On Dec. 4, 2024, Louisiana Gov. Jeff Landry approved a package of extensive tax reform legislation which was enacted during a recent special legislative session.1 The most significant changes include the replacement of graduated corporate income tax and individual income tax rates with a flat tax rate, the repeal of the corporation franchise tax, an increase in the combined sales tax rate, and the expansion of the sales tax base to include certain digital products. In addition, the sales tax exemptions are substantially revised. The legislation also provides that a special election will be held on March 29, 2025, to allow voters to consider constitutional amendments concerning legislative requirements for enacting or increasing tax credits or deductions, as well as other tax issues.
Corporate income tax
For taxable years beginning in 2025 and thereafter, H.B. 2 enacts a flat corporate income tax rate of 5.5%.2 Prior to amendment, Louisiana had three tax brackets: (i) 3.5% on the first $50,000 of Louisiana taxable income; (ii) 5.5% on taxable income over $50,000 but not over $150,000; and (iii) 7.5% on taxable income over $150,000. Also, the legislation provides a $20,000 standard deduction.3
Bonus depreciation and research expensing
H.B. 2 also enacts a bonus depreciation and amortization deduction for purposes of computing net income for taxable years beginning in 2025 and thereafter.4 Taxpayers may elect to immediately deduct from federal gross income the costs of qualified property, qualified improvement property (QIP), and research and experimental (R&E) expenditures as defined by Internal Revenue Code (IRC) Sec. 174 in the year in which the property is placed in service or the expenditure is paid or incurred.5 Expenditures for qualified property or QIP placed in service on or after Jan. 1, 2025, are eligible for bonus depreciation and, if elected by the taxpayer, are deducted as an expense incurred by the taxpayer during the tax year the property is placed in service.6 Similarly, R&E expenditures paid or incurred on or after Jan. 1, 2025, may receive what is characterized as “bonus amortization” and, if elected by the taxpayer, may be deducted as an expense during the tax year in which the expenditure was incurred.7 A taxpayer makes the election by timely filing an original or amended Louisiana corporate income tax return with depreciation or amortization expensed in the calculation of taxable income.8
Tax credits
The tax credit for local inventory taxes paid is no longer available to corporations but is retained for the individual income tax.9 No credit is allowed for federally classified C corporations for taxable periods beginning on July 1, 2026, or thereafter.10 However, a corporation may carry forward any remaining credits for an additional five years from the date that the credits would have expired. This additional carryforward period does not apply to credits for which the carryforward period expired prior to 2025. For taxable periods beginning in 2025 or after, the credit amounts earned by federally classified C corporations that exceed the taxpayer’s tax liability are not eligible for refund and may only be used as a credit against subsequent Louisiana corporate income tax liability.
H.B. 2 also reduces the utility of many credits by advancing sunset dates or lowering statutory caps. For example, the Louisiana work opportunity tax credit may not be granted for certifications requested after June 30, 2025 (previously, the credit could not be granted after June 30, 2027).11 The annual fiscal year cap on the motion picture production tax credit for the Louisiana Department of Economic Development to grant in certification letters is reduced from $150 million to $125 million for applications for state-certified productions and qualified entertainment companies submitted on or after July 1, 2025.12 For claims allowed on returns for tax credits or transfers of tax credits to the Louisiana Department of Revenue, the cap on the motion picture production credit is reduced from $180 million to $125 million beginning July 1, 2025.13 Starting this same date, the research and development tax credit is limited to $12 million per fiscal year.14 In addition, the annual cap on the tax credit for rehabilitating historic structures is lowered from $125 million to $85 million for applications received on or after Jan. 1, 2025.15 Under the Angel Investor Tax Credit Program, no credits may be granted for applications received after June 30, 2025 (previously, on or after July 1, 2030).16 The sound recording investor tax credit may not be granted for applications received on or after July 1, 2025 (previously, on or after July 1, 2026).17 Finally, many credits or tax exemptions are repealed, including credits for job creation, contributions to educational institutions, solar energy, Louisiana ports, and a program to encourage the relocation of corporate headquarters.18
Corporation franchise tax
H.B. 3 repeals the corporation franchise tax for taxable periods beginning on or after Jan. 1, 2026.19 The tax currently is imposed on the taxable capital of corporations doing business or qualified to do business in the state.20 For taxable periods beginning on or after Jan. 1, 2023, the annual rate of tax is $2.75 for each $1,000 in excess of $300,000 of taxable capital, with potential automatic rate reductions based on tax collections.21
Individual income tax
H.B. 10 enacts a flat individual income tax rate of 3% for taxable periods beginning in 2025 and thereafter.22 Prior to amendment, there were three tax brackets: (i) 1.85% on the first $12,500 of Louisiana net income; (ii) 3.5% on the next $37,500 of net income; and (iii) 4.25% on net income over $50,000. 23 Also, the amount of annual retirement income exempt from tax that is received by individuals who are at least 65 years old is increased from $6,000 to $12,000 in the 2025 tax year and will be adjusted for inflation in future tax years.24 The standard deduction is increased beginning in the 2025 tax year and will be adjusted for inflation commencing with the 2026 tax year.25 Similar to the corporate income tax, a bonus depreciation deduction is provided for costs of qualified property, QIP and R&E expenditures for taxable periods beginning on or after Jan. 1, 2025.26
