The state’s latest tax amnesty program produced something that no one but a few smart lawyers likely anticipated. Instead of paying cash to settle their tax disputes with the state, companies returned unused tax credits, including one nearly a decade old.
Tax credits lower the amount of money a company or individual owes the state in taxes.
However, they often come with triggers, such as investing in a certain type of company, before they can be used.
The credits are not cash, which is what legislators wanted when they agreed to give taxpayers a break on debt. The idea was to raise money for the budget, not to allow tax attorneys to flex their creativity.
“The next time around we may get nothing but credits,” said Greg Albrecht, chief economist for the Legislative Fiscal Office, on Tuesday. “We’ve now told them just bring us some old credit paper.”
The problem, he said, is that companies may have returned the credits because they found them unusable. If companies never incur a financial liability that could have been diminished by using a tax credit, then the state’s the loser.
State Revenue Department Secretary Tim Barfield said his agency accepted the credits as payment for one simple reason: Companies told the state the credits could not be refused.
“The main reason we took the credits is we had no authority to refuse the credits,” Barfield said, pointing to a section of state law that says a credit can be used to pay any outstanding tax liability.
One of the credits returned to the state was for the CAPCO program, which offers insurance companies dollar-for-dollar credits for money they invest with certain venture capital companies, know as CAPCOs.
The credit had never been used even though it was issued in December 2005.
The other credits returned to the state were for the motion picture program. Those credits date back to 2010 and 2011.
Earlier this year, legislators decided to give taxpayers an incentive for paying back taxes or resolving differences over taxes. The state waived half the interest and all penalties for taxpayers who agreed to settle tax disputes or clear back taxes between Sept. 23 and Nov. 22.
Before the amnesty program started, delinquent tax billings totaled $1.4 billion, and $1.1 billion was tied up in litigation or disputed audits. More than 50,000 businesses and individuals participated in amnesty.
The amnesty program exists because the state needed $200 million for its health care budget. Amnesty provided the needed dollars.
The program produced $435 million, but not all of that was cash. Nearly $70 million materialized through returned tax credits.
“I was surprised in that I never contemplated that being used as a form of payment,” said the program’s legislative sponsor, state Rep. Joel Robideaux, on Tuesday. “From a short-term standpoint, you’d say it’s a bad thing because we were hoping to get as much collection, dollar collection, as possible.”
Robideaux, R-Lafayette, said legislators need to have a conversation before the rest of the amnesty program, which is to be held over several years, unfolds. The program might need to be tweaked, he said, although he is uncertain whether the state can legally refuse tax credits as payment.
Like Barfield, Robideaux said the tax credits eventually could produce money for the state.
With the credits back in the state’s possession, they cannot be used to lower tax bills. With the tax credits extinguished, tax collections could be greater in the future.
Albrecht said the credits are not cash. He said they do not fulfill legislators’ objective of raising money for this fiscal year’s state operating budget.
“It was just something the tax lawyers thought up,” Albrecht said. “For whatever reason, the (revenue) department didn’t say no.”
Barfield, who is a lawyer, said his agency researched the issue after companies declared that tax credits could not be refused in the amnesty program. He said the law seems clear that the companies were correct.
“It’s a finite group of tax credits. The tax credits are out there. They’re transferable,” he said.
Where Barfield is in disagreement with Albrecht is on whether some of the credits could have just expired without being used. Barfield said the credits were a piece of property that companies would have monetized somehow.
“I don’t think it’s a safe assumption, a solid assumption, a fair assumption to say the holders of these credits would just let them expire,” Barfield said.