Louisiana Legislative Update – January 3, 2018
Since this is our first email of 2018, Happy New Year! Following is a brief forecast of what to expect in Louisiana’s political atmosphere (as least based on what we know now) in the coming months.
Budget, budget, budget: Louisiana has a looming “fiscal cliff” of roughly $1.2 billion that will materialize on July 1, 2018, when “temporary” tax increases approved in 2016 are set to expire. Any tax code changes in 2018 will require a special legislative session (sessions in even-numbered years are general and tax legislation is prohibited / sessions in odd-numbered years are fiscal-only).
Louisiana’s regular session does not convene until March 12 th . Gov. John Bel Edwards, D-Amite, has considered calling a special fiscal session early in the year—most likely in late February following Mardi Gras but before the 2018 regular session. However, Gov. Edwards has said he will not call the special session unless House Republican leadership can come to an agreement on how to address the budget shortfall. If there is no agreement prior to the regular session, a special session would likely be called following the end of the regular session (June 4) with a little over three weeks prior to falling over the July 1 “fiscal cliff.”
A big portion of the billion-dollar shortfall is the expiration of the “temporary” one-cent state sales tax, when the state sales tax drops from 5% down to 4% and some sales tax exemptions become effective again. Currently, Louisiana has the highest average sales tax in the nation, at 10% when local sales taxes are included.
Following are the relatively undetailed budget-patching priorities Gov. Edwards recently announced for 2018: 
  • Increase the individual income tax for those who itemize on their personal income-tax forms, by cutting in half the percentage of federal excess itemized deductions they can deduct; and change the brackets for calculating the individual income tax, boosting taxes on middle- and upper-income earners. The combined proposals are estimated to raise about $500 million a year.
  • Continue to charge businesses higher sales taxes for utilities and remove more than 180 sales tax breaks on the books, to generate about $300 million a year.
  • Apply state sales taxes on some services such as cable television and streaming services, debt collection services and repair services, to raise about $200 million a year.
  • Continue reductions made in 2015 to tax-break programs that largely assist businesses, to generate about $60 million annually.
  • Allow a 1 percent temporary state sales tax enacted in 2016 that raises about $900 million a year to expire. Gov. Edwards, however, said he’d allow a short-term renewal of the tax “as a bridge” until other tax types approved by lawmakers start bringing in revenue for the state.

Nearly 40 percent of the entire Legislature will be turning over within 20 months (the primary is October 12, 2019). The most significant impact could be in the Senate, which will lose at least 41 percent of its members, or 16 out of 39 — a figure that comes very close to the 20-vote majority in the upper chamber. The House is slated for at least a 33 percent loss (35 out of 105) due to term limits; that number has already increased to at least 38 new faces with the recent departures of Reps. Chris Broadwater (R-Hammond / retired unexpectedly at end of 2017), Helena Moreno (D-NOLA / elected to NOLA City Council), and John Schroder (R-Covington / elected state Treasurer). The numbers will likely continue to grow as Representatives run for Senate seats instead of re-election to the House.
New 2015 I Codes and 2014 NEC effective 2/1/18
As many of you have heard Governor Edwards signed Executive Order JBE 17-32 on December 13. This EO rescinded the previous suspension and allows the 2014 NEC, 2015 I-codes and Louisiana amendments as published in the January 20, 2017 Register to become effective February 1, 2018.  We have attached the 1/20/17 Notice of Intent that contained the codes and Louisiana amendments which will be effective February 1, 2018. 
AIA’s stance on tax reform

The American Institute of Architects was engaged from the very beginning of the tax reform process to ensure fair treatment for architects and to make their voices heard. This work included providing updates and analysis to AIA components and giving AIA members the opportunity to weigh in with their legislators.

