Gov. John Bel Edwards has vetoed a bill that would have phased out the state’s corporate franchise tax over four years, prompting criticism from business groups that said the phase-out would have made the state more competitive.
Edwards vetoed the measure, Senate Bill 1, authored by state Sen. R.L. Bret Allain (R-Franklin), on June 27, arguing that the bill had many moving parts and that its fiscal impacts would not be known until December of this year or early 2024. But the governor acknowledged that the franchise tax is antiquated and in need of revision.
SB 1 also would have allowed businesses that have secured tax credits to apply them against the franchise tax during the phase-out period. The measure would have cut the franchise tax rate yearly by 25%, provided that combined corporate income and franchise tax revenues exceeded $600 million, according to the Legislature’s analysis of the bill.
Allain spearheaded a “true tax reform” in 2021 that reduced personal income and corporate tax rates, Edwards said in his veto message.
“With many moving and intertwined pieces, it is unwise to create a second franchise tax reduction trigger,” he said. “The phase-out and ultimate elimination of the franchise tax will require future policymakers to reconcile the inherent reduction to the corporate income tax due to the portability of these hundreds of millions of available tax credits.”
Dawn McVea, a senior state director for the National Federation of Independent Business, said she was disappointed but not surprised at the veto.
“Unfortunately, this governor has never made supporting the business community a priority over his two terms,” McVea told the Louisiana Record in an email. “Vetoes like this one are a great example of why we are very much looking forward to a new governor who will work hand in hand with the business community.”
Louisiana’s action compares unfavorably with tax reforms carried out by neighboring states such as Mississippi and Oklahoma, she said. Those two states have either moved to eliminate or phase out their corporate franchise tax in recent years, according to McVea.
“Bottom line, we are missing opportunities to be competitive with our neighboring states and create a tax code that works for business owners,” she said, adding that Louisiana must do more to make the state an attractive place to start and expand a business.