Sales and use tax
From 2025 to 2029, H.B. 10 imposes an additional state sales and use tax of 0.55%, resulting in an increase of the combined state sales and use tax rate from 4.45% to 5%.27 Beginning Jan. 1, 2030, the additional tax is amended again to produce a combined sales tax rate of 4.75%.28 In addition, the vendor’s compensation cap is reduced from $1,500 to $750 per calendar month.29
The changes to the sales and use tax statutes are extensive. Taxable services such as supplying lodging, admissions to entertainment or athletic events, vehicle parking, printing and copying services, repairs and maintenance of tangible personal property, laundry services, and prewritten computer software access services are consolidated in a newly created statute.30 Providing data processing and information services generally is exempt from tax because those items are excluded from the definition of “telecommunications service,”31 but the new statute specifically taxes certain information services.32 H.B. 10 also enacts a statute that provides cascading sales transaction sourcing rules.33 The legislation addresses bundled transactions, providing that sales tax generally is collected on the full sales price of a bundled transaction if any product included in a bundled transaction would be taxable if sold separately.34 The various individual exemptions or exclusions for medical items,35 agricultural items,36 raw materials for further processing,37 manufacturing machinery and equipment,38 schools and educational materials,39 and intergovernmental and governmental sales40 are repealed and replaced with consolidated exemptions. Many sales tax exemptions are retained, but H.B. 10 repeals a wide variety of sales tax exclusions and exemptions, including purchases of certain custom computer software,41 ancillary telecommunications services,42 and interstate telecommunications services purchased by defined call centers.43
Digital products
H.B. 8 broadens the tax base to include the sale at retail, use, consumption, distribution, and storage for use or consumption in Louisiana, of digital products beginning Jan. 1, 2025.44 New provisions define “digital product” to mean digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, digital periodicals and discussion forums, and any 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.45 However, tax is not imposed on the consumption of any digital product in producing for sale a new product or taxable service, where the digital product becomes an ingredient or component of the new product or taxable service.46 The Department may not consider a person’s ownership of, or rights in, digital products residing on servers located in Louisiana in determining whether the person has substantial nexus with the state for purposes of sales and use tax.47 Also, the statute addresses the tax treatment of digital codes and products in bundled transactions.48
Sales and use tax does not apply to computer software or prewritten computer software access services, information services, or digital products when all of the following conditions are met: (i) the service or product is purchased or licensed exclusively for commercial purposes; (ii) the service or product is used by the business directly in the production of goods or services for sale to its customers; and (iii) the goods or services produced and sold by the business are subject to sales and use tax or the insurance premium tax.49 In addition, use tax does not apply to the use of digital products that are created solely for the business needs of the person who created the digital products and are not the type of digital products that are offered for sale.50 Exemptions from sales and use tax also are provided for certain digital products, prewritten computer software access services, and information services purchased by financial institutions as well as certain digital products used by healthcare facilities.51
Proposed constitutional amendments
H.B. 6 and H.B. 7 provide for a special statewide election to be held on March 29, 2025, to allow voters to consider proposed amendments to Article VII of the Louisiana Constitution.52 The constitution currently requires that two-thirds of each house of the legislature approve the levy of a new tax, an increase in an existing tax, or the repeal of an existing tax exemption.53 As amended, the constitution would require the same level of legislative approval for the enactment of a tax exemption, exclusion, deduction, credit, or rebate or an increase in the amount of a tax deduction, credit, or rebate.54 Also, a political subdivision could not levy a severance tax, income tax, inheritance tax, or tax on motor fuel.55 The constitution currently provides that a graduated income tax may be imposed that may not exceed 4.75% for individual income tax purposes.56 The amendment would remove the graduated tax language and reduce the maximum individual income tax rate to 3.75%.57 For tax years beginning after 2025, a person at least 65 years old would be entitled to an additional standard deduction.58 A government growth limit would begin with the 2026-2027 fiscal year.59 An amendment also would provide for the establishment of a budget stabilization fund.60
Commentary
The most significant tax legislation61 that Louisiana has enacted in recent memory resulted from a decision by Gov. Landry to hold a special legislative session for November 2024 intended to specifically address tax reform.62 As explained by the governor, the tax legislation enacted during the special session is designed to make the Louisiana business environment more competitive with other states by lowering the corporate income tax rate and repealing the corporation franchise tax.63 Also, the legislation is intended to provide tax relief for individual taxpayers by lowering the tax rate, increasing the standard deduction, and increasing the amount of retirement income that is exempt. Furthermore, the legislation provides pay increases to teachers and is intended to simplify Louisiana tax law.
