As early voting for the May 16 ballot has begun, Leaders for a Better Louisiana is taking an individual look at each of the five amendments being presented to voters. Our hope is that citizens will use this information as a resource to familiarize themselves with each of the amendments before they cast their votes.
Here is our analysis of Amendment #4. You can find our review of all of the amendments here.
Optional Elimination of Business Inventory Taxes
What It Does: Passage of this amendment would set into motion a mechanism that would allow local governments to voluntarily eliminate or reduce the local property tax on business inventory.
Background: For some time, lawmakers have been interested in reducing or eliminating the local property tax on business inventory to make Louisiana more competitive with other states. Elimination of the inventory tax and the inventory tax credit meant to mitigate its costs to business were also recommended as part of our own comprehensive tax reform report produced by the non-partisan Tax Foundation in 2015. It cited the entire practice as harmful to investment, expensive to the state because of the tax credit, and out of line with tax policy in most other states.
While eliminating the inventory tax would greatly improve Louisiana’s tax structure, doing so has been difficult because several parishes with high concentrations of manufacturing rely heavily on that tax to maintain the functions of their local government.
In the 2024 tax reform session, legislators did two major things with regard to this tax. They passed Constitutional Amendment #2, which included a proposal similar to this one to voluntarily eliminate the inventory tax. They also repealed the inventory tax credit for large corporations. When voters rejected Amendment #2, the possible mechanism to get rid of the inventory tax went away, but that repeal of the inventory tax credit stayed in place.
This amendment and companion legislation seek to revisit that original proposal in a voluntary way that might appeal to some jurisdictions. Here is how it would work:
- Dollars from the state’s Revenue Stabilization Trust Fund would be made available for a one-time payout to local governments who voluntarily choose to eliminate or phase out the inventory tax before July 1, 2027. Foregoing that tax would require the approval of the sheriff, school board, and local parish governing authority.
- The amount of the payout is based on how much inventory tax the parish collects. If the tax is eliminated immediately, the parish could receive at least $1 million and up to $15 million in one-time funds. If it phases out the tax over a period of five years or less, it could receive at least $500,000 or up to $10 million.
- The amendment would also give parishes the authority to adjust the fair market value of property considered business inventory to attract or retain businesses if they choose to do so. In effect, this would allow them to provide a partial exemption on business inventory taxes, which they cannot do now.
Our Recommendation: Support. Generally, we have supported efforts to eliminate the inventory tax and inventory tax credit as a way to simplify the state’s tax code and make the state more competitive. However, to do so has proven extremely complicated and the effects vary by parish. This constitutional amendment provides a voluntary method for parishes that choose to do so to eliminate the inventory tax in exchange for a subsidy to offset any near-term financial impacts.
As an added concession to local governments, this amendment also includes language that would constitutionally prohibit the Legislature from passing a law mandating any exemption from business inventory taxes. As noted, there are several parishes, particularly in industrialized areas, where collections of business inventory taxes are significant and make up a major portion of their local budgets. This amendment would probably not be enough to get them to eliminate that tax in the near term.
But other parishes might consider doing so because they do not collect significant revenue from inventory taxes and would receive a lump sum payment from the state which might make it worthwhile. They might also choose to do so for competitive reasons to market themselves to businesses as a jurisdiction with no inventory taxes. The added ability to lower the rate of the inventory tax without totally eliminating it might also be a useful tool for local governments in competitive situations, though once eliminated or lowered, it could not be brought back or increased.
For illustrative purposes, the Legislative Fiscal Office estimated that if all parishes chose to immediately eliminate the inventory tax the state would pay out about $562 million to parish governments. If they all chose to take the phase-out approach, it would cost about $296 million. There is currently about $2.4 billion in the Revenue Stabilization Trust Fund.