Tax Topics

BATON ROUGE – Today, both the Baton Rouge Advocate and Gannett News printed stories concerning the Governor’s ideas for tax reform that were one-sided and lacked fact-checking and opposing views of how the reforms could benefit Louisiana. The stories were based on comments made by a special interest group. 

Both stories simply cited the group’s comments as facts and lacked an opposing view about how eliminating the personal and corporate income tax could help Louisiana’s economy grow. For instance, multiple studies show that companies and people move to places where taxes are lower.  Additionally, the Gannett article cited as fact a report issued by the Institute on Taxation and Economic Policy (ITEP) that erroneously claims the effects income tax reform would have on Louisiana by ignoring many key factors and making false assumptions.

Below are a number of key facts and figures that were left out of the Advocate and Gannett stories:

Studies Show That States Without An Income Tax Create More Jobs:

Studies Show That Between 2002 And 2012, 62% Of The Three Million New Jobs In America Were Created By The Nine States Without An Income Tax. “A new analysis by economist Art Laffer for the American Legislative Exchange Council finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population.”  (Editorial, “The State Tax Reformers,” Wall Street Journal, 1/29/13)

“The No-Income Tax States Have Had More Stable Revenue Growth, While States Like New York, New Jersey And California That Depend On The Top 1% Of Earners For Nearly Half Of Their Income-Tax Revenue Suffer Wide And Destabilizing Swings In Their Tax Collections.” (Editorial, “The State Tax Reformers,” Wall Street Journal, 1/29/13)

Reporting Based On A Debunked Institute on Taxation and Economic Policy (ITEP) Study:

Gannett News Bases Reporting On An ITEP Study That Is Greatly Flawed And Has Been Debunked. “A previous study of what’s known about the governor’s plan said it appears to present a tax increase for 80 percent of Louisiana taxpayers but a significant tax break for the top 20 percent of wage earners and businesses.” (Mike Hasten, “Studies Question Wisdom Of Swapping Taxes,” Gannett , 2/13/13)

The ITEP Study Is Deeply Flawed:

ITEP Uses “Worst-Case Scenario” Figures To Conduct Their Study, Figures That Are Not Under Consideration For the Plan.“ITEP’s numbers do not reflect reality. ITEP falsely assumes a ‘worst-case scenario’ in which every dollar in state revenue lost from the elimination of the personal income tax (PIT) and the corporate income and franchise taxes (CIFT) is restored solely by increasing the state sales tax rate. Under those conditions, the state sales tax rate would need to be 7.94% to make up the lost revenue. No scenario currently under consideration requires a sales tax rate nearly that high.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13)

ITEP Does Not Factor In To Its Study Offsets For Low-Income Groups That Are Being Considered, Including An Earned Income Tax Credit. “ITEP’s financial scope is distorted. ITEP does not factor in an offset (such as an Earned Income Tax Credit [EITC] or some other mechanism). News reports available to ITEP reveal that a variety of offset mechanisms for low-income people are currently being discussed and analyzed.  The state is determined to ensure that the final proposal will make no Louisiana citizen worse off.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13)

ITEP’s Study Ignores Key Factors, Such As The Fact That Many Essential Goods Are Exempt From State Sales Tax. “ITEP’s scheme ignores key facts. Food for home consumption, prescription drugs, and residential utilities are exempt from state sales tax. Expenditures such as rent or housing costs, insurance costs, etc. are also not subject to state sales tax. So, in order for ITEP’s study to be remotely accurate, a taxpayer with an income of $25,000 must spend $23,500 per year on things like clothing, restaurants, electronics, home supplies (cleaning supplies, home maintenance supplies, etc.), some forms of entertainment, etc.  It is extremely unlikely that the average person with income at $25,000 exhibits such exorbitant spending habits.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13)

The Non-Partisan Tax Foundation Said The Louisiana Tax Reform Plan Would Greatly Improve The State’s Standing Nationally:

The Tax Foundation, A Non-Partisan Tax Research Group, Stated That If The Louisiana Tax Reform Plan Is Passed, The State Would Move From 32^nd To 4^th Overall On The List Of Best State Tax Structures. “For now though, all told, the changes would bounce Louisiana from 32nd to 4th overall on our list of tax structures (assuming the changes were in place as of July 1, 2013).” (Richard Morrison, “Louisiana Tax Reform: Sizing up the Jindal Plan,” The Tax Foundation, 1/18/13)

Tax Foundation: “This Plan Is A Step In The Right Direction. Corporate And Individual Income Taxes Are Generally Considered The Most Destructive Taxes To Economic Growth, And Both Have A Great Deal Of Complexity And Compliance Costs Associated With Them. Elimination Yields A Perfect Score In Those Components Of The Index.”(Richard Morrison, “Louisiana Tax Reform: Sizing up the Jindal Plan,” The Tax Foundation, 1/18/13)

BATON ROUGE – Louisiana taxpayers can choose between three methods of payment for state income tax refunds. 

