Jindal consultants criticize tax reform proposal

BATON ROUGE (AP) — The consulting firm hired by Gov. Bobby Jindal's administration for economic analysis of his tax plan said

in a report this week that states should not enact a key plank of Jindal's proposal.

Ernst & Young economists say sales taxes on services bought by businesses are bad ideas because companies pass those costs

to customers or shrink economic activity in a state where such taxes are levied.

Jindal is proposing a new 6.25 percent sales

tax on services that would fall on businesses of the type that is the

focus of

the Ernst & Young criticism. The tax would be charged when

businesses pay other companies for accounting work, bookkeeping,

payroll services and a long list of other items.

The Republican governor proposes to use the revenue from that new sales tax on services, along with an overall increase in

the state sales tax and tobacco taxes to help offset the cost of eliminating the state's income taxes as Jindal wants.

"To the extent that services are primarily

consumed by business, such as professional services, including these

business-to-business

sales in the sales tax base will have a significant negative

consequence," the report says.

Ernst & Young has been doing tax

modeling for the Jindal administration, crunching the numbers for the

Department of Revenue

— but not guiding the policy decisions. Its criticism was included

in an unrelated report for the nonprofit Council on State

Taxation, called "What's Wrong with Taxing Business Services?"

The sales tax on services proposed by Jindal

also would fall on households, who would pay new charges for haircuts,

veterinary

visits, car repairs and football game tickets. But the Jindal

administration has said 80 percent of the sales tax on services

would hit businesses.

Jindal's leader on the tax rewrite, Tim Barfield, has said the governor's tax package would shift $500 million in tax costs

from individuals to businesses, mainly because of the new tax on services.

Ernst & Young's report says states

should consider the negative economic development impacts of such sales

taxes on business-to-business

sales.

"Several states that have adopted major sales tax changes that extended the sales tax to business purchases of inputs have

subsequently, and often quickly, voted to repeal the extensions," the report says.

Spokesmen for Jindal and Barfield didn't respond to requests for comment Friday about the Ernst & Young report.

Jindal has said sales taxes provide a more stable and predictable source of revenue for the state. He said they also offer

people and businesses the ability to choose how and when they want to pay taxes because they can determine which goods and

services they buy.

The powerful Louisiana Association of Business and Industry opposes the governor's tax plan because it is estimated to increase

costs on businesses.

In his weekly column released Friday, LABI

President Dan Juneau noted that one of the three authors for the Ernst

& Young

report is Robert Cline, the company's national director of state

and local tax policy economics and the man "running numbers"

for the Jindal administration tax plan.

"He might want to give those departments a copy of his COST study so they can see how flawed the huge tax on business services

they are proposing would be from an economic development and business competitiveness standpoint," Juneau said.