news publishers would be entitled to exclusion from the tax.
• Making necessary technical corrections in the special session would not yield an additional cost to the MM&E provisions since the fiscal note already accounts for the tax exclusion for machinery and equipment used to produce news publications.