Dan Juneau – The LABI Report

Economic developers found some luck of the Irish on St. Patrick’s Day when bills to phase out the debt portion of the state franchise tax and the state sales tax on manufacturing machinery and equipment were sent to the governor’s desk.

Governor Blanco, who established the removal of these two taxes as a priority for her administration, looks forward to signing them into law.

Economists and economic developers have long bemoaned the fact that Louisiana is one of only two states to tax corporate debt. The imposition of such a tax is particularly burdensome to start-up businesses that almost invariably borrow money to begin operations.

The imposition of a sales-and-use tax on manufacturing machinery and equipment has been a significant factor in the loss of manufacturing jobs in Louisiana.

Most southern states either don’t impose such a tax or levy it at a much lower rate. In Louisiana, manufacturing equipment is taxed at an average rate of 9 percent.

On a $1 million purchase, that represents a $90,000 higher cost of doing business than exists in most of our competitor states.

The total cost savings to businesses when both of these taxes are fully phased out is estimated to be $270 million.

There were many critics of the seven-year phase-out schedule of the legislation. Unfortunately, there weren’t as many votes for a shorter phase-out as there were critics.

While a shorter phase-out period would have been desirous, for the first time there is now a date certain on the calendar when these two onerous taxes will end – and it will take a two-thirds vote of the Legislature to change that. In the long run, what is even more important than the phase-out period is the quality of the bills.

Outside of attempts to shorten the time line, not one amendment was offered to either the franchise tax or the manufacturing equipment bills to fix problems or deficiencies with the legislation.

That is because the business community partnered with the Blanco administration to develop meaningful tax reductions with clear language that greatly reduces the Department of Revenue’s subjective authority to determine who gets a tax exemption and who doesn’t.

Reforms rarely succeed on their first attempt, and that certainly was the case with tax phase-out legislation. Two years ago, very similar bills died late in the legislative process.

If someone had said then that very similar legislation would pass two years later with over 100 coauthors in the House and 30 in the Senate, members of the business community would have accused that person of being in the “Twilight Zone.”

Sometimes in Louisiana, the planets do align and reforms are possible.

When that happens, those who are prepared to act will succeed. In 10 short days in March, years of hard work and preparation came to fruition.

As is often the case, the biggest part of the “planetary alignment” was centered upon a governor who made the passage of the bills a priority.

The major change between 2002 and 2004 lies in having a governor who led the effort. As a result, two major disincentives to economic development in the Bayou State will soon begin to disappear.

There is still much to be done to make Louisiana more successful in economic development efforts (not the least of which is more aggressive salesmanship).

The passage of these two bills will, however, send a message that our state knows where it is not competitive and is making an effort to eliminate the negatives.

DAN JUNEAU is president of the Louisiana Association of Business and Industry.