Louisiana Revneue Secretary Richard Nelson wants to lower income tax rates for many Louisiana households, but expand the sales tax rate. (Photo by Henrietta Wildsmith)
Louisiana legislators, particularly those in the Senate, want more information about Gov. Jeff Landry’s plan to overhaul the state’s tax system before they commit to a special legislative session in November to pass new tax laws.
Landry’s Revenue Secretary Richard Nelson has pitched a session focused on tax changes to be held between the Nov. 5 presidential election and Thanksgiving on Nov. 28.
“We would like to see a special session between now and the end of the year,” Nelson said during a presentation to lawmakers last week.
The Landry tax overhaul proposal revolves around a central concept of eliminating existing tax exemptions and expanding the state sales tax to new services in exchange for lowering the personal income tax rate for moderate-income and wealthy households.
But Nelson hasn’t provided details about which tax exemptions he wants to scrap or what new services would be subject to sales taxes under his proposal. He’s also been vague about what personal income tax rate he wants legislators to set.
Nelson told lawmakers during a budget hearing last week he would like to see a personal income tax rate in Louisiana in the low 3% range. “It’s going to be dependent on the other measures that we have to make up revenue,” he said.
“Taxes on services. Taxes on digital goods. Depending on how expansive those are, how many exemptions we are able to take out of the sales tax budget, those are the things that will drive how low we can get the [personal income tax] rate,” Nelson added.
It’s unclear if Nelson’s tax proposal would happen on top of or instead of an across-the-board 0.45% state sales tax rate cut scheduled to take place July 1, 2025. He didn’t address the issue during last week’s presentation.
Senators interviewed Monday said they want those details of the tax package well ahead of having to take any votes on the plan.
“I highly support making the change we need to make to make us competitive with our surrounding states,” Sen. Robert Allain, R-Franklin, said, but “we need time to deliberate.”
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Some senators are still skeptical that a tax package can be approved within the next two months when the specifics of the proposal haven’t been nailed down yet. They believe it would be better handled during the regular lawmaking session scheduled to start in April.
“No matter when we address tax policy, it’s going to be helpful for members to have as much information as possible,” Senate President Cameron Henry, R-Metairie, said.
The head of the Senate’s tax committee, Franklin Foil, R-Baton Rouge, told Nelson at the hearing last week that legislators will need more information in order for a November special session to be successful.
“Are you going to come back with some specific things you would like to recommend to the governor to be in [special tax session] the call?” Foil asked Nelson.
Nelson responded that he would finalize his proposal by the end of next week after talking more with the governor and legislators.
“The governor is very adamant that he wants to do something big. He wants to make big changes,” Nelson said.
If Louisiana’s personal income tax rate was in the low 3% range for all households, as Nelson wishes, it would create an income tax break for all but the lowest-income people. Currently, households pay a 4.25% tax rate on income $50,000 and above, 3.5% on income between $12,500 and $50,000, and 1.85% rate on income $12,500 and below.
Nelson has proposed offsetting the tax increase on Louisiana’s lowest-income households by significantly increasing the standard deduction they would be able to claim on their state tax forms.
The revenue secretary said he also wants to lower the corporate income tax rate, revise the business inventory tax and eliminate the corporate franchise tax.
Louisiana would not see a massive drop off in revenue by lowering these tax rates, Nelson said, as long as the state eliminates some existing tax exemptions and assesses its sales tax in new areas to make for the lost revenue.
In the past, he has suggested taxing Netflix and other digital streaming services as well as luxury services such as car detailing. Nelson has not said how much money such an expanded tax base could produce.
Eliminating tax exemptions, especially those that benefit corporate interests, has proven difficult in the past. The Legislature failed to approve widespread changes to its business tax breaks in 2016 and 2018.
“I think you have a lot of special interests out there that want to protect their pocketbooks,” said Sen. Patrick Connick, R-Marrero, who said he would back a November special session on taxes.
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The Landry administration is also proposing combining two state savings accounts, which would reduce the amount of state funding that flows into reserve funds. It would free up more money for day-to-day government functions without raising taxes.
The merging of the state’s savings accounts would require voters to approve a constitutional amendment, which Nelson would like to put on the ballot during a special statewide election in March.
If the Legislature chose to do nothing, state residents would still see a tax cut next year as well as a state budget deficit of $587 million that would like result in cuts to health care, higher education and K-12 school services.
The financial shortfall would largely be driven by that scheduled 0.45% cut to the state sales rate, which would cost $455 million, and the elimination of a 2% sales tax on business utilities, which would cost $211 million.