Audits: Changes in Tax Commission Procedures Might Increase State, Local Revenue

Two reports issued by the Legislative Auditor’s office today conclude that if the Louisiana Tax Commission made some changes in its policies and procedures, it could potentially increase the amount of revenue collected by state and local governments, the Legislative Auditor said.

A report by performance auditors examining the Commission’s process for appraising public service companies found that LTC does not take into account the businesses’ future income growth potential, which could be costing local governments tax revenue. In addition, the Tax Commission does not have a set of rules and regulations in place to ensure public service companies within the same industry are appraised in a consistent manner.

The other report, by financial auditors, disclosed that LTC did not have an adequate process in place to collect change order fees from local tax assessors. As a result, collection and remittance of the fees is inconsistent, which could mean the loss of revenue to the state.

The performance audit report noted that state law requires the Tax Commission to appraise all public service companies by September 1 every year by determining their fair market value. From the fair market value, the Commission then calculates the assessed value, which determines how much companies owe in local taxes. Public service companies include utility, landline telephone, railroad, oil and gas pipeline, airline, barge line, and private railcar line businesses.

Performance auditors found that if the LTC were to use a methodology that included expected future income growth, as recommended by national standards, the assessed values of the public service companies could increase by $2.4 billion and result in local governments receiving an additional $249 million in annual tax revenue.

Auditors also found that because the Commission has not developed rules and regulations defining how to appraise public service companies, there is inconsistency in how firms within the same industries are valued, and no documentation is available to explain the differences. The audit showed as well that the procedure LTC uses to allocate the value of nuclear power plants among the parishes they serve is not consistent with its procedure for other public service companies. The effect is that the assessed value of the companies that own the nuclear plants is decreased by $50.5 million in St. Charles Parish and $67.5 million in West Feliciana Parish.

In their report, financial auditors noted that the Louisiana Administrative Code permits LTC to collect a $20 fee when local assessors file late change orders for reduced assessments. However, the Commission’s management has not formally defined the types of change orders the fee is applicable to and has indicated that no guidance has been provided to assessors to ensure the consistent collection of these fees.

Financial auditors also found that LTC did not deposit checks it receives for fees related to audits, assessments, and change orders in a timely manner, which could increase the risk of loss because of error or fraud. State regulations define timely as within 24 hours of receipt. Auditors reviewed 30 checks and found that all were deposited between seven and 84 days after LTC received them.