Louisiana’s Digital Tax Credit Deconstructed

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State’s department of economic development promotes tax break to attract digital media

NEW ORLEANS, La. – This past week Elliott Adams of Louisiana’s Economic Development Department presented the state’s digital media tax credit to industry participants. Launch Pad, a start-up facilitator based in New Orleans, hosted the approximately 40 attendees who learnt of rebates as high as 35 percent of expenses.

The Louisiana legislature passed the “Digital Media Incentive” in 2005, and in 2009 they expanded it to include simulation software and social media applications, in addition to video games. Adams, director of the LED’s digital media division, emphasized the generosity of the credit, more than offered by any other state

In the credit’s five year history, approximately 25 companies have applied successfully, and Adams would like to see more come to Louisiana and participate. He alluded to the state’s film industry, whose members receive a similar subsidy, as a success that digital media providers could replicate. (Click below to see LED’s promotional video.)

For eligible ventures, the state refunds 35 percent of labor costs, assuming Louisiana residence. For production expenditures such as leases and hardware, the state refunds 25 percent. Only non-production costs – marketing and distribution, for example – do not receive a refund, and there is no cap on the magnitude of the offer.

The value can then be used to offset tax obligations, but it does not have to be applied to the recipient organization. Venture owners without sufficient tax obligations to offset may sell their credit and receive cash right away.

Attendees interacted freely throughout the 40 minute presentation, but their questions highlighted the difficulties associated with applying and enforcing a targeted subsidy. The recurring concern was eligibility for the saving, and clear responses from Adams proved enigmatic. To resolve this conundrum, Adams encouraged those with doubts to make contact, be detailed in their applications, and seek resolution before proceeding with plans.

Barre Taguis, president of Simdustrial, a training simulation developer, has recently set up his company in New Orleans and shared his experience with the credit.

“It affects us tremendously. Most of our costs are labor… And the tax credit can save us 35 percent on our labor costs. That’s huge. So it’s really one of the important reasons why we’re here.”

LED has publicized Globalstar Inc., a global satellite voice and data company, as a prominent tax credit recipient that relocated to Covington, Louisiana. In transferring, it committed to 150 new jobs by the end of 2011. However, that came with $8.1 million in state financial assistance, not including the credit or LED offers of free “customized workforce support.”

Adams touted the benefits of the credit and expressed his desire for its continuation. The LED promotional video describes it as a “competitive advantage,” and he encouraged attendees to organize and lobby in Baton Rouge.

Daniel D’Amico, an assistant professor of economics at Loyola University, is less enthusiastic and doubtful that the credit will pay for itself. Additionally, he suspects the industry’s intangible nature will make it vulnerable to fraud.

“While I support tax cuts and tax breaks on principle, administering the policies needed to get breaks through is costly… We have to ask ourselves if this industry is really an arena where Louisiana has a comparative advantage and potential to compete… There are costs to pushing tax breaks through and therefore a scarcity of tax breaks. Giving breaks to IT means not giving them to other industries.”

His preference would be to attract industries in a uniform manner and make Louisiana the lowest taxed state in the union in every industry.

“I think that an explicit and bold goal of this sort would yield returns nearly instantly. How do we provide public funding? Look to the charter transition of the public school system after Katrina and do likewise.”

Fergus Hodgson is the capitol bureau reporter with the Pelican Institute for Public Policy. He can be contacted at fhodgson@pelicaninstitute.org, and one can follow him on twitter.

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