Taxpayers who file their state income taxes electronically can select direct deposit, a paper check, or the Louisiana MyRefund Card, a pre-loaded debit card that can be used to withdraw cash at ATMs or bank teller windows, shop and pay bills online, or make purchases and get cash back at retail registers.

New to the paper state income tax return (Form IT-540) this year is the option of selecting a paper check for your refund, in addition to the MyRefund Card.  Taxpayers who do not select a refund method on the paper form will receive the debit card.

The Louisiana Department of Revenue (LDR) encourages electronic filing for all income tax returns.  It is the method that provides the fastest processing time for refunds.  Electronic filers receive their refunds within an average of ten business days.  Paper filers can expect to wait at least three months.  Electronic filing options include commercially-available tax preparation software and Louisiana File Online, the state’s free tax filing web application.  Visit www.revenue.louisiana.gov/fileonline.

Legislation in 2013 will enhance security and transparency of transfers of state tax credits

BATON ROUGE —The Louisiana Department of Revenue (LDR) and Louisiana Economic Development (LED) announced plans Tuesday to create a transferable tax credit registry that will be managed by LDR. The purpose of the registry is to enhance the security and transparency of transfers of state tax credits.

“Louisiana’s tax credits have stimulated a tremendous amount of new business activity in our state and are responsible for helping to secure new investment and jobs in our economy,” LDR Executive Counsel Tim Barfield said. “Most transferable tax credits are transferred in a safe and lawful manner. However, we want to further ensure that the State of Louisiana receives all the revenue to which it’s entitled and to ensure that taxpayer money is protected at all times. This tax credit registry will help on all those counts.”

Only 13 of Louisiana’s more than 460 tax exemptions involve transferable tax credits, representing less than five percent of the $6.8 billion in tax exemptions in Fiscal Year 2011. These transferable tax credits incentivize entertainment, business investment, research and development, and other economic and community development activities.

The proposed tax credit registry would apply to any transferable tax exemption programs that continue to exist following consideration of tax reform legislation this year. The registry would be used also to address any final transfers of existing transferable tax credits associated with tax exemption programs that may be eliminated during the legislative session.

The state’s proposed tax credit registry would provide a central registration system managed by LDR. It would require also timely reporting for the transfer of tax credits, including sales by the original holder of the credit and subsequent sales. Transfers would not be effective until reported. Currently, state law requires only that a notice of transfer be filed with LED and LDR within 30 days of a transfer, allowing a time lapse. The registry would give investors assurance by enabling them to verify the status of a tax credit in a central place.
LDR’s Barfield added, “This transferable tax credit registry will give us more certainty about the validity of the tax credit in addition to giving taxpayers confidence that they are indeed acquiring a valid tax credit.”

Among other safeguards, the state registry would confirm when tax credits have been used and are no longer valid. Therefore, the public would have access to records documenting the amount of credits issued, transferred and claimed (that is, used), and the dates and identities of the parties involved in these transactions.

“This is a common-sense mechanism to provide taxpayers and the state with transparency and security when dealing with tax credit transfers,” LED Secretary Stephen Moret said.

Under this proposal, tax credit transfer fees currently collected by LED would be collected by LDR to pay for the administrative costs necessary to operate the transferable tax credit registry.

BATON ROUGE – It is ironic that ITEP – a liberal special interest group – launched an attack on the same day the Wall Street Journal editorialized in support of our proposal as well as other states who are seeking to eliminate income taxes. We have a fundamental philosophical disagreement with ITEP about how to help the poor and improve job opportunities for all Louisianans. Contrary to ITEP’s definition of fairness, we believe that the less money the government takes from people’s incomes, the better.

The best way to alleviate poverty is to create jobs, and the way to create jobs is by structuring a tax code that is fairer and simpler so that Louisiana can continue to foster an environment where businesses want to invest and create job opportunities for all of Louisiana’s citizens. Study after study has shown that companies move to places where taxes are lower, and job creation is the only sustainable way to combat systemic poverty.

There are progressive measures in the current tax code to help low-income groups, which we will retain in our final proposal. Sales tax exemptions are currently protected by the Louisiana Constitution and will remain so. The basic necessities of life – groceries, prescription medicine, and residential utilities – will remain sales-tax free. The proposal will also include some form of an Earned Income Tax Credit to offset any additional sales tax burden that might impact low-income Louisianans.

