BATON ROUGE — Smokers, drinkers, car renters and every shopper around Louisiana will be paying more for their purchases beginning Friday, as millions of dollars in tax hikes passed by lawmakers to help balance the state budget take hold at the beginning of April.
The biggest tax increase will hit nearly every person and business in the state. The 1 percent rise in the state sales tax will boost Louisiana’s average state and local sales tax rate to more than 10 percent, the highest in the nation, according to the Tax Foundation.
Lawmakers passed the tax hikes to drum up money for the state treasury and lessen the cuts needed to close state deficits. The taxes are estimated to raise $300 million by June 30 — more than $1.2 billion for the budget year that begins July 1.
Louisiana’s 4-cent sales tax will grow by another penny on every dollar spent, on top of the local sales taxes charged by municipalities. The tax hike expires in July 2018. In addition, a long list of purchases usually free from state sales tax will temporarily lose some of those exemptions.
State sales tax still won’t be charged on food for home consumption, residential utilities and prescription drugs, but sales taxes of differing rates for varying times will be charged on previously exempt items such as business purchases of utilities and of manufacturing equipment.
The changes were complex enough that the Department of Revenue issued a 26-page chart showing which tax breaks apply to which pennies of the sales tax. Jessica Elliott, with the Louisiana Retailers Association, said the short time between final passage of the complicated tax changes in early March and their start date has created difficulties for stores.
“Two weeks to prepare for sales tax changes is burdensome for retailers, especially those that have to hire service providers to reprogram their systems,” Elliott said in an email. “Also, retailers are struggling to determine what rates apply to what sales.”
SIN TAXES AND OTHER CHARGES
Cigarettes, beer, wine and liquor will cost more money. And while the sales taxes changes are temporary, the sin tax hikes are permanently on the books.
The cigarette tax will rise from 86 cents per pack to $1.08, the second tax hike on smokers in less than a year. In 2015, lawmakers increased the tax rate by 50 cents. Alcohol taxes will bump up the cost of a case of beer by 18 cents. The cost of a glass of wine or liquor also will grow by a few pennies.
Booking a room through short-term rental sites such as Airbnb will now carry a new state tax. A 3 percent tax on short-term car rentals that expired four years ago is back on the books. A 1 percent telephone tax slated to disappear with the start of April will instead continue.
Revenue Secretary Kimberly Robinson said her agency did extensive outreach to make sure that the state’s various tax collectors — from convenience stores to wholesalers and car dealers — are ready for the new tax rates.
“We know the law change is complicated, and we’re trying to work with everyone to make sure that they get the information and they get their systems programmed,” Robinson said.
Robinson said she’s confident most businesses will be ready for the new tax rates, but she also expects “there will be a little bit of compliance lag because smaller retailers, vendors just aren’t necessarily keeping up with what’s going on in the world.”
Business organizations say the imposition of new sales taxes on companies’ utilities and manufacturing equipment purchases could be impediments to business growth and economic development efforts in Louisiana. Those tax increases are expected to heavily hit the manufacturing sector, particularly the chemical manufacturing industry.
Dan Borne, president of the Louisiana Chemical Association, said he didn’t have estimates about the short-term impact of the tax hikes. But he said the numbers would be “huge.”
“These companies spend tons and tons of money on machinery and equipment. If $2 billion is spent on an ethylene plant, and you’ve got to pay 2 percent tax on half of that, you can see how that would add up pretty quick,” Borne said.
“How many of these investments are going to be slowed down because of that? I don’t know,” he said.