Small Business Tax Increase

February 9, 2009

The 2009 legislative session begins April 27, 2009 in Baton Rouge. So far there has been little or no talk of tax increases at the state level, but don’t let that fool you. During the session legislators will be debating proposals to enact one of the largest property tax increases on small business in the history of the state – by increasing the homestead exemption!

Homestead Exemption Shifts Property Tax Burden to Business

Increasing the homestead exemption would further remove residential property and improvements from the property tax rolls, thereby decreasing total assessed values in each parish. Our state constitution requires that, when assessed values decrease, millage rates automatically increase, so that the local taxing bodies will continue to generate the same revenue as collected in the prior year. Increasing the homestead exemption does not result in lower tax collections or lower tax rates – but, rather the tax burden of residential homeowners is passed on to businesses, renters, and middle-class homeowners by imposing higher millage rates necessary to generate the same tax collections as the prior year.

Louisiana’s $75,000 homestead exemption is already one of the highest in the country. The result – over 50% of Louisiana homeowners pay ZERO property tax! Other fixed-income homeowners, who are 65 years old and older and make less than $64,500, receive the benefit of special level assessments that freeze their property values. On the other hand, 100% of businesses pay property tax, which is why business and industry pays over 80% of all of the property taxes paid in the state.

Small Business Already Hurt by Current Homestead Exemption

Today, the homestead exemption shifts in excess of $650 million of the residential property tax burden to businesses, renters, and middle-class homeowners. Projections show that as all of the remaining residential property in the state approaches $75,000 in value, another $250 million tax increase will be shifted to business, even if there is no change in the current homestead exemption.

The ultimate cost of fully implementing the current $75,000 homestead exemption will be over a $900 million tax increase on the small businesses of our state. This does not take into account any increases in the homestead exemption that will be considered during the regular session – simple math would suggest that doubling the homestead exemption to $150,000 would eventually result in a total tax increase to business in excess of $1.8 billion!

Business Pays at a 50% Higher Tax Rate

Under current law, businesses pay property tax at a 15% tax rate (some businesses even pay 25%), while the homeowner’s tax rate is only 10% -- that’s a 50% higher tax rate paid by business. This disparity is illustrated as follows.

HOMESTEAD BUSINESS

PROPERTY PROPERTY

FAIR MARKET VALUE $100,000 $100,000

ASSESSMENT RATE X 10% X 15%

ASSESSED VALUE $10,000 $15,000

LESS: HOMESTEAD EXEMPTION ($7,500) N/A

TAXABLE VALUE $2,500 $15,000

PROPERTY TAX (100 MILLS) $250 $1,500

The Solution – Limit Millage Roll-Forwards

Rather than increasing the homestead exemption and special level assessments, the resolution of higher property tax bills needs to be properly focused on its root cause – property tax millage rates. When assessors perform their constitutional function of valuing property at fair market value, the higher property values result in an automatic roll-back of millages. Generally, the combination of higher property values and reduced millage rates has the overall effect of leveling off property tax bills, which benefits all taxpayers, not just a few select classes of homeowners.

However, following the automatic roll-back of millages, local taxing bodies are authorized under the state constitution, and without voter approval, to roll-forward millage rates with only a two-thirds vote of the members of the taxing body. It is this subsequent rolling-forward of the millage rates, and not the reassessment of property to current fair market value, that produces sticker shock property tax bills. Many of these taxing bodies that choose to roll-forward their millages are not even elected officials, but rather appointed members of boards that have the power of taxation.

Limiting the ability of taxing bodies to roll-forward millages without voter approval will help lower both property tax millages rates and the property tax bills of all taxpayers.

Action Needed – Now!

The proponents of increasing the homestead exemption are getting their message out, and even circulating a petition for signatures. Your legislators need to hear from you TODAY – don’t wait until the session starts, and don’t assume they will be with us. Tell them, as business owners, we are already paying $650 million of the property tax burden of homeowners and enough is enough! Also tell them the focus needs to be on the millage rates, and limiting the rolling forward of millages will result in lower overall millage rates for all taxpayers.

Click the link below to log in and send your message:

http://www.votervoice.net/link/target/labi28823666.aspx