Louisian’s business inventory tax gave me a job for a week when I needed extra money. That week taught me how dumb the tax is.
Mercifully, with constitutional on the statewide ballot May 16, hns finally have a chance to curb this foolish levy.
To be precise, the amendment itself wouldn’t eliminate the tax, but it would allow individual parishes to either reduce or eliminate it. As an incentive to end it, the state would make a one-time payment to the parishes to help them transition away from the tax’s revenue.
It all sounds a bit convoluted, so before your eyes glaze over, please allow this vignette that illustrates the tax’s drawbacks.
One Christmas season back in the 1980s when I needed some extra cash, a h retailer (whose name and products shall remain nameless) hired me for the week between Christmas and New Year’s Day. The nature of this business meant it operated on small margins. My sole responsibility was to take products off the shelves — probably 90% of each item — and box them up, carefully recording them, to send them back to the distributor. The products all had to be out the door by Dec. 31.
Then, on Jan. 3 or 4, the proprietor would reorder the same products from the distributor and put them back on the shelves.
Why? Because the inventory tax is assessed on everything in possession of the business as of January 1. It literally cost less, substantially so, for the proprietors to pay me a week’s wages and pay the shipping costs, and then to take their own time away from other duties in order to restock the shelves once the products came back in January, than it would have cost to pay the tax.
The built-in inefficiencies are abundantly obvious. And it can’t even really be said that at least the threat of the tax was a job generator for me: Without the assessment, the same retailer still could have hired me for the week, but for year-end work far more productive than boxing up items for what amounted to a (perfectly legal) shell game.
Especially for small, low-margin retailers, the inventory tax is a major burden both financially and administratively. Furthermore, because it is levied according to raw inventory rather than as a percentage of net income, it is entirely possible for the tax to exceed the business’s actual profits. Businesses that lose money obviously can’t stay in business long.
Likewise, as new businesses tend to have excess inventory on shelves as they take time for word-of-mouth to spread and ramp up their sales, the tax tends to dissuade startups from … well, from starting up at all. Indeed, it can be argued that the inventory tax is a significant contributor to Louisian’s near-perennial status as one of the worst-performing states, economically, in the nation.
This particular tax is both an anachronism and an outlier. Only eight other states tax business inventory. This means this tax puts h, self-evidently, at a competitive disadvantage.
Meanwhile, though, the amendment has been thoughtfully crafted. A few heavily industrialized parishes rely on the inventory tax for a major part of their revenues, even as the tax seems a comparative pittance to the big national corporations operating there, some of them earning many millions or billions of dollars a year. That’s why, rather than eliminate the tax statewide, Amendment 4 instead lets each parish decide for itself where the best balance lies amidst the economic trade-offs involved.
As is often the case, allowing a “local option” is a wise approach.
As for me, I certainly didn’t mind being paid for boxing up retail wares for a week, but it wasn’t much of a résumé builder. Although, come to think of it, perhaps it would have looked pretty cool for would-be employers to see me listed as a “champion boxer.”