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Compounding the budget crisis Louisiana is now facing, corporate income tax revenue is down by nearly half statewide when compared to last fiscal year, officials said.
Corporation and franchise taxes have contributed $209 million to state coffers since the end of June 2014, down 44 percent from this point last year, according to a release from State Treasurer John Kennedy. This time last year, that amount was $375 million, more than two-and-a-half times more than the year prior.
“If you look at the trend over the last four or five months, the trend has been down and that’s disturbing me more than anything else,” Kennedy said. “Unless the trend stabilizes, we could be looking at a larger than 1.6 billion dollar deficit to grapple with in next year’s budget.”
Kennedy said he thinks the lowered corporate tax revenue is because of the depressed price of oil. He said that although families may benefit from cheap gasoline, the savings they are enjoying could never make up for the revenue shortfall caused by the oil glut.
Industries related to oil and gas represent 40 percent of Louisiana’s $220 billion economy, Kennedy said.
But Byron Henderson, spokesman for the Louisiana Department of Revenue, told The Times in an email that corporate tax revenue is down in part because there is an increase in corporate conversions to “S”-type corporations.
“C”-type corporations, like limited liability corporations, pay corporate income tax and then distribute dividends to individual shareholders, who then must also pay income taxes on those payments themselves.
“S”-type corporations do not pay corporate income tax, and instead pay shareholders untaxed individual dividends. It is the shareholder’s responsibility to pay income tax on profits earned from their shares.
According to reports from the Department of Revenue, Louisiana paid over a half billion dollars in tax exemptions to “S”-type corporations during the 2013-2014 fiscal year. The exemptions represented over a quarter of all tax exemptions given to corporations in Louisiana.
The second biggest corporate tax credit Louisiana offers is the inventory tax credit. Individual parishes tax manufacturers, distributors, and retailers on a portion of their inventory. Parishes then use that revenue to fund local government. The Louisiana Department of Revenue offers a tax credit that reimburses business for 100 percent of their tax liability.
In the 2013-2014 fiscal year, the inventory tax credit paid $441,097,424, representing 22.61 percent of all state-offered tax credits.
Gov. Bobby Jindal has proposed changing the inventory tax credit from a refundable tax credit to a non-refundable tax credit. What that means is that the amount the tax credit cannot be taken from the total taxable income that a corporation had for the year. Currently, the inventory tax credit can be deducted from a corporation’s gross income, lowering their taxable income.
All corporate and franchise tax revenue goes directly to the state general fund, Henderson said.
Warren Johnson fills up at the local gas station in Houma. State Treasurer John Kennedy believes that much of the decline in state tax revenue is due to lowered oil prices.
