When deciding where to place major job-creating projects, corporate executives often choose among several states with comparable location advantages. Taxes usually are among their top site-selection criteria.
The Tax Foundation reports Louisiana’s state/local tax burdens for individuals and corporations are among the lowest in the country once our myriad state tax exemptions are considered. Yet our state’s tax structure often is poorly perceived because of its complexity.
More than 460 state tax exemptions totaling $6.8 billion dramatically narrow our tax base, meaning Louisiana requires every major tax type and generally average to above-average tax rates to generate the same level of revenue as other states with lower tax rates and/or fewer tax types.
States with simpler tax systems have a big advantage in economic development because corporate site-selection processes focus first on eliminating states based on high-level reviews that rarely consider the full range of available tax exemptions. Only later, if Louisiana makes the short list, may we learn about a project and be able to explain how our tax system works.
I’ve discussed taxes with hundreds of businesspeople nationally. Corporate executives, entrepreneurs and site-selection consultants favor simple, transparent tax systems with relatively low state/local tax burdens.
That’s largely why the much simpler tax structure in Texas is perceived so much better than ours, even though state/local tax burdens there are somewhat higher than in Louisiana.
Louisiana ranks No. 32 in the Tax Foundation’s state business tax climate index primarily because of our tax system’s complexity. Louisiana also doesn’t appear among the top states in tax rankings published by Area Development, Business Facilities, Chief Executive and the Small Business & Entrepreneurship Council. In contrast, Texas appears among the top 10 states in all five of these rankings.
Additionally, while nearly all other states have coordinated state/local sales tax administration, Louisiana has a fragmented system with dozens of different sales tax filings, creating administrative nightmares for many small businesses. We need a simpler approach.
Eliminating income taxes in a revenue-neutral manner and improving sales tax administration would dramatically simplify our tax system, reducing administrative headaches for families and small businesses.
Louisiana would climb from No. 32 to approximately No. 4 in the State Business Tax Climate Index. Moreover, Louisiana’s position would improve in a dozen other national rankings of tax competitiveness or business climate.
Most importantly, our state would become more attractive for business investment, meaning more and better job opportunities for Louisiana citizens and enhanced growth prospects for Louisiana’s small businesses.
Since 2008, we’ve implemented policy reforms that improved Louisiana’s business climate and helped enable our state to economically outperform the South and United States. Tax reform is the next big step to position Louisiana for a brighter economic future.
Stephen Moret, secretary
Louisiana Economic Development