Revenue Chief: Loopholes Allow Many Companies To Skip Taxes
BATON ROUGE (AP) — With Louisiana leaders in the middle of a wide-ranging debate over state tax policy, Revenue Secretary Tim Barfield started a project for his office, to determine how much the state's largest businesses pay in taxes.
He was surprised at what his auditors found.
"You start realizing that, wow, of the biggest companies doing business in Louisiana, very few are paying income taxes," Barfield said.
Lawmakers have questioned why Louisiana's corporate tax collections have remained largely stagnant despite the national economic recovery and a long list of job announcements and economic development projects from Gov. Bobby Jindal's administration.
Barfield, a Jindal appointee, said he wanted to know why "we don't see the growth in those revenues like you would expect with the economy coming back."
What he found were companies aggressively using tax avoidance options and tax breaks to avoid owing anything to Louisiana. His office has opened more than 100 audits based on its findings, and he's talking to lawmakers about possibly closing some of the loopholes in the upcoming legislative session that begins next week.
In a review of the state's largest companies, Barfield said his agency found only about one-fourth of them were paying corporate taxes to Louisiana.
"You're talking about literally dozens and dozens of potential areas of discretion. It all starts to add up pretty quickly to minimize your exposure. You combine that with our generous tax exemptions and other things, companies are paying very low taxes in Louisiana," he said.
The Department of Revenue chose the largest businesses based on gross revenue and combed through two years of complex corporate income and franchise tax data, to account for tax deductions, operating losses and the application of state tax breaks.
Barfield shared the findings with The Associated Press, but he said he couldn't identify the individual companies because of tax privacy laws.
Of the 87 largest companies that filed corporate tax returns in 2012, one-quarter of them, 22 businesses, paid corporate income taxes in Louisiana, according to the revenue department data. About half of the businesses, 42, paid corporate franchise taxes.
The department had similar findings from the 2011 returns.
To avoid corporate taxes, companies doing business in multiple states can move money around subsidiaries, to shift profits to states with lower tax rates and expenses to states with higher tax rates. They can create new companies that can sell goods and services back to their other companies.
Barfield's given his data to Sen. Robert Adley, R-Benton, and Rep. Julie Stokes, R-Kenner. Both lawmakers have proposed legislation to end certain tax loopholes and change the income reporting method to better account for all subsidiary companies regardless of their location. Lawmakers will consider the ideas in the two-month legislative session that opens Monday.
Stokes, a certified public accountant, said strategies that some larger businesses can use to avoid paying taxes create an unequitable system.
"It is perfectly legal, but it's up to us as state government to make our laws as consistent and fair as we can," she said.
One of Stokes' proposals would switch Louisiana's tax reporting system for businesses to a "combined reporting" method used in about half of states. It would require multistate corporations to add up their profits from all subsidiary companies into a single report, even if those businesses are spread across several states. The change would make it harder for companies to move profits to lower-tax states to avoid paying corporate taxes.
"A combined and consolidated reporting statute would bring a lot more clarity to the law. I think that would be a good step in the right direction," Barfield said.
It's unclear if such a significant change can get traction in a short legislative session with Jindal in the waning months of his term and lawmakers in an election year.
"Is it something that's going to happen this year? I'm not sure," Barfield said. "But it's great to get the conversation started."
– by AP Reporter Melinda Deslatte