Louisiana Constitution, Article VII: Significant Developments

• Author: David Conroy
• Position: Partner at the law firm of Milling Benson Woodward, L.L.P

David Conroy is a partner at the law firm of Milling Benson Woodward, L.L.P. and was an elected delegate to the 1973 Constitutional Convention.

Article VII of the Louisiana Constitution addresses state and local revenue and finance. It initially comprised about one-sixth of the entire constitution. Now, after more than fifty amendments, it encompasses approximately one-third. The initial provisions of Article VII clearly reflected a desire of the delegates to the 1973 Constitutional Convention and of the people who approved the constitution that there should be specific limits on the powers of the state government to tax and spend. Subsequent amendments to Article VII have reinforced that basic distrust, particularly by restricting the legislature's power to use specific revenue sources. The result, Louisiana's current constitution, is a complex document that will increasingly require amendment because its restraints on government have become more detailed.¹ This article will highlight some of the more significant developments concerning Article VII since its adoption.

Even the broad initial statement of Article VII-the power of taxation is vested in the legislature-was modified in 1998 expressly to provide that the power to tax may not be exercised by the courts.2 The requirement of a two-thirds vote of the legislature to increase taxes³ was extended to include fees in 1995.⁴

A 1991 amendment mandated that there be a single sales tax collector in each parish.⁵ Article VII originally prohibited any political subdivision from imposing a motor vehicle license fee,⁶ a tax on motor fuel,⁷ and an income tax.⁸ The prohibition was expanded to include the inheritance tax in 1990.⁹ The courts subsequently interpreted the prohibition against income tax to include a prohibition of a tax on earnings.¹⁰

The three dollar annual automobile license tag fee, regarded as sacrosanct by the 1973 Constitutional Convention, was replaced in 1989 by a one dollar fee for each $1,000 of actual value (with a ten dollar minimum).¹¹ Efforts to ease the constitutional restrictions on the state income tax-limiting the tax to the rates that existed in 1973 and requiring an allowance of deduction of federal income taxes- have failed twice with voters.¹²

A series of amendments significantly tightened the budget process. They limited bonded indebtedness,¹³ constrained increases in expenditures,¹⁴ clarified balanced budget requirements,¹⁵ mandated current elimination of a previous year deficit,¹⁶ and required immediate action to eliminate projected current year deficit.¹⁷ These amendments also restricted the use of non-recurring revenues in the operating budget,¹⁸ placed the revenue estimating conference in the constitution to insure the effectiveness of this prohibition and the reliability of revenue projections,¹⁹ and required feasibility studies for capital improvements.²⁰

The legislature has also shown that innovative means can keep the state running under desperate circumstances. Despite then existing restraints on debt financing, revenue anticipation notes were held not to be debt.²¹ The legislature also circumvented taxing restrictions when it created a statewide special district and allowed the special district to issue bonds and impose a sales tax.²²

Article VII, Section 9 requires that all state money be deposited in the state treasury and credited to the Bond Security and Redemption Fund. In each fiscal year, an amount from this fund must first be allocated to pay all of the obligations secured by the full faith and credit of the state. Initially, there were no other constitutionally dedicated funds besides the Bond Security and Redemption Fund. Now, there are many more-the Louisiana Wildlife and Fisheries Fund,²³ the Louisiana Education Quality Trust Fund,²⁴ the Wetlands Conservation and Restoration Fund,²⁵ the Revenue Stabilization/Mineral Trust Fund,²⁶ the Higher Education Louisiana Partnership Fund,²⁷ the Mineral Revenue Audit and Settlement Fund,²⁸ the Oilfield Site Restoration Fund,²⁹ the Oil Spill Contingency Fund,³⁰ the Millennium Trust,³¹ the Louisiana Fund,32 the Millennium Leverage Fund,³³ the Transportation Trust Fund,³⁴ the First Use Tax Trust Fund,³⁵ the Louisiana Investment Fund for Enhancement,³⁶ and the Lottery Proceeds Fund.³⁷ A constitutional amendment, enacted by a two-thirds vote of each house of the legislature and approved by a vote of the people, created each of these funds. These newer provisions require that designated revenues be deposited into a specified fund and limit the use of the revenues, in some cases restricting the appropriations to capital gains and income earned by the fund. Some of the funds were required in order to counterbalance certain constitutional provisions that might otherwise require revenues to be expended in an unintended or undesirable fashion.³⁸ While undoubtedly well intentioned, such funds reduce the flexibility of the legislature as well as suggest a distrust of it to use its powers wisely.³⁹

