11 December 2024 Louisiana's tax reform legislation affects businesses and individuals Louisiana Governor Jeff Landry on December 4, 2024, signed into law a package of tax reform bills. While falling short of the administration's goals going into a November special legislative session, the final package makes several changes that will impact all Louisiana taxpayers.
HB 31 repeals the Louisiana franchise tax effective for franchise tax periods beginning on or after January 1, 2026. The law amends several tax incentives to remove references to the franchise tax. HB 22 makes several changes to the corporate income tax. These changes, unless otherwise specified, take effect for tax years beginning on or after January 1, 2025. Currently, Louisiana's has a graduated corporate income tax rate of 3.5% (first $50,000), 5.5% (next $100,000) and 7.5% (excess over $150,000). In 2025, the rates collapse, and a flat 5.5% corporate income tax rate applies. Corporate taxpayers may also claim a newly created $20,000 standard business deduction. The law adopts permanent full expensing under IRC Section 168(k) and (e)(6) and IRC Section 174. Starting in 2025, taxpayers (corporate, pass-through entity and individual) may elect to deduct the full cost of qualified property, qualified improvement property (collectively, "qualified property") and research and experimental (R&E) expenditures. Taxpayers will make the election on an original or amended Louisiana corporate income tax return. Expenditures for qualified property placed in service, or R&E expenditures paid or incurred, on or after January 1, 2025, are eligible for bonus depreciation or bonus amortization, respectively. If the election is made, such expenditures must be deducted as expenses incurred by the taxpayer during the tax year in which the expenditure was incurred. For taxpayers making the election, expenditures are deducted as an expense incurred during the tax year in which the qualified property is placed in service.3 Taxpayers claiming depreciation or amortization under the election may not duplicate any depreciation or amortization or bonus depreciation or bonus amortization allowed on their federal income tax return for the tax year. Preferential apportionment treatment for companies with sales and inventory in foreign trade zones (FTZs) is eliminated. Prior to the change made by HB 2, taxpayers could exclude from the numerator of the corporate income tax apportionment factor property and sales attributable to property located in an FTZ. The inventory tax credit for C corporations is repealed for tax periods beginning on July 1, 2026. The refundability of the inventory tax credit, however, is repealed for C corporations for tax periods beginning on or after January 1, 2025. Unused inventory tax credits may be carried forward for an additional five years. HB 2 accelerates the sunset of, or immediately eliminates, many corporate income tax credits. Credit certifications to enter into new, or renew already existing contracts requested after June 30, 2025, will not be granted for the following credits:
Tax credits that are repealed for tax periods beginning on and after January 1, 2025, and for franchise tax periods beginning on or after January 1, 2026, include, among others, the following:
Although considered for repeal in the original draft of HB 2, the final version of the bill retains (1) the motion picture tax credit, (2) the historic rehabilitation tax credit, (3) the research and development (R&D) tax credit, and (4) the digital media tax credit. For all but the digital media tax credit, HB 2 imposes or lowers annual caps for the credits as follows:
R&D tax credit claims are "allowed on a first-come, first-served basis." Taxpayers whose R&D credit claim are disallowed due to the cap may use the credits on an original return filed in the next fiscal year; their claim will receive priority over others filed after the original claim was filed. HB 84 and HB 105 make several changes to the state's sales and use tax that will affect both businesses and individuals. Effective January 1, 2025, the combined state sales and use tax rate will increase to 5% from 4.45%.6 On January 1, 2030, the combined state sales and use tax rate will decrease to 4.75% In 2016, Louisiana enacted an additional, temporary 1% sales tax (i.e., clean penny) on certain purchases of tangible personal property or services within the state.7 In 2018, the clean penny was extended through June 30, 2025 (from June 30, 2018), but at a lower 0.45% rate.8 HB 10 extends the sunset date of the current 0.45% rate to June 30, 2029, and imposes an additional 0.55% rate from January 1, 2025 through December 31, 2029 — i.e., reviving the 1% clean penny tax rate. Beginning January 1, 2030, both the 0.45% and 0.55% are replaced with a 0.75% rate. HB 10 increases the 0.97% rate to 1%. It removes the 0.03% imposition under R.S. 51:1286 in favor of a revenue allocation. The 2% rate imposed by R.S. 47:302 and the 1% rate imposed by R.S. 47:321 are unchanged. HB 10 reduces the aggregate maximum vendor compensation from $1,500 to $750 per month, for tax periods beginning on or after January 1, 2025. For tax periods beginning on or after January 1, 2025, HB 10 eliminates 70 current sales tax exclusions, exemptions, rebates, and credits that businesses or individuals may claim. Eliminated exclusions, exemptions, rebates, and credits include, but are not limited to, the following:
HB 10 retains over 70 exclusions, exemptions, rebates, and credits. Select tax exclusions, however, are converted into exemptions, then consolidated and modified — including those related to (1) manufacturing machinery and equipment; (2) medical devices, equipment and drugs; (3) agricultural inputs and other agricultural tangible personal property; and (4) governmental and intergovernmental transactions. Additionally, HB 10 recodifies and amends definitions of various services currently subject to sales tax under R.S 47:301. "[E]lectronic data retrieval or research; and collecting, compiling, analyzing, or furnishing of information of any kind, including … 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." Such information may be delivered or accessed via a database or subscription. Examples include furnishing newsletters; tax guides; research publications; financial, investment, circulation, credit, stock market, or bond rating reports; mailing lists; news clipping; broadcast rating services; global positioning system services; and database subscriptions. Information services do not include financial-for-account-balance information, information gathered or compiled on behalf of a particular client, or payment processing, among other exceptions. For tax periods beginning on or after January 1, 2025, HB 8 imposes the state's sales and use tax on digital products. A "digital product" is defined 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."
A business-to-business exemption applies for purchases of qualifying digital products, computer software or prewritten software access services, and information services used by a business directly in the production of goods or services for sale to its customers. Exemptions may also apply to qualifying purchases of these goods and services by an FDIC-insured financial institution or by a licensed healthcare facility or provider. Retail sales do not include digital products that are (1) consumed in producing new products or taxable services, if the digital product becomes an ingredient or component of the new product or taxable service; or (2) made available free of charge. HB 8 addresses administrative and compliance challenges facing digital products taxation, including nexus considerations, bundled transactