Gov. John Bel Edwards cited uncertainty about the impact of past tax changes in a veto message Wednesday that rejected legislation to repeal the state’s corporate franchise tax.
Edwards agreed Louisiana’s corporate franchise tax is "antiquated and should be structurally reformed or repealed," but vetoed Senate Bill 1, Franklin Republican Sen. Bret Allain’s legislation to phase it out.
SB 1 cleared both chambers of the Legislature with all but one lawmaker in favor.
"In 2021, Chairman Allain led an effort to reform Louisiana’s tax code resulting in true tax reform that reduced corporate and individual income tax rates, uncoupled Louisiana’s income tax from federal income tax, exempted corporations with less than $300,000 of taxable capital from the franchise tax, and enacted a tax reduction trigger for the franchise tax and individual income tax," Edwards wrote in his veto message.
The extent of fiscal impacts from these changes will not be known, however, until December 2023 or early 2024, following the new automatic filing extension of November 15, 2023, for 2022 income taxes," he wrote. "With many moving and intertwined pieces, it is unwise to create a second franchise tax reduction trigger at this time."
Edwards also cited the need for lawmakers to address the looming sunset of a 0.45% sales tax, the return of suspended sales tax exemptions, and new tax dedications to the Transportation Trust Fund and Revenue Stabilization Trust Fund.
SB 1 would have phased out the franchise tax at a rate of 25% per year if corporate income tax revenues remain above $600 million. Allain tied the legislation to Senate Bill 6, which would reduce the project facility expense rebate in the state’s Quality Jobs Program to help offset revenue lost from the franchise tax phase out. Edwards has not yet taken action on SB 6.
Louisiana is one of eight states with an uncapped tax on business capital stock, which Allain has described as "the worst tax Louisiana has on the books" because it disincentives investment. Unlike a corporate income tax, which falls on profits, the franchise tax is levied on businesses’ net worth or accumulated wealth.