The provisions allowing for the election to immediately expense costs for qualified property and QIP or R&E expenditures will be helpful to taxpayers. Because bonus depreciation is currently being phased out for federal purposes and IRC Sec. 174 currently requires the capitalization of R&E expenditures under federal law, this new Louisiana provision essentially frontloads deductions for corporate income taxes regardless of whether the federal government decides to reinstitute these historic beneficial provisions.
While the income tax reductions will be appreciated by taxpayers, the more expansive sales and use tax provisions could offset many of these benefits. The combined sales tax rate is increased and the tax base is being expanded to include certain digital products. The extensive changes to the sales tax exemptions and inclusion of several types of services within the taxable base must be carefully evaluated by taxpayers. One of the bills in the tax reform package would have imposed sales tax on many personal services, but this legislation stalled.64 Due to the extensive nature of the tax reform legislation, the Louisiana Department of Revenue is expected to issue guidance and new or amended regulations. Taxpayers are advised to monitor for further information from the Department that clarifies implementation of the law changes.
1 Act 1 (H.B. 7), Act 5 (H.B. 2), Act 6 (H.B. 3), Act 9 (H.B. 6), Act 10 (H.B. 8), Act 11 (H.B. 10), Laws 2024, Third Extra. Session. This SALT Alert is intended to highlight the major provisions of this legislation.
2 La. Rev. Stat. Ann. § 47:287.12.
3 La. Rev. Stat. Ann. § 47:287.71.B.(9).
4 La. Rev. Stat. Ann. §§ 47:287.73.C.(6); 47:287.744.
5 La. Rev. Stat. Ann. § 47:287.744.B.(1), (5).
6 La. Rev. Stat. Ann. § 47:287.744.C.
7 La. Rev. Stat. Ann. § 47:287.744.D.
8 La. Rev. Stat. Ann. § 47:287.744.E.
9 La. Rev. Stat. Ann. § 47:6006. The credit remains available to pass-through entities and is applied to individual income taxes.
10 La. Rev. Stat. Ann. § 47:6006.A.(3).
11 La. Rev. Stat. Ann. § 47:287.750.I.
12 La. Rev. Stat. Ann. § 47:6007.J.(1).
13 La. Rev. Stat. Ann. § 47:6007.J.(2).
14 La. Rev. Stat. Ann. § 47:6015.M. Claims for the research and development credit are allowed on a first-come, first-served basis. Any taxpayer whose claim is disallowed due to the cap has priority the next fiscal year.
15 La. Rev. Stat. Ann. § 47:6019.A.(1)(e).
16 La. Rev. Stat. Ann. § 47:6020.H.
17 La. Rev. Stat. Ann. § 47:6023.I.
18 H.B. 2, § 3.
19 H.B. 3, § 3, repealing La. Rev. Stat. Ann. §§ 47:601-47:618; 47:3204.H.(1), I.(1)(a), J.(1); 47:4305.B.(1). Due to its prospective nature, the corporation franchise tax will not be included on the Louisiana corporation income tax / corporation franchise tax return for the 2025 tax year.
20 La. Rev. Stat. Ann. § 47:601.A.
21 La. Rev. Stat. Ann. §§ 47:601.D.(2); 47:601.2.
22 La. Rev. Stat. Ann. § 47:32. The flat 3% tax rate also applies to every estate and trust, whether resident or nonresident. La. Rev. Stat. Ann. § 47:300.1. In addition, the statute providing for the elective pass-through entity tax is amended to expressly adopt the individual income tax rate. La. Rev. Stat. Ann. § 47:287.732.2.B.
23 Id.
24 LA. REV. STAT. ANN. § 47:44.1. 25 Conn. Act 24-151 (H.B. 5524), Laws 2024.
25 For individuals with a single or married separate filing status, the combined personal exemption and standard deduction of $4,500 is replaced with a $12,500 standard deduction. For other taxpayers, the combined personal exemption and standard deduction of $9,000 is replaced with a standard deduction that is twice the deduction for single individuals. LA. REV. STAT. ANN. § 47:294.A.
26 La. Rev. Stat. Ann. § 47:297.25. The bonus depreciation deduction also applies to resident and nonresident estates and trusts. La. Rev. Stat. Ann. §§ 47:300.6.B.(3); 47:300.7.C.(3).
