Louisiana’s economy works best when everyone – including large petrochemical corporations headquartered in other states or countries – pays their fair share in taxes to ensure that every community has access to good schools, affordable health care and safe streets.
The state’s corporate franchise tax is a key component of making sure that the biggest, most profitable companies don’t escape tax liability. Money raised from the tax helps support community needs across Louisiana. And in recent years, revenue from this tax has gone into a new savings account where it will eventually be used to rebuild roads, bridges and other infrastructure.
Legislation passed during the 2023 session – but vetoed by Gov. John Bel Edwards – would phase out the corporate franchise tax over four years if certain conditions are met. The Legislative Fiscal Office estimates that it would eventually cost the state $163 million per year in revenue that could otherwise be used to support public schools, workforce development or health care services for people in need.
The Legislature should uphold the governor’s veto when it meets for an override session this week.
Large corporations in Louisiana – mainly petrochemical firms – pay a franchise tax on their equity capital. Businesses and their lobbyists have worked for years to strike this tax from the books, arguing that it makes the state uncompetitive. Yet it has not deterred businesses from making more than $20 billion per year in new capital investments in Louisiana in recent years.
As Edwards notes in his veto letter, the Legislature has already taken steps to restructure the franchise tax in recent years. Notably, a 2021 law (Act 389) eliminates the franchise tax on the first $300,000 of capital, which exempts most small businesses and reduces the rate for everyone else. It also includes “trigger” language that calls for additional cuts to the tax rate if certain conditions are met.
Louisiana’s revenue has grown substantially in recent years, which has allowed lawmakers to provide pay raises for teachers and make much-needed investments in higher education, early childhood education and other priorities. But the fiscal future is murky, thanks to tax cuts and other changes that are already in the pipeline. This includes a “temporary” 0.45% state sales tax that expires in July 2025, and a diversion of state vehicle sales tax revenue from the state general fund into a fund for transportation projects.
Adding a new tax cut to this mix – especially when we don’t fully know how the previous reforms will affect state revenue – would make it harder for the state to balance its budget in future years without making damaging cuts to important programs and services.
Just as important is the issue of fairness. Even with the franchise tax in place, Louisiana’s tax structure still favors big corporations over ordinary citizens. The state’s Industrial Tax Exemption Program (ITEP) remains one of the most generous tax-incentive programs in the country, despite reforms that require companies to pay some property taxes. Many of the same corporations take advantage of Quality Jobs tax subsidies, severance tax exemptions on horizontal drillings and other write-offs.
Louisiana’s next governor and Legislature will face some serious fiscal headwinds thanks to tax cuts and other changes that are already underway. The Legislature would only make this worse if it overrode the governor’s veto of Senate Bill 1. Lawmakers should leave this bill alone and ensure that the largest, most profitable corporations continue to contribute to our tax base.
By Jan Moller