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Hannah: Problem with repeal of inventory tax

If there’s just one lesson state lawmakers might take away from the legislative session that began last week, that is it’s hard to have fun when you don’t have any money. It’s even tougher when your prospects of putting your hands on some greenbacks are very limited.

Such is life in the fast lane in the Louisiana Legislature in 2015. Or life in a hellhole. Take your pick.

SAM HANNAWith Gov. Bobby Jindal’s threat to veto any legislation that generates a net increase in revenues for the state hanging over their heads, lawmakers have very few options at their disposal to gin up enough money to plug a $1.6-billion revenue shortfall in the state budget for the fiscal year that begins July 1. Either locate the dough to balance the budget or close some colleges and universities and some state hospitals are the choices the Legislature is staring at in an election year.

We got a glimpse of the difficulties lawmakers are grappling with earlier this week when the Senate Revenue & Fiscal Affairs Committee sat on legislation to repeal the state’s inventory tax. How, you might ask, would cutting taxes help lawmakers in their quest to find more money? It’s simple. Or maybe it isn’t.

Beginning in the early 1990s, the state recognized inventory taxes were a detriment to economic development. So lawmakers concocted a program to give the business community some relief without wrecking the finances for local governments throughout Louisiana.

It’s a two-fold approach. No. 1, under the plan conceived by the Legislature, businesses are made whole by the state for inventory taxes paid locally.

Meanwhile, or No. 2, local governments still get their money from taxing inventory held by businesses in their jurisdictions. The latter represents a lifeline of sorts for local school boards, police juries, sheriffs and the like. Without the money from inventory taxes, local governments would have no choice but to raise taxes — locally — or cut government services.

Accordingly, eliminating the inventory tax altogether would relieve the state of its obligations to reimburse businesses for inventory taxes paid to local governments. At last count, eliminating the inventory tax would save the state more than $500 million annually. Of course, eliminating the tax would create major financial problems for local governments across Louisiana.

It was Sen. Robert Adley’s bill to repeal the inventory tax altogether that got shelved Monday in committee. He parked the bill after legislative staff determined the measure wouldn’t generate any new revenues for the state in the new fiscal year. That’s because inventory taxes paid to local governments are part of the property taxes businesses owe local governments annually. And those payments come a year after businesses are assessed by their local tax assessors.

If and when the Legislature figures out how to repeal the inventory tax, local governments will scramble to plug their own budgets, voluntarily or otherwise.
Why “otherwise?”

Because local governments owe money. Often, local governments incur bonded indebtedness to pay for whatever it is that local governments desire to spend money on, such as a new school or a new courthouse or a new jail or streets or whatever. And often, the bonded indebtedness is secured with a dedicated source of revenue such as property taxes, or millages.

So it would be entirely possible for local governments to “roll forward,” or increase, millages to satisfy bondholders who must be paid regardless if local governments lost the revenues they previously collected from the inventory tax. In other words, property taxes would rise, and you, Mr. Property Owner, wouldn’t have any say in the matter. It would represent taxation without representation.

That’s the little secret no one wants to discuss publicly whenever discussion about repealing the inventory tax arises.

Sam Hanna is a state political writer.

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