Have you noticed you don’t see “inventory reduction” sales regularly, like you used to? That’s because of Louisiana’s business inventory tax credit, put in place in the 1990s.
“It certainly has been no reason for companies to deplete their inventories at the end of the year,” state Sen. Robert Adley observes.
Businesses still do count their inventory, and pay local taxes on their stock on hand. But when they file their corporate income tax returns with the state, Louisiana reimburses the companies for every penny they paid in inventory tax—even if the amount exceeds the other state taxes the business owes.
“From our side of the inventory tax, it’s a pure spending measure,” Adley asserts.
And that spending keeps growing, according to LSU economist Jim Richardson.
“We have noticed over the last six or seven years it has grown rather substantially,” Richardson told last week’s joint meeting of House Ways and Means and Senate Revenue and Fiscal Affairs committees. “It is now a $450-million credit.”
The Jindal administration’s budget plan proposes capping the inventory tax credit at the amount of state tax the companies owe.
“$377-million of the inventory tax credit is paid above the taxpayer’s liability,” Commissioner of Administration Kristy Nichols stated, when delivering the executive budget to lawmakers. The governor wants to eliminate the cash refunds and use the money to stave off some of the cuts that would otherwise hit health care and higher education.
Business groups like LABI (the Louisiana Association of Business and Industry) want their members to keep receiving state refund checks. Better yet, they would like the inventory tax to just go away entirely.
“It would require a constitutional amendment to repeal,” Adley said, “But it’s something that can be done in this fiscal year.”
Yet repealing the inventory tax would leave local parish governments strapped for cash, since they are the ones that assess, collect and use those tax dollars.
“It’s a large part of their tax base,” Richardson reminded lawmakers.
A compromise that’s being suggested would reduce the state tax credit to 75 percent of the inventory tax paid locally, freeing up about $100-million state dollars to help with the $1.6-billion shortfall. That would give lawmakers a little breathing room to try and come up with alternative revenue streams for local governments, with an eye to ultimately repealing the business inventory tax completely.
And in the meantime, we might get to shop inventory clearance sales again.