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Abandonment highlights LA anti-competitive taxes

So, how’s that convoluted Louisiana corporate tax code that requires state-sanctioned bribery working out?

It appears Jefferson Parish-based Smoothie King will emulate a number of larger past Louisiana-headquartered corporations and head to greener pastures. All signs seem to indicate inevitable decampment to Texas by the franchiser with nearly 1,000 locations.

That could have happened 5 years ago, but the state stepped in with an incentive package for it to stay, that looks to end up costing taxpayers over $2 million. This figure could have gone a bit higher, except the firm did not hit all of its job and payroll numbers.

The deal expires at the end of the year, and while the company has not said officially it will move, other developments suggest early next year it will head out. The state’s Department of Economic Development and local agencies continue to negotiate, but likely cannot stave off the departure without ponying up some cash as happened last time.

Making it all more ignominious, Texas does not have a corporate income tax but does tax gross receipts, a policy similar to the one Gov. John Bel Edwards tried to peddle unsuccessfully earlier this year. Economists consider this a more injurious tax than on income.

Louisiana does have one of the higher top rates on corporate income, with its eight percent tied for 13th highest among the states. That certainly matters to a firm that employ several dozen. Worse, it continues levying a franchise tax, that the majority of states don’t and at the second-highest rate, that the company could avoid in Texas.

This taxation regime that extracts more money than typical from corporations forces the state to rely upon exceptions and incentives to create a more palatable tax environment. But, when push comes to shove, businesses will prefer less convolution rather than all sorts of jumping hoops to push down a tax bill.

Unfortunately, Louisiana had its shot this year to simplify, if tepidly, and lower corporate income taxes and get rid of the franchise tax as recommended by a special group to study the matter that issued a report on this last year. Instead, Edwards balked when voters disapproved of a constitutional amendment to eliminate a large corporate deduction, federal income taxes paid, for lower rates and essentially abandoned any effort at simplification.

Thus, the state limps on with its current strategy that, as the impending Smoothie King move demonstrates, does little to attract or retain businesses. Besides dumping the franchise tax, it should emulate the federal government, where Congress appears poised to pass major changes to the corporate income tax code, mainly reducing the top rate by nearly half with some minor tinkering to exceptions.

Paired with eliminating unwise exceptions like subsidizing parishes for inventory taxes among others, that will encourage capital formation across a broad array of endeavors to launch new enterprises and reduce political involvement in making winners and losers among different industries. It also less likely would chase away established businesses whose success highlights the anti-competitive nature of Louisiana’s present tax system.

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