Could sales tax keep Louisiana from the fiscal cliff?

Could sales tax keep Louisiana from the fiscal cliff?

To keep from tumbling over a massive fiscal cliff, Louisiana lawmakers temporarily increased the state’s sales tax by 1 percent starting April 1, 2016. They also temporarily eliminated certain sales tax exceptions and exemptions (like the one for Girl Scout Cookies). It helped; the fall was temporarily averted. But these temporary changes are set to expire on July 1.

The cliff isn’t as high as it once was, thanks in large part to the federal tax cut — it’s now $648 million rather than nearly $1 billion according to the Louisiana Budget Project. However, Louisiana’s budget woes haven’t been solved. Lawmakers “will have to make deep cuts to health care, education and other services unless they agree to replace some of the $1.4 billion in tax revenue that expires on July 1.”

And so, amending the sales tax law is back on the table.

A second special session began Tuesday, May 22. In his opening remarks, Governor John Bel Edwards said the 1-cent temporary sales tax increase “makes up the bulk of the fiscal cliff.” He would like to be able to drop the rate back to 4 percent, where it was before the hike. Instead, he’s proposing a rate of 4.5 percent.

His attention then turned to the state’s many exemptions: “The four existing pennies of sales tax have over 180 exemptions on them. To make matters worse, each penny is taxed different.” He’s calling for change. “The four pennies we keep should look like the fifth penny we created” — they should have fewer exemptions. The governor would keep the exemption for groceries, pharmaceuticals, and utilities.

Will it work? Gov. Edwards is urging Louisianans to support his plan. Republican lawmakers seem amenable to a permanent sales tax rate increase, but members of the Black Caucus worry a higher rate will be a strain on low-income individuals and households. And some lawmakers are unhappy the governor vetoed the first budget they sent to him; they had hoped to deal with its shortcomings during the second special session, not start from scratch.

If the governor gets what he wants, there will likely be fewer sales tax exemptions in Louisiana. This would complicate sales tax compliance, at least temporarily, as businesses would have to start collecting and remitting tax on a host of goods and services. Check back with the Avalara blog to learn more.

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