A plan to phase out a local tax on business inventory — a critical revenue source for certain parishes — is still alive after a Senate committee on Tuesday gave its approval, but with some key changes.

Parish governments currently have a constitutionally protected right to levy an inventory tax on tangible business assets, which include things ranging from chemicals and natural gas to cars and groceries.

In some parishes, the business inventory tax generates more than $30 million a year. But in others, the tax brings in a meager $1 million or less.

Landry’s Revenue Secretary, Richard Nelson, the tax plan’s principal architect, has said the inventory tax drives away potential business investment in Louisiana. But he also acknowledges eliminating it presents a difficult political problem given local government reliance on it.

The Senate Revenue and Fiscal Affairs committee on Tuesday advanced a plan to incentivize parishes to voluntarily stop collecting the tax. In exchange for a lump-sum payment from the state equal to three years’ worth of parish collections, parishes would agree to forever relinquish their right to levy the tax.

Another factor in play is that while the parishes charge businesses the inventory tax, the state runs a credit program that reimburses those businesses for the amount they pay the local governments. In recent years, that credit program has cost the state more than $280 million annually.

Parishes would have until July 2026 to decide whether to take the buyout. The committee also extended the corresponding inventory tax credit program for corporations through July 2026.

Under a previous version of the plan, the credit would have ended in January.

“It just creates a longer runway for businesses to be able to make choices, for parishes to be able to make choices, and for us as the Legislature to be able to see the impact,” said Sen. Mike Reese, R-Leesville, a member of the Senate tax committee.

The plan would also allow parishes that choose to keep taxing business inventory to do so at a lower rate of their choosing. Right now parishes are required to assess inventory at 15% of its value.

That idea is geared toward moving parishes away from reliance on the revenue stream: It would allow them to lower their collections from the tax while also staying somewhat competitive with neighbors that totally opt out of collections.

“It’s a careful balance that we don’t place parishes in a bad position here and that we don’t put businesses in a worse position if they have to be in a parish that does not opt out and they don’t receive the credit back from the state,” said Reese.

Reese called the tax “convoluted,” noting it’s assessed and paid at the local level but then refunded back to businesses by the state.

“It’s the desire of this administration and this Legislature to hopefully put us in more competitive position nationally,” he said.

Keeping local governments whole

On Tuesday, another piece of a plan to keep local governments whole amid business inventory tax changes emerged: the Local Revenue Fund.

The fund, which would be set out in the Constitution, would be used to pay parishes that opt out of collecting the business inventory tax.

It would be set up in the state treasury and administered by the Uniform Local Sales Tax Board.

Lawmakers would have to decide where the funds come from.

Said Reese: “That’s the question mark: where the revenue comes from.”

It’s an open question amid ongoing negotiations over income tax rate cuts and new sales tax measures.

Rep. Daryl Deshotel, R-Marksville, said Monday that the Local Revenue Fund would work only if the revenue for it comes from an expanded sales tax on services.

But the plan to tax more consumer services is stagnating in the House and doesn’t currently have the support it needs to pass.

Deshotel said he’s “vehemently against” increasing Louisiana’s sales tax rate as part of the overall tax package.

“We’re already tied for the highest sales tax in the country, and if we would increase this, we would be the highest,” he said. “To double down on a tax that I know is bad for the people, I just can’t support that.”

Prescription Drugs

Another part of the plan approved by the Senate committee Tuesday allows locals governments to continue collecting tax on prescription drugs, which the state does not do.

As it tries to streamline the state tax code, the Landry administration has been pushing to get rid of the local tax on pharmaceuticals.

Committee chair Sen. Franklin Foil, R-Baton Rouge, said Tuesday he would prefer to see an end to the local tax on prescription drugs and would continue to work toward that goal.

Asked after the hearing about the decision to maintain the prescription drug tax, Foil said it was a necessary part of the negotiations.

“In trying to get rid of the inventory tax and doing some things that we’re trying to do to make all of this work, it gave more revenue to locals,” he said.