ITEP ignores an inconvenient truth: the states without a personal income tax – four of which are named in ITEP’s “Terrible Ten” list – helped create the most jobs in America over the last decade.

BATON ROUGE – Recent actions by the US Congress regarding the fiscal cliff legislation, known as the American Taxpayer Relief Act (ATRA), delayed the date when Internal Revenue Service (IRS) tax returns may be filed. Today, January 30, is the first day when federal income returns will be accepted. The Louisiana Department of Revenue (LDR) will also begin to receive income tax returns today.

The majority of IRS tax returns are now filed electronically. In 2012, 80 percent of all federal tax returns were filed electronically, fulfilling a goal Congress set in 1998. Since 2007, the number of Louisiana taxpayers filing their taxes electronically has risen by 58 percent. In 2011, 1.6 million Louisiana taxpayers (82 percent of the total number of Louisiana taxpayers) e-filed filed their state income tax return.

With the increase in electronic filing, tax fraud has skyrocketed. At the federal level, tax fraud remains the third largest theft of federal funds (just behind Medicare/Medicaid and unemployment insurance fraud) and has risen to a record 1.1 million cases in 2011. With the rise in electronic filing of Louisiana state income tax returns, state tax fraud has also increased. Tax fraud cases in Louisiana directly discovered as a result of current theft protection measures have risen to almost 23,000 cases in 2012.

LDR has taken steps to prevent e-filing fraud in coordination with the IRS. When current Executive Counsel, Tim Barfield and Chief of Staff Jarrod Coniglio first arrived at the agency late in 2012, a priority was placed on protecting the public from tax fraud with the installation and integration of new fraud protection software.

“When I first saw the data and the growing possibility for millions of dollars to be stolen from the state of Louisiana, we wanted to put in measures that would immediately maximize LDR’s efficiency to prevent tax fraud,” Barfield said.

LDR worked during December 2012/January 2013 to develop a customized Louisiana-specific fraud protection computer interface. The new system required a significant testing phase to assure accuracy of the system, protect taxpayer identity, and secure all confidential taxpayer information.

All state income tax returns received on or after January 30, 2013, will be subject to identity verification through the new tax protection software. The first taxpayer returns will be processed February 15, 2013. Refunds will begin to be issued on February 26, 2013.

If a return is identified as questionable in the review process, the taxpayer will then be directed to a customized online data test or a telephone survey that will serve as a secure method to verify the identity and final certification of the return.

“We are confident this new system will help protect the public trust against tax fraud,” Barfield stated. “Our goal is to increase the efficiency and effectiveness of this agency as we serve Louisiana taxpayers during the tax season.”

BATON ROUGE – Recent news reports refer to a policy brief from the Institute on Taxation and Economic Policy (ITEP). This study examined various news reports that provided incomplete assumptions about the proposed tax reforms currently under deliberation in Louisiana. The title, “Proposal to Eliminate Income Taxes Amounts to a Tax Increase on the Bottom 80 Percent of Louisianans,” cannot be substantiated because the official plan has not been released.

The Louisiana Department of Revenue (LDR) examined ITEP’s study and found the following to be true:

1.  ITEP’s numbers do not reflect reality. ITEP falsely assumes a “worst case scenario” in which every dollar in state revenue lost from the elimination of the personal income tax (PIT) and the corporate income and franchise taxes (CIFT) is restored solely by increasing the state sales tax rate. Under those conditions, the state sales tax rate would need to be 7.94%[1] to make up the lost revenue. No scenario currently under consideration requires a sales tax rate nearly that high. 

2.  ITEP’s financial assumptions are not accurate. News reports available to ITEP state that other sources of revenue are currently under consideration – the elimination of some sales tax exemptions, the expansion of the sales tax base to include more services, and an increase in the excise tax on cigarettes. ITEP considers none of these revenue sources in their calculations. Though ITEP does not know the details of the package, including some of these revenue sources in their analysis could have given the public a more realistic sense of the tax reform package before it is released. Even including guesses about potential revenue from these sources would have made for a more accurate analysis than what ITEP produced.

3.  ITEP’s financial scope is distorted. ITEP does not factor in an offset (such as an Earned Income Tax Credit [EITC] or some other mechanism). News reports available to ITEP reveal that a variety of offset mechanisms for low-income people are currently being discussed and analyzed.  The state is determined to ensure that the final proposal will make no Louisiana citizen worse off.

