Louisiana Tax-Share Deal Gave Back 90%, Sparked Fight With Texas

In 2012 Louisiana created a novel tax incentive concept with promises of attracting new business activity, capturing hundreds of millions in new tax revenue, and channeling $30 million annually into the state’s premier research centers.

The program would encourage tax consultants to recruit out-of-state businesses to set up tiny purchasing subsidiaries in Louisiana to facilitate taxable sales transactions and remit the taxes to the state, even though goods would never change hands in Louisiana. Finally, the state would send a share of the sales tax revenue to the consultants and purchasing offices, and still retain millions for the research centers.

The legislation, propelled by lobbyists from the tax consulting industry, streaked through the 105-seat House and 39-member Senate with barely a negative vote.

Thirteen years later, the promises haven’t panned out. More than 90% of the tax revenue collected is routed back to the consultants and purchasing shops, according to two recent audits by the state. The research institutions have gotten nothing. And the program has triggered a tax feud with neighboring Texas, which argues the program operates as an “out-of-state kickback scheme” that has diverted millions of dollars in sales taxes that should have gone to that state.

“We’ve enabled companies to avoid paying Texas sales tax, but our cut isn’t even a good cut. It’s like you are just screwing over your neighbors for pennies,” said New Orleans City Council President Jean-Paul Morrell (D), who regrets voting for the bill while serving in the state Senate.

Glenn Hegar, who was Texas comptroller of public accounts before leaving office June 30 to become chancellor of the Texas A&M University system, called the program “nothing more than a shell game—an elaborate and manipulative scheme designed to enrich a few private interests at the expense of Texas taxpayers.” He said “the architects of the Louisiana scheme should be ashamed"—a reference to the Dallas-based tax firm Ryan LLC.

“Comptroller Hegar’s statements are false, defamatory, and malicious because they unlawfully suggest that Ryan and its clients are engaged in tax fraud or bribery, through presumptively unlawful and criminal ‘shell game(s)’, ‘manipulative scheme(s)’, and ‘out-of-state kickback scheme(s),’” the company wrote in a statement to Bloomberg Tax.

Hegar couldn’t be reached for a response to Ryan’s statement. The comptroller’s office declined to comment further.

Louisiana Revenue Secretary Richard Nelson, through a spokesperson, declined to comment for this story.

Development or Tax Poaching?

Texas’s reaction highlights the consequences of sophisticated tax-sharing strategies that are characterized as economic development in one jurisdiction and tax poaching in another. It also reveals the role of tax consultants who engineer—and profit from—the strategies.

These arrangements are common, but most involve intrastate structures designed to pull transactions from a large business into a particular municipality, which then splits its share of sales tax revenue with the business. California’s version, after some controversy, now requires cities to disclose how much revenue they give to retailers in exchange for assigning sales to their jurisdictions. Similar arrangements exist in some Texas municipalities, but only Louisiana offers an incentive to solicit sales from other states and share the full tax proceeds with participating businesses.

“I’ve never heard of a structure where you have one state offering a sales tax rebate covering sales happening in another state,” said Greg LeRoy, executive director of Good Jobs First, which promotes transparency in state tax incentive and economic development programs. “That’s completely novel to me.”

Consultants, including Ryan, sold the idea by pointing to a feature of state law holding that sales can occur when title alone is transferred between parties. Under this distinction, Louisiana officials assert sales can occur with the shifting of papers in an out-of-state location rather than the exchange or delivery of goods.

A fiscal note attached to the original legislation, HB 754, gave the example of an Ohio company buying business supplies from a company in Florida, but routing the transactions through a subsidiary purchasing company in Louisiana. The supplies move from Florida to Ohio, but sales taxes are paid to Louisiana and then rebated to the consultants and the Ohio company.

Ryan’s role championing the law was referenced during an April 30, 2012, hearing by the Louisiana Senate Revenue and Fiscal Affairs Committee. Sen. Robert Adley (R) noted Ryan and four of the firm’s executives filed cards of support for HB 754.

Ryan lobbied for similar legislation in Nebraska in 2012, but lawmakers rejected the bid.

“This was presented as this nice clean deal—a win-win with no real problems,” said former state Sen. Paul Schumacher (R). “But we quickly found Nebraska would essentially be raiding other states’ tax revenues and we couldn’t expect them to sit still for that. It was clear there might be counter raids. It just looked like a mess.”

The clash between Texas and Louisiana could spill into open court, after attorneys for the comptroller’s office filed a brief that warned of an approaching “flood” of tax shelters in Louisiana eroding the Texas tax base.

“If this scheme is legitimized,” the attorneys wrote, “the sales tax revenue streaming out of Texas will become a flood because these deals are easily and cheaply duplicated by arrangements that are, in essence, paper transactions without any real substance.”

Return on Investment

Louisiana’s law doesn’t specify how the state and the participating companies split the sales tax revenue, but the fiscal note stated, “proponents anticipate a rebate of 80-85% of state sales tax with the state retaining 15-20%.”

In practice, the split has been worse for the state. The Revenue Department’s Return on Investment Analysis found Louisiana collected $73 million in sales tax from the rebate program in 2023. Of that total, $67 million, 92%, was sent to procurement processors and their clients, while Louisiana pocketed the remaining $6 million. A report examining 2022 found the program rebated $37.5 million, 93.5%, from the $40.1 million in sales tax collected. Louisiana’s budget for fiscal 2025 totaled $44.6 billion.

The program hasn’t channeled any funds to the five research centers highlighted in the legislation. A spokesperson for the Pennington Biomedical Research Center acknowledged it was entitled to $5 million annually, but “no funds were ever deposited” in the special fund created under HB 754.

“This is insane. What is Louisiana getting out of this? It’s chump change,” said Donald Cohen, executive director of In the Public Interest, a policy think tank focused on public procurement. “They let a small group of people get into the middle of the tax river and divert most of it into their own private swimming pool.”

Chart: Andrea Vittorio/Bloomberg Tax

Ryan acknowledged being an authorized procurement processing company in Louisiana, and that in 2024, 50% of all sales under the program were attributed to purchasing companies it recruited.

The procurement processing program survived a special legislative session last fall during which lawmakers ended eight other credit and incentive programs.

“It doesn’t seem like the state is getting enough of a payoff for all the headaches and animosity,” said Jan Moller, executive director of the policy think tank Invest in Louisiana. “Six million dollars is a rounding error in state government and if it’s causing a huge rift with the Texas Comptroller, why wouldn’t you just get rid of it?”

State Sen. Jay Morris (R), who voted against the original legislation in 2012 while serving in the state House, said he will introduce a bill next year to repeal the program, calling it “another example of credits being created at the behest of lobbyists and special interests with no real benefit to Louisiana.”

Lone Star Woes

The Texas comptroller’s fears about Louisiana’s program went public in a Feb. 13 petition filed with the Opinions Committee of Texas Attorney General Ken Paxton (R). The petition, filed by state Sen. Paul Bettencourt (R), asked for a legal opinion blessing sales transactions by Texas-based businesses operating sales offices in Louisiana.

Bettencourt’s request, prompted by an unidentified taxpayer, noted the comptroller had rejected the legitimacy of rulings from Louisiana that found sales tax was legally imposed and paid by Texas businesses. It provided a rationale for the legitimacy of the Louisiana sales transactions and asked the committee to approve use tax credits for sales taxes paid to Louisiana as a matter of “interstate comity"—mutual respect and recognition of each state’s taxing authorities.

“Texas law and policy appear to dictate that, in determining whether sales or use tax paid to another state was legally imposed by and legally due to that state, the Comptroller give weight and deference to the analysis and conclusions of that state’s taxing agency on the question—just as the Comptroller would expect another state to defer to a Comptroller determination that a taxpayer owed Texas tax,” Bettencourt wrote.

The committee has until Aug. 12 to respond with its opinion. It requested a briefing from the comptroller, but the comptroller’s attorneys asked the committee to stay silent because the dispute “will almost certainly be litigated.” They asserted the taxpayers under audit are being directed by consultants who have much to gain from a favorable opinion. They also objected to Bettencourt’s rationale because the transactions in question occurred entirely within Texas and should be taxed in Texas, regardless of any “paper transactions” in Louisiana.

“In this case, the economic reality was that the products never left the State of Texas, sales tax was due on the sale that occurred while the items were in Texas, and the Texas statute does not provide a sales tax credit for tax paid in other states,” the comptroller’s letter concluded.

Paxton’s committee also requested briefs from the General Counsel Division of the Office of the Governor, the Texas Taxpayers and Research Association, and the Tax Assessor-Collectors Association of Texas. None replied.

The committee received a brief from an Austin law firm, Duggins Wren Mann & Romero LLP, siding with the comptroller. It argued that Texas businesses couldn’t “sidestep the imposition of sales tax by agreeing to title passage in another state.”

Ryan’s statement to Bloomberg Tax acknowledged the firm often confronts disagreements with tax authorities as it advocates “to ensure that businesses pay only what they owe, not a dollar more.” Ryan also accused the tax agency of disregarding its own statutes, writing “Texas use tax has been remitted in accordance with Texas law and any suggestion by the Texas Comptroller otherwise ignores Texas law.”