On November 22, 2024, the Louisiana Legislature concluded its special session by passing several bills overhauling the state’s tax system. The package of tax bills was signed into law by Governor Landry on December 5, 2024. Key changes include:
- Flat 3% personal income tax rate, with increases in standard deductions and retirement income exemption (HB 10)
- Flat 5.5% corporate income tax rate (HB 2)
- Repeal of corporate franchise tax (HB 3)
- Sunsetting certain Louisiana economic development incentives (HB 2)
- Increase of the state sales tax rate to 5% through December 31, 2029 (HB 10)
- Made permanent the 2% business utility state sales tax and expanded the taxable base to include additional services (HB 10)
- Sales tax base expanded to certain digital goods and services (HB 8)
- Optional local changes to the inventory ad valorem tax (HB 7)
Governor Jeff Landry praised the package of bills that he says will lower taxes for everyone, simplify the tax code, and make the state more competitive for businesses. Although the overall fiscal impact of the package is unknown, the bills were structured to be revenue neutral, with income and franchise tax cuts being offset by the increase in the sales tax base and rates.
Some proposed changes were omitted from the final package of bills. A bill to expand the sales tax to services such as repairs to immovable property, security services, travel agency services, lobbying services, and landscaping services failed to pass the House and ultimately was abandoned. A proposal to end the state’s film tax credit and the tax credit program for the rehabilitation of historic buildings also was abandoned, though changes were made to both programs: rather than sunsetting the film tax credit, lawmakers instead lowered the credit’s reimbursement cap from $150 million to $125 million; for the historic tax credit cap, they lowered the annual cap from $125 million to $85 million.
Louisiana’s sales tax, which is already the highest in the nation at a combined average rate of 9.56%, will increase by an additional 0.55% effective January 1, 2025 through December 31, 2029, resulting in a state sales tax rate of 5%. On January 1, 2030, the state sales tax rate will drop from 5% to 4.75%. Also effective January 1, 2025, the state’s sales tax base will expand to include information services, cloud computing services, and digital goods. Additionally, the definitions for sales price and cost price are revised to now include transportation costs and installation costs of tangible personal property.
Taxpayers should also be aware of several other changes resulting from the sales tax bill. For example, the administration used the bill to convert many tax exclusions into tax exemptions. The change is important for two reasons. First, Louisiana has had a history of suspending some exemptions during tight budget years. However, exclusions cannot be suspended. Thus, this change allows the state to more broadly suspend sales tax preferences in lean times. Second, under Louisiana law, tax exclusions must be interpreted in the taxpayer’s favor, while tax exemptions are interpreted in the state’s favor. This may sound minor, but it has legal implications when taxpayers are pursuing relief for taxes not legally due.
Lastly, legislators passed HB 7 that proposes to significantly alter Article VII of the Louisiana Constitution. These include numerous changes to state funds, but of most importance to the business community is the proposal to move business ad valorem tax (inventory tax) out of the Constitution into statute. Then in HB 11, the Legislature provided an optional exemption for inventory tax, but only upon approval by each parish’s governing authority. If a parish opts into the exemption, the parish will receive a predetermined payout. If the parish does not opt into the exemption, inventory tax will remain taxable, but the state will no longer provide additional credits to offset corporate income tax beginning on or after July 1, 2026 (HB 2). Carry forward provisions of inventory tax credits have also been decreased from 10 years to 5 years. Business inventory tax is a large budgetary item for a handful of parishes; therefore, some parishes might not be financially able to opt into the exemption. For business in those parishes, the loss of these credits may have significant impact to their financials.
The proposed changes to the Constitution require statewide voter approval. They will be on the March 29, 2025 ballot. If voters reject the constitutional amendment, the optional inventory tax exemption provided for in HB 11 also will not become effective. This would result in continued ad valorem taxation on business inventory with no offsetting credits beginning July 1, 2026. If not passed, we anticipate further legislation on inventory tax during the 2025 regular session, which will convene on April 14, 2025.
Ryan is continuing its analysis of the tax package and will provide updates on significant provisions prior to them taking effect next year. Additionally, with such an ambitious scope for this session and the abbreviated timeframe, it’s possible there could be instruments that will need to be corrected for in the regular session. If you have specific questions about your Louisiana tax obligations, contact one of the experts below today.
TECHNICAL INFORMATION CONTACTS:
Susan Bittick
Principal
Ryan
512.476.0022
susan.bittick@ryan.com
Matt Zagotti
Principal
Ryan
225.334.0040
matt.zagotti@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.