Property tax breaks eyed as panel examines ways to get rid of income tax

By Wesley Muller

December 2, 2022

A panel of state lawmakers is studying the possible elimination of personal and corporate income taxes in Louisiana. One option it’s probing to offset the loss of state income tax revenue is to replace it with the money that goes toward tax incentives, ranging from property tax breaks given to nonprofits to huge industrial incentives.

A Louisiana House subcommittee has met almost weekly since October, fulfilling a resolution Rep. Richard Nelson, R-Mandeville, sponsored that the House passed earlier in the year. Nelson has been vocal about his desire to eliminate the state income taxes as well as a wide variety of tax breaks.

The House Ways and Means State Tax Structure Subcommittee spent most of Wednesday scrutinizing the state’s lucrative tax breaks for corporations and nonprofits as part of a greater effort to study ways to eliminate the state’s income taxes. Nelson sponsored bills in 2021 to do just that, with the personal income tax elimination proposal advancing from Ways and Means before it languished on the House floor. The corporate version didn’t even get a committee vote.

Subcommittee members heard testimony from officials with Louisiana Economic Development (LED) and the Louisiana Tax Commission with much of the discussion focusing on property tax exemptions.

Nelson’s resolution states that Louisiana collects more than $10 billion in annual tax revenue but hands out roughly $6.8 billion in the form of exemptions, rebates, refunds, deductions and other credits.

Property taxes, however, do not generate state revenue and are levied only at the parish and city levels. Nevertheless, the panel is scrutinizing property tax exemptions as part of a “systematic review” of the relationship between state and local government revenue raising systems, according to the resolution.

Nelson criticized the state’s nonprofit property tax exemption as overly broad and asked Tax Commission Chairman Lawrence Chehardy for more data on the value of those exemptions.

Louisiana’s Constitution has a provision that gives 100% exemptions on nearly all property owned by any kind of nonprofit organization. It doesn’t require the property to be used for some public good and allows the exemption on properties that sit idle, are held for future investment or even used for commercial purposes.

According to Stephen Stuart with the Bureau of Governmental Research, New Orleans has 4,333 nonprofit property parcels that are exempt with a total assessed value of $548.3 million. BGR has written to the legislature about the issue, saying Louisiana’s nonprofit exemption is “significantly out of step with national norms.”

Chehardy agreed with Nelson that the nonprofit exemption is very broad and pointed out that some exempt properties compete with and operate like private businesses in almost every way except they are owned by nonprofits.

“I don’t think we want to tax the church that you go to on Sunday,” Chehardy said. “I don’t think we want to tax the school that your kids go to that are run by that religious organization. But how far do you want to go? That’s the question — a political question.”

While BGR tracks the amount of nonprofit exemptions cost New Orleans, the figures are largely unknown across the state because parish tax assessors don’t typically appraise properties that are exempt. The practice deprives the public of knowing the true amount of foregone tax revenue.

Nelson said it’s a huge subsidy and nobody knows how much it costs.

Industrial tax breaks further scrutinized
The subcommittee also took aim at the Industrial Tax Exemption Program (ITEP), one of Louisiana’s most notable and perhaps most scrutinized corporate subsidies. ITEP, administered by Louisiana Economic Development, offers an 80% decade-long exemption on property taxes for manufacturing companies.

Prior to 2016, ITEP offered a 100% property tax exemption. The state Board of Commerce and Industry had sole authority to decide on applications. Gov. John Bel Edwards issued executive orders in 2016 that reduced the amount of the exemption and added local control to the approval process. Currently, ITEP applications go before local taxing bodies — such as school boards, sheriffs, and parish or city councils — for approval.

With Edwards facing term limits next year, some lawmakers, local officials and taxpayers have expressed concern that a new governor might roll back the changes to ITEP.

Nelson said he believes the state would be better served if it eliminated ITEP entirely along with the myriad array of other tax incentives. LED Secretary Don Pierson presented a slideshow defending ITEP as necessary to create an attractive business climate.

Pausing on one of the slides, Pierson pointed to a 2021 index from the Tax Foundation, a think-tank that promotes low taxes, that ranked Louisiana’s manufacturing tax burden 43rd in the nation.

Pierson took issue with claims that ITEP takes money away from local governments.

“ITEP contracts, again, they don’t take money away from local bodies,” he said. “You can’t be shortsighted in this in that a lot of these major investments are 20-, 30-, 40-, 50-year investments, and we’re talking about a 10-year abatement here at 80%. So by foregoing a little bit of revenue now, you really stand in the longer term to be more successful.”

Nelson asked Pierson how many times companies have refused to come to Louisiana because of a rejected ITEP application. Pierson didn’t answer the question with any hard figures, saying that ITEP is a “very salient feature in the decision making process.”

Nelson pressed further, asking more specifically whether Edwards’ executive order that reduced the ITEP abatement from 100% to 80% drove any companies away from Louisiana. Pierson, who said he supports keeping the ITEP reforms in place, said the reduction did not hurt the state’s ability to attract manufacturers.

“The data supports that moving from 100% to 80% did not have a significant downward impact on our ability to locate new investment in the state,” Pierson said. “But I wouldn’t say that you can run that line forever and take it down to zero.”

Nelson pounced on the answer, saying it appears local governments have been giving away 20% of their industrial tax revenues since 1936: “We could’ve just reduced it by 20% and been doing this for the last hundred years, and it didn’t have any impact. No impact.”

The tax incentives apparently aren’t attracting the industries they are designed to incentivize, Nelson added.

“The only major manufacturers I see here are ones that have some kind of natural reason to be here like access to pipelines, the Mississippi River, stuff like that,” he said. “I don’t see a lot of other more competitive, more high-tech industries which you would think would benefit from having a manufacturing exemption as well.”

The same Tax Foundation report Pierson cited contained other rankings not included in his presentation. It says Louisiana ranks first for its corporate-friendly tax policy on new technology centers, with “the only negative tax burden for new technology centers in the nation” of –26.1%. This is the result of Louisiana’s “unusually generous incentives programs,” the Tax Foundation said.

The foundation also noted the state ranks seventh in the nation for its tax burden on new corporate headquarters, 11th for research and development firms, 11th for shared services centers, 15th for labor-intensive manufacturing, 34th for distribution centers and 47th for data centers.

A more recent Tax Foundation index ranked Louisiana 32nd for its corporate tax, 25th for individual income tax, 48th for its sales tax, 23rd for property tax and sixth for unemployment insurance tax. The state ranked 39th overall with the report noting an improvement of three index points for the legislature’s recent reforms, many of which the Tax Foundation recommended.

Pierson said the effectiveness of a tax incentive shouldn’t always be measured by its return on investment. The state’s motion picture tax credit did a good job of creating Louisiana’s film industry, he said.

“When you try to take the word incentive and expect that to always bring you a positive return on investment, they don’t really align,” he said.

One of Pierson’s slides contained LED’s “myths” about tax incentives, such as the belief that rejecting an ITEP application will make cash appear.

“If you do have a captive investor, somebody that’s expanding — that works for a little while, but over time that corporation is going to find other either parishes or states to locate in,” Pierson said.

Rep. Beau Beaullieu, R-New Iberia, asked Pierson for any specific examples of such companies that relocated to another parish or state because of an ITEP denial. Pierson did not cite any examples, saying he wouldn’t have that level of detail on such decisions.

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