To be clear, AIA does not and will not take a position on the merits of the bill. This legislation will impact members of the architectural profession, and all Americans, in vastly different ways. Whether you are an individual, a small business or a large corporation, the impact of the legislation on your taxes depends on many factors such as the corporate structure of your firm, its income level, and its location. Furthermore, representatives of higher tax states have expressed reservations about new limits in the legislation on the deductibility of state and local taxes as well as mortgage interest. By not casting judgment on the bill as a whole the Institute gave AIA Members and Components the flexibility to make their own judgments about how the bill will affect them and their local communities.

Instead, the Institute focused its influence specifically on changing provisions in the legislation that would have a negative impact on architects. Through this focused effort, architects moved the needle in the right direction on several of the policies which will impact them and their work.

Fairness for architecture firms

In order to provide tax relief for pass-through businesses which are taxed at individual rates, the Tax Cuts and Jobs Act creates a new 20 percent deduction for these businesses to reduce their tax liability. However, both the initial House and Senate’s bills prevented architects from taking advantage of this provision. Instead it lumped them in with other service industries, ostensibly in an attempt to prevent tax avoidance. Since 57 percent of architecture firms are organized as pass-through entities, AIA argued to lawmakers that excluding architects from tax relief would treat them unfairly, putting them at a competitive disadvantage to other industries.

Thanks to intense lobbying by AIA members, architects and engineers were removed from the list of professions prevented from taking the new deduction in the final version of the bill. This means that architects will now be able to take full advantage of the tax relief being offered to other industries.

The Historic Tax Credit

The initial bill drafted by the House of Representatives proposed complete elimination of the Historic Tax Credit - despite more than three decades of success the program has had in helping finance rehabilitation projects supporting community economic development across the country.
Again, due to the outreach from AIA advocates and our coalition partners in the preservation community, that credit was largely restored in the Senate’s bill. The conference committee responsible for developing the final package wisely chose to follow the Senate approach and retain the Historic Tax Credit, albeit in a more limited form.

Under the Tax Cuts and Jobs Act, the 10 percent historic credit for all pre-1936 properties will go away, but the 20 percent credit for certified historic buildings will remain in place. Introduced by Senator Bill Cassidy, R-LA , in the Senate Finance Committee, this 20 percent credit can no longer be taken in the first year, and must instead be pro-rated over five tax years. These changes will reduce the effectiveness of the credit, but it is a far cry from complete elimination, which was on the table just weeks ago. Retention of an incentive for the preservation of historic places is a positive development in the face of the possibility that the credit could have been wiped away completely. AIA Louisiana appreciates Senator Cassidy’s efforts on our behalf.

Energy efficiency

The Institute has also worked over the past year to see the 179D Deduction for energy efficiency in commercial buildings extended beyond its December 31, 2016 expiration date. This critical tax provision encourages investment in high-performing buildings, which is better for the environment and building owners’ pocketbooks, and serves as a lifeline for many architecture firms. Although 179D and other important energy incentives were ultimately left out of the final tax reform bill, the AIA is still working with our allies to extend 179D by other means. AIA has joined a group of organizations from across industries in calling for Congress to consider additional tax legislation to extend expired tax incentives like 179D.

Architects made their voices heard

AIA has been tracking many other aspects of this bill besides the three primary issues discussed here which could impact architects or the building industry. For more information about how the tax changes which could impact the profession, view this chart.

As our new AIA President, Carl Elefante, FAIA said: "We owe a deep debt of gratitude to our members for their efforts in reaching out to their elected representatives to make our views known and to make this legislation better for architects and the country. It's clear that the conferees listened to our members, who showed the power of our profession to effect change even when the obstacles to change are huge." Indeed, participation in the AIA’s Legislative Action Network jumped 20 percent in the weeks prior to passage of the legislation.

In summary, although this bill will impact every American differently, architects stepped up to the challenge and were able to improve provisions in this legislation which otherwise would have been quite damaging to the profession. Architects spoke up and made their voices heard, securing an outcome which recognizes the importance and influence the profession has in the United States and its economy.
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