Taxing Situation

Louisiana budgetary woes cause concern over business incentive programs

Business tax incentives in Louisiana—hailed by some as vital to economic development in the state, criticized by others as corporate welfare—peaked in 2012, a year in which the state exempted 88 percent of corporate income taxes, for a total of $1.8 billion, according to the Louisiana Department of Revenue.

Since then, these myriad programs—put into place by the Louisiana Legislature and managed by the state-run Louisiana Economic Development (LED)—have, in turn, been showcased, shifted around and scuttled in accordance with two governors’ differing political/economic aims and a seemingly perpetual budgetary crisis.

The current legislative session is scheduled to close Thursday, June 8, having considered roughly 60 different bills regarding credits and incentives. Democratic Gov. John Bel Edwards’ efforts are a stark contrast to both the significant changes to the program made by former Gov. Bobby Jindal in 2015 and the vision held by the current Republican-led Legislature. A general overview of the intent and impact of such tax initiatives provides a look into the overall economic outlook for Louisiana.

 “It’s an interesting mixture,” Kristian A. Gerrets, director of business incentives and transaction tax services for Metairie-based CPA firm Bourgeois Bennett, says of the various tax incentives considered in the 2017 state legislative session. “The most common ones seem to be safe for the moment, and those are the ones that most people don’t hear a lot of—enterprise zones, quality jobs programs.

“The bills that would eliminate wholesale dozens of credit programs take too extreme of an approach toward increasing revenue for the state, as some of these programs are quite successful,” Gerrets continues. “It would be short-sighted to just get rid of them.”
 

The Digital Interactive Media and Software Development Initiative

Gerrets points to two successful programs in particular: the Digital Interactive Media and Software Development initiative—which offers in-demand tech firms a 35 percent refund tax credit for in-state labor, plus 25 percent refundable credit for eligible production expenses—“has brought in a ton of programmers and computer-science type of people, high-paying jobs with companies that came here to do their projects because of that credit,” he says. And though some view the program as a way for the rich to get richer, Gerrets describes the angel investor incentive—offering upward of a 25.2 percent tax credit for individuals investing in Louisiana-based businesses seeking startup and expansion capital—as a boon for small and midsized companies (50 to 100 employees) by making financing easier and more attractive.
 

The Alternative Fuel Tax

However, not all business tax incentives produced such positive results. The alternative fuel tax, a credit for individuals purchasing new flex-fuel automobiles, arrived just in time for the period (2009-10) when such eco-friendly technology became common in cars, causing the state an estimated $100 million in tax credits when initial budget estimates were for $4 million.

In the ensuing fallout, Louisiana Secretary of the Department of Revenue Cynthia Bridges, after serving in the Foster, Blanco and Jindal administrations, abruptly resigned in June 2012.
 

Solar Panel Tax Credits

Another failure came in the passage of solar panel tax credits, another eco-friendly initiative for individuals, after it proved so popular that it ran overages up to $30 million in rebates that were not paid back and helped cause that initiative’s demise in 2015.

“From a practitioner’s standpoint, the main result of those mistakes is that people do not trust incentives like they used to,” Gerrets says. “People think, ‘Why go through the trouble of making this investment when the Legislature can, with the stroke of a pen, eliminate it or change it midstream?’”
 

Historic Home Rehab Program

The state’s historic home rehab program — which provides a max credit of 18.5 percent for individuals fixing up their owner-occupied house, and adds to a similar federal incentive — is popular in Louisiana. With the goal of putting blighted old properties back into the stream of commerce, it was established in 2002 and will likely continue after its set sunset date of Dec. 31, 2017.

Of particular concern, Gerrets says, is the reworking of film industry incentives, after the program’s cutbacks in 2015 sent a surging state industry to states including Georgia and Texas.

“Subtle changes to our incentive programs have a domino effect all across the state’s economy,” Gerrets explains. “And that’s the worst thing: To say, ‘We’re broke and we need more money,’ and get so worried that you lose sight of the big picture of what benefits these tax credits offer.”
 


Louisiana’s Business Incentives (as of June 8, 2017)

LED FastStart:  employee recruiting, screening and training services at no cost.

Angel Investor: 25.2 percent tax credit for individuals investing in businesses that seek startup and expansion capital.

Competitive Projects Payroll: 15 percent rebate on company’s new payroll for up to 10 years, plus a rebate on sales and use taxes for capital expenditures or 1.2 percent rebate on project facility expenses.

Digital Interactive Media and Software Development: 35 percent refund tax credit for in-state labor, plus 25 percent refundable credit for eligible production expenses.

Industrial Tax Exemption: property tax abatement for up to 10 years on a manufacturer’s new investment and annual capitalized additions.

Enterprise Zone: $3,500 or $1,000 in tax credits for each new job created, plus a state sales/use tax rebate on capital expenses, or 1.5 percent investment tax credit.

Motion Picture Investor: 30 percent transferable tax credit for production expenditures plus 10 percent for in-state labor expenses.

Musical and Theatrical Production: production or higher-education infrastructure development credits plus payroll tax credits.

Quality Jobs: 6 percent rebates on payroll expenses for 10 years plus a state sales/use tax rebate on capital expenses, or 1.5 percent investment tax credit.

Research and Development: 40 percent tax credits to create or continue research and development operations.

Restoration Tax Abatement: 100 percent property tax abatement for up to 10 years for rehab of existing structures.

Sound Recording Investors: 18 percent tax credit rebate for expenses on state-certified sound-recording projects.

Technology Commercialization: 28.8 percent tax refunds, plus 4.32 percent payroll rebate for job creation.

The LED also offers a variety of special programs created for small businesses, ranging from sales leads and access to state contracts to incentives for veterans.

Source: Louisiana Economic Development (LED), as listed on OpportunityLouisiana.com
 


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