Louisiana enacts significant tax reform

Broad changes to impact most taxpayers

December 13, 2024
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Income & franchise tax Business tax State & local tax Indirect tax

Executive summary

On Dec. 4, 2024, Louisiana Gov. Jeff Landry signed tax reform legislation repealing the corporate franchise tax, flattening personal and corporate income tax rates, increasing the sales tax rate, and imposing sales tax on digital goods and services. The corporate franchise tax repeal is effective Jan. 1, 2026, while other changes take effect in 2025. The legislation also proposes a constitutional amendment for voter approval in early 2025. 


In November 2024, Louisiana Gov. Jeff Landry convened a special legislative session to overhaul the state’s tax system. His proposal, known as Louisiana Forward, aimed to simplify the tax code, reduce income tax rates, and repeal the corporate franchise tax. To balance these tax cuts, the proposal also sought to expand the sales tax base.

This article discusses the key legislative outcomes from the special session, including changes to the corporate franchise tax, income tax and sales tax, as well as a brief discussion on proposed amendments to the Louisiana Constitution.

Corporate franchise tax

House Bill 3 repeals the 0.275% corporate franchise tax effective Jan. 1, 2026. Calendar year taxpayers will be required to pay the tax one final time based on 2024 year-end property values in the state. Louisiana joins most states that do not levy a franchise tax. With the repeal, only about a dozen states continue to impose franchise taxes. Last year, the state eliminated throwback effective in 2024, but a bill to eliminate the franchise tax was vetoed by the previous governor.

Income tax

One of Gov. Landry's stated long-term goals is to repeal the state income tax to make Louisiana more competitive with surrounding states without a personal income tax, including Florida, Tennessee and Texas. The new legislation, which flattens and lowers income taxes for businesses and individuals, appears to be a step toward achieving that policy goal. The reform package enacted addresses both corporate and personal income taxes.

House Bill 2 imposes a flat 5.5% corporate income tax rate beginning Jan. 1, 2025, replacing the current tiered-rate structure where businesses paid between 3.5% and 7.5%. Businesses will also receive a $20,000 standard deduction. The new law provides taxpayer with an election for immediate expensing of 100% bonus depreciation for most business assets, and research and experimental expenses under section 174. The election for accelerated deductions applies for assets placed in service and eligible research expenses incurred in tax years beginning on or after Jan. 1, 2025.

Gov. Landry's originally proposed a tax rate of 3.5%, but lawmakers agreed to a 5.5% rate due to long-term budget concerns and lower projected tax revenues. The original proposal included repealing various tax credits to increase state revenue.

House Bill 10  imposes a flat personal income tax rate of 3% effective Jan. 1, 2025, replacing the tiered-rate system where earnings were taxed from 1.85% to 4.25%. To prevent higher tax bills for those previously in the 1.85% bracket, the standard deduction nearly tripled from $4,500 to $12,500. Senior citizens will also benefit from an increased annual retirement income exemption of $12,000, up from $6,000.

The corporate and personal income tax reductions are estimated to cost the state $1.43 billion next year. To offset lower collections, lawmakers passed sales tax legislation to increase the rate and expand the tax base.

Sales tax

The new sales tax legislation deviated significantly from Gov. Landry’s proposal, which called for expanding the sales tax base by taxing dozens of additional services. At the time, Louisiana only enumerated a handful of taxable services, resulting in resistance from taxpayers and special interest groups. Lawmakers and lobbyists opposed one bill that would tax additional services, House Bill 9, leading to its defeat. Instead, lawmakers opted to increase the sales tax rate and impose tax on digital goods to raise state revenue.

House Bill 10 temporarily increases the sales tax rate from 4.45% to 5% beginning in 2025, until Dec. 31, 2029, after which it will be reduced to 4.75%. With the increase, Louisiana will generally have the highest average combined tax rate (state and local) in the nation. The bill also recodifies several sales tax services and imposes the tax on prewritten computer software access services and information services as defined as follows:

  • Prewritten computer software: charges made to customers for the right to access and use prewritten computer software, where possession of the software is maintained by the seller or third party regardless of whether the charge for the services is on a per use, per user, per license, subscription, or some other basis
  • Information services: Electronic data retrieval or research; and collecting, compiling, analyzing, or furnishing of information of any kind, including, but not limited to, general or specialized news, other current information or financial information, by printed, mimeographed, electronic, or electrical transmission, or by utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or which may be devised;  this includes delivering or providing access to information through databases or subscription

House Bill 8 imposes sales and use tax on digital products effective Jan. 1, 2025. The bill defines ‘digital products’ as digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, digital periodicals and discussion forums, and any other otherwise taxable tangible personal property  transferred electronically, whether digitally delivered, streamed, or accessed and whether purchased singly, by subscription, or in any other manner, including  maintenance, updates, and support.

House Bill 8 also provides a limited business-to-business exemption for computer software, prewritten computer software access services, information services, or digital products when the following conditions are met:

  • The service or product is purchased or licensed exclusively for commercial purposes
  • The service or product is used by the business directly in the production of goods or services for sale to its customers
  • The goods or services produced and sold by the business are subject to sales and use tax or to the insurance premium tax

Other new digital products exemptions include an exemption for the use of digital products created solely for the business needs of the creator of the products when not offered for sale, an exemption for certain FDIC-insured institutions and an exemption for licensed healthcare facilities.

Taxing digital goods has become a growing trend in recent years as many states seek to modernize their tax codes and capture revenue from the growing digital economy.

Constitutional amendments

House Bill 7, approved by the state legislature in late November, proposes a constitutional amendment to rewrite portions of the budget and taxation sections of the state constitution. This amendment aims to simplify state taxation for individuals and businesses. It would also merge several state funds to facilitate future income tax rate reductions, allow parishes to opt out of collecting inventory taxes and fund permanent $2,000 annual teacher pay raises.

House Bill 6, also approved in late November, mandates a statewide election on March 29, 2025, to vote on the proposed constitutional amendment outlined in House Bill 7.

Takeaways

Gov. Jeff Landry's comprehensive tax reform represents a significant shift in Louisiana's fiscal policy. By eliminating the corporate franchise tax, flattening and lowering income tax rates, and expanding the sales tax base the state aims to foster a more business-friendly environment. The franchise and corporate income tax changes will affect most businesses operating in Louisiana. The changes in the sales tax base – concerning digital goods and rates, will affect business collection and remittance responsibilities. The legislation included extensive recoding as well as nuanced definitions and exemptions of the new digital taxes. Businesses operating in Louisiana should carefully review the changes and consult with their state and local tax advisors for more information.

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