On December 4, 2024, Louisiana Governor Jeff Landry signed a sweeping tax reform package into law, marking a significant shift in the state’s fiscal policy. This legislation aims to simplify the tax code, boost economic competitiveness, and address the state’s ongoing population decline. The most significant changes include adopting flat income tax rates for both individuals and corporations, repealing the corporate franchise tax, and revising sales tax rates and exemptions.

Key Changes:

1. Individual Income Tax:

  • House Bill 10 implemented a flat individual income tax rate of 3%, replacing the previous graduated rates that peaked at 4.25% under.
  • Additionally, the standard deduction has tripled from $4,500 to $12,500, further relieving taxpayers.

2. Corporate Income and Franchise Tax:

  • House Bill 2, a flat corporate income tax rate of 5.5%, has been established, effective January 1, 2025, replacing the former tiered rates that went up to 7.5%.
  • In addition, House Bill 2 provides a corporate election to claim 100% bonus depreciation and “bonus amortization” for IRC Section 174 expenses.
  • House Bill 3 repeals the 0.275% corporate franchise tax effective January 1, 2026.

3. Sales and Use Tax: To offset the revenue impact of these tax cuts, Louisiana is increasing the statewide sales tax rate and broadening sales tax to select digital products and services starting January 1, 2025.

  • House Bill 10 increased the state sales tax rate to 5% from 4.45% for the next five years.
  • House Bill 8 expanded Louisiana’s sales and use tax base to include digital products. Additionally, telecommunications and media services will now be taxed at a 5% state rate.
  • In addition to the state rate hikes and expansion of the sales tax base, House Bill 10 repealed several exemptions and exclusions, making previously exempt items and services taxable.
  • Vendor’s compensation for timely filing and paying the sales tax collected has been capped at $750 per month.

What Does This Mean?

Proponents of the tax reforms argue that these measures will make Louisiana’s tax system more competitive, stimulate economic growth, and address the issue of residents leaving the state.

Beginning in 2025, the broad tax reform packages impact almost all aspects of Louisiana tax law, including the taxpayers of nearly all states. Individual and business taxpayers should consider the cumulative impact of the changes to the individual income tax, corporate income tax, and franchise tax repeal on their individual and business tax liabilities.

Critics expressed concerns that the increase in sales tax may disproportionately affect small to medium-sized businesses. If you have business activities in Louisiana, we recommend adjusting pricing to account for the increased state sales tax rate and the newly taxable goods/services; updating tax settings in e-commerce platforms and point-of-sale (POS) systems to ensure proper taxability of digital goods; review exemptions that have been repealed and work with a tax professional to ensure compliance with updated laws and avoid penalties.

These tax reforms represent a significant shift in Louisiana’s fiscal policy, with the state joining others that have moved towards flat tax structures in recent years. As the new tax policies take effect, the long-term effects on the state’s economy, population trends, and public services will be closely monitored. Businesses operating in Louisiana should carefully review the changes and consult with their tax advisors for more information.

How Can We Help

Navigating Louisiana’s complex tax reforms can be challenging. Calvetti Ferguson’s state and local tax experts offer comprehensive support, from analyzing the impact of changes to individual income tax, corporate income tax, franchise tax, and sales tax on your specific situation to ensuring compliance with updated regulations. Partner with us to gain clarity and develop a strategy to navigate Louisiana’s evolving tax landscape effectively.

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