4.  ITEP’s financial conclusions are suspect. Though ITEP claims to be using Bureau of Labor Statistics Consumer Expenditure Survey data (a reputable source), the spending habits attributed to low-income people are suspicious. ITEP claims that the average Louisianan with an income of $25,000 will experience a net tax increase of $566. Louisiana tax data indicates that the average taxpayer at this income level pays $363 in income tax. After factoring in the benefit from eliminating the personal income tax, this taxpayer would need to pay $929 more in sales tax than what he/she currently pays.[2]  Assuming that this taxpayer’s expenditures remain constant, he/she would need to have annual sales taxable expenditures of roughly $23,500 to realize that kind of tax increase.[3]

5.  ITEP’s scheme ignores key facts. Food for home consumption, prescription drugs, and residential utilities are exempt from state sales tax. Expenditures such as rent or housing costs, insurance costs, etc. are also not subject to state sales tax. So, in order for ITEP’s study to be remotely accurate, a taxpayer with an income of $25,000 must spend $23,500 per year on things like clothing, restaurants, electronics, home supplies (cleaning supplies, home maintenance supplies, etc.), some forms of entertainment, etc.  It is extremely unlikely that the average person with income at $25,000 exhibits such exorbitant spending habits. 

BATON ROUGE – The Louisiana Department of Revenue (LDR) will begin processing 2012 state individual income tax returns on January 30, 2013.  On that date, 2012 state income tax forms will become available at www.revenue.louisiana.gov/taxforms and at LDR offices and public libraries throughout the state.  Louisiana File Online, the state’s electronic filing application, will begin accepting returns on that date, as well.

The state income tax filing deadline is May 15.

LDR recommends the following steps to ensure the speed and accuracy of tax return and refund processing:

• File electronically – The average refund processing time for returns filed electronically is ten business days; for returns filed on paper, the delay is 12 to 16 weeks
• Update your personal information if you have moved or changed your name during the tax year
• Double-check return information – Ensure that all social security numbers and tax computations are correct; math errors and incorrect tax table information are leading causes of delayed refunds
• Include all supporting information, such as W-2s; use paperclips, not staples, if filing a paper return
• Apply for extensions in a timely manner – Extension requests must be filed no later than the May 15 income tax filing deadline
• If additional tax is due, include the remittance coupon to ensure proper posting
• Make checks or money orders payable to the Louisiana Department of Revenue; do not send cash
• If filing on paper, attach the proper label to the mailing envelope

Visit the LDR website for the locations of agency headquarters and field offices.

***

Louisiana File Online is the state’s free web portal for individual and business tax filers.  With Louisiana File Online, taxpayers can:

• File returns and pay taxes electronically
• Check the status of individual income tax refunds
• Amend tax returns
• View business tax information for current and previous years

Louisiana File Online is a public service from the Department of Revenue.  There are no fees associated with its use.  Visit www.revenue.louisiana.gov/fileonline.  

Taxpayers may also use commercial tax preparation software to file their state income taxes.

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• An emergency rule was issued by former Secretary of Revenue Cynthia Bridges on April 30, 2012, that expanded the scope of R.S. 47:6035 to allow Louisiana taxpayers to claim tax credits for the purchase of flex-fuel vehicles;
• The emergency rule issued by former Secretary Bridges was not in accordance with the Administrative Procedure Act (APA);
• Since the emergency rule was not issued in accordance with the APA, the rule was rescinded by the Governor on June 14, 2012;
• Louisiana Department of Revenue (LDR) issued a statement on June 19, 2012 that indicated all claims under the Alternative Fuel Tax Credit Program postmarked on or before June 14, 2012, would be honored;
• After the governor rescinded the previous emergency rule, LDR initiated the formal rule-making process in full accordance with all APA requirements, and in consultation with the Department of Natural Resources (DNR);
• The published rule (effective today – December 20, 2012) clarifies the legislative intent of R.S. 47:6035 and reflects the legislative record of deliberations prior to final passage of the Act;
• Between June 14, 2012, and December 17, 2012, all claims received and held by LDR total approximately $11.2M;
• Of the $11.2M currently held by LDR, approximately $9M relates directly to flex-fuel vehicles.
• No credits will be allowed for any claim related to flex-fuel vehicles received by LDR after June 14, 2012;
• Vehicles that operate on both alternative fuel and petroleum based fuel from the same tank will be disallowed for the credit;
• Flex-fuel vehicles are not eligible for the tax credit;
• Claims that continue to qualify for the tax credit under the new rule (LAC 61:I.913) include:
  • fueling stations
  • vehicle conversions
  • vehicles that operate on an alternative fuel from a separate tank that does not burn petroleum gasoline or petroleum diesel;
•  Analysis is ongoing regarding a final annual financial estimate to the state as to the number of applications received by LDR after June 14, 2012.