27 La. Rev. Stat. Ann. § 47:321.1.A.(1)(b), (2)(b).
28 La. Rev. Stat. Ann. § 47:321.1.A.(1)(c), (2)(c).
29 La. Rev. Stat. Ann. § 47:306.A.
30 La. Rev. Stat. Ann. § 47:301.3.
31 La. Rev. Stat. Ann. § 47:301(27)(x)(i).
32 La. Rev. Stat. Ann. § 47:301.3.(10). “Information services” means electronic data retrieval or research; and collecting, compiling, analyzing, or furnishing information of any kind, including general or specialized news, other current information or financial information, by printed, mimeographed, electronic, or electrical transmission, or by using 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 subscriptions.
33 La. Rev. Stat. Ann. § 47:301.4. The new statute includes general sourcing rules for sales of tangible personal property, digital products, and services that are consistent with the Streamlined Sales and Use Tax Agreement, § 310. (i) If the sale is received by the purchaser, or the purchaser’s designee, at a business location of the seller, the sale is sourced to that business location. (ii) If the above does not apply, the sale is sourced to the location where receipt by the purchaser or purchaser’s designee occurs, including the location indicated by instructions for delivery to the purchaser or designee, if that location is known to the seller. (iii) If none of the above applies, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller’s business, when use of this address does not constitute bad faith. (iv) If none of the above applies, the sale is sourced to the location indicated by an address for the purchaser obtained during the sale, including, if no other address is available, the address of a purchaser’s payment instrument, when use of this address does not constitute bad faith. (v) If none of the above applies, the sale is sourced to the location: indicated by the address from which the tangible personal property was shipped; from which the digital product was first available from transmission by the seller; or from which the service was provided. The new statute also includes sourcing rules for the lease or rental of tangible personal property. Finally, the statute provides exceptions to the general sourcing rules and exceptions for local sales and use tax purposes.
34 La. Rev. Stat. Ann. § 47:301.5.
35 La. Rev. Stat. Ann. § 47:305.2.
36 La. Rev. Stat. Ann. § 47:305.3.
37 La. Rev. Stat. Ann. § 47:305.4.
38 La. Rev. Stat. Ann. § 47:305.5.
39 La. Rev. Stat. Ann. § 47:305.6.
40 La. Rev. Stat. Ann. § 47:305.7.
41 La. Rev. Stat. Ann. § 47:301(16)(h), (23).
42 La. Rev. Stat. Ann. § 47:301.1.B.(2)(b).
43 La. Rev. Stat. Ann. § 47:301.1.D. H.B. 10, § 4 further provides a list of repealed provisions.
44 La. Rev. Stat. Ann. § 47:302.A. With respect to digital products, “sale” means the first act within Louisiana by which the taxpayer, as a consumer, views, accesses, downloads, possesses, stores, opens, manipulates, or otherwise uses or enjoys the product. La. Rev. Stat. Ann. § 47:301(12)(b). Tax also is imposed on the lease or rental within the state of digital products. La. Rev. Stat. Ann. § 47:302.B. Local taxing authorities are directed to tax digital products. La. Rev. Stat. Ann. § 47:337.3.A.(2).
45 La. Rev. Stat. Ann. § 47:301(10)(a), (32)(a). The statute also provides definitions for many of the terms included in the “digital products” definition as well as items excluded from the definition.
46 La. Rev. Stat. Ann. § 47:301(10)(c)(ii)(cc).
47 La. Rev. Stat. Ann. § 47:301.3.A.
48 La. Rev. Stat. Ann. § 47:301.3.B.
49 La. Rev. Stat. Ann. § 47:305.5.A.
50 La. Rev. Stat. Ann. § 47:305.5.B.
51 La. Rev. Stat. Ann. § 47:305.5.C, D.
52 The proposed constitutional amendments do not affect the tax reform legislation discussed in this SALT Alert.
53 La. Const. art. VII, § 2.
54 La. Const. art. VII, § 2 (proposed amendment).
55 La. Const. art. VII, § 5.(A) (proposed amendment, as renumbered).
56 La. Const. art. VII, § 4.(A).
57 La. Const. art. VII, § 7 (proposed amendment, as renumbered).
58 Id.
59 La. Const. art. VII, § 14.(C)(2) (proposed amendment, as renumbered).
60 La. Const. art. VII, § 15 (proposed amendment).
61 Note that this legislation was signed into law on Dec. 4, 2024. Thus, it is a 4th quarter event for most calendar basis taxpayers.
62 Governor Jeff Landry Issues Call for Tax Reform Special Session, Office of Louisiana Governor, Oct. 28, 2024.
63 Governor Jeff Landry Concludes Historic Tax Reform Special Session, Office of Louisiana Governor, Nov. 22, 2024.
64 H.B. 9, prefiled Nov. 4, 2024.
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