Section 16 establishes a prescriptive period for the collection of taxes. The period extends three years from December 31 of the year when the taxes are due and may be interrupted or suspended as provided by law. In Succession of Ott, the first circuit court of appeal thus held that the three year prescription was suspended by failure to include an asset in the inheritance tax return.⁴⁰

Part II of Article VII addresses property taxation. The 1974 Constitution provides for property that is classified as land or residential improvements to be assessed at ten percent of fair market value and other properties to be assessed at fifteen percent. In order to conform better with then existing practices, Section 18 was amended in 1979 to assess public service properties (other than electric cooperatives) at twenty-five percent.⁴¹ The United States Court of Appeals for the Fifth Circuit later held that this amendment, with respect to railroad properties involved in interstate commerce, violated the Railroad Revitalization and Regulatory Reform Act42 because it assessed interstate railroad properties at a higher ratio to true market value than the ratio of assessed value of other commercial and industrial property.⁴³ Act 22 of 2000 sought to remedy the disproportionate taxation of certain public service properties in an unusual fashion. It gave tax credits to a regulated telephone company in order to give it a better competitive position with respect to its unregulated competitors. Section 1 of the act specifically set forth the legislature's findings as follows:

It is the finding of the legislature that the telecommunications industry has become increasingly competitive and that the distinctions among the providers of the various types of telecommunication services have become blurred. Further, it is the finding of the legislature that the Louisiana property tax laws now place certain telephone companies at a competitive disadvantage because their properties are classified as "public service properties" and assessed at the ratio of twenty-five percent of such properties' fair market values while their competitors' properties are classified as "other property" and assessed at the ratio of fifteen percent of such properties' fair market values. Accordingly, the legislature finds that, in order to mitigate the effects of such competitive disadvantage, telephone companies whose properties are classified as "public service properties" should be entitled to a credit against their corporate income and franchise taxes in an amount equal to their ad valorem property tax attributable to the higher assessment ratio applicable to public service properties. The legislature further finds that it is in the best interests of the state and its political subdivisions that the tax revenues available to the state not be diminished by the corporate income and franchise tax credits allowed to certain telephone companies; and that an expansion of the sales and use tax base to include interstate telecommunication services is expected to provide to the state tax revenues equal to the amount of corporate income and franchise tax credits allowed to certain telephone companies. The legislature further finds that it is in the best interests of Louisiana consumers of telecommunication services that any tax savings experienced by such telephone companies be passed on to such consumers in the form of proportionate reductions in the prices of the services provided by such telephone companies.

Further tinkering with the classifications in Section 18 should be anticipated whether by constitutional amendment, legislative act, or judicial holding because of the economic realities faced by utilities in an ever more competitive environment.

Section 20 initially established a $30,000 homestead exemption from property taxation. Based on an assessment ratio of ten percent, it exempted homes valued at $30,000 or less from property taxes and excluded from taxation the first $30,000 of value on all residences. Pursuant to the authorization contained in the 1974 constitution, this exemption was raised to $50,000 by the legislature effective January 1, 1978,⁴⁴ and then to $75,000 by a constitutional amendment adopted in 1980.⁴⁵ In 1993, the exemption was extended to apply to mobile homes.⁴⁶ Beginning January 1, 2000, homeowners of sixty-five years of age or older with an income of $50,000 or less (adjusted for inflation) were also given the right to freeze the amount of their assessments to the assessment of the year the owner qualifies and received the special assessment level.⁴⁷

Regular efforts have been made to both increase and decrease the homestead exemption, and such efforts can be expected to continue. The disparity in values of homes throughout the...