Louisiana House floor debate began Friday over a measure that would phase out the state’s corporate franchise tax over several years – something bill supporters said would reduce business compliance costs and encourage economic growth.
Senate Bill 1, authored by Sen. Bret Allain (R-Franklin), passed the state Senate 37-1 last month and is now poised to pass the House. Backers of the tax change say phasing out the levy would simplify the tax code and make the state more competitive economically.
“Louisiana’s franchise tax is a capital stock tax and, unlike a corporate income tax, is imposed on a business’s net worth rather than net profits,” Manish Bhatt, a senior policy analyst at the Washington, D.C.-based Tax Foundation, said in an email to the Louisiana Record. “Functionally, this discourages capital investment in the state and requires businesses to pay the tax regardless of profitability. The result is that Louisiana’s franchise tax is a drag on the state’s overall competitiveness.”
The measure would amount to a pro-growth reform that reduces burdens on Louisiana businesses, Bhatt said.
“If the franchise tax is successfully repealed, then Louisiana could see score improvements on our State Business Tax Climate Index, which evaluates state tax structures,” he said. Louisiana currently ranks 39th among the 50 states on that index.
Other states – Kansas, West Virginia, Rhode Island and Pennsylvania – have phased out their capital stock taxes, according to the Tax Foundation. Currently, Louisiana has the second highest corporation franchise tax in the nation, the foundation reported.
Under SB 1, the corporate franchise tax would be reduced by 25% annually beginning in 2025 provided that the combined corporation income and franchise tax revenues exceed $600 million, according to the Legislature’s analysis of the bill.
A companion bill, SB 3, would reduce a business rebate program tied to increases in job creation. That bill has also passed the state Senate.