Louisiana Can Phase Out Corporate Franchise Tax Despite Veto

Gov. John Bel Edwards’ (D) recent veto of two bills designed to reduce Louisiana’s Quality Jobs Program to pay for the potential phase-out of the state’s corporate franchise tax—and a lawmaker’s inability to garner enough votes to override the vetoes on July 18—weren’t necessarily the death knell for efforts to end this regressive policy.

The corporate franchise tax is widely regarded as one of the most harmful taxes a state can levy, as it directly taxes a corporation’s capital. Unlike the corporate income tax, which typically is levied based on a company’s profits, the franchise tax is levied regardless of profitability. This tax on capital has continually placed Louisiana at an economic disadvantage when compared with neighboring states such as Mississippi, which passed legislation in 2016 to phase out the tax by 2028.

Louisiana State Sen. Brett Allain (R), chairman of the Senate’s revenue and fiscal affairs committee, had introduced a buzzworthy and somewhat controversial plan to lower the state’s corporate franchise tax.

SB 1 proposed a trigger mechanism to reduce the tax by 25% over a six-year period—Jan 1, 2025, through Jan. 1, 2031. This reduction would occur in each year that corporate income and franchise tax collections exceed $600 million, and the excess amount would be deposited into the revenue stabilization fund.

A companion measure for SB 1 proposed a revenue trade-off through reducing the Quality Jobs Program, which is the state’s foremost job creation and investment program, long attracting companies to invest their capital in the state and provide well-paying jobs and benefits to Louisiana citizens. The measure, SB 6, specifically would have reduced the project facility expense rebate and sales tax rebate portions of the jobs program by one-half of the percentage of any potential reduction of the corporate franchise tax.

The Legislature passed both measures, but Edwards ultimately vetoed them. In Louisiana, if the governor vetoes any legislation, a veto session automatically occurs for up to five days, unless a majority of the elected members of either house declare in writing that it’s unnecessary.

The 2023 veto session began and ended on July 18. Allain addressed his fellow senators to express his disappointment that he didn’t have the votes necessary to overturn the veto on the tax package and therefore chose not to bring a motion to reconsider the vetoes.

When Allain introduced these companion measures at the outset of the 2023 Regular Session, many didn’t view them as an equitable trade-off and questioned the need for a new trigger mechanism, particularly when considering Louisiana enacted automatic rate reduction triggers for the tax in 2021, which wouldn’t reduce a vital economic tool like the Quality Jobs Program.

In 2021, the Legislature made strides toward reforming Louisiana’s income and franchise tax structure through a package of tax measures authored by legislative leadership, including Allain. This package of bills reduced corporate and individual income tax rates, decoupled Louisiana’s income tax structure from federal income tax changes, and enacted provisions to gradually begin phasing out the corporate franchise tax. The package also included a set of trigger mechanisms that automatically reduced individual income tax and corporate franchise tax rates if certain revenue collection thresholds are met.

Looking ahead, a complete phase-out of the corporate franchise tax may still be on the table. Tax reform has been a central topic of debate in the 2023 Louisiana gubernatorial race. The latest polling indicates that Louisiana’s next governor may very well be Republican.

Eliminating the corporate franchise tax may be a top priority for the next governor, and it’s not out of the realm of possibility that an extraordinary session could be called to address this and other tax reform items.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jason DeCuir is co-owner and partner of Advantous Consulting, a multistate tax consulting firm based in Baton Rouge, La., and a founding partner of Advantous Law.

Mary Robinson is a policy and legislative affairs specialist at Advantous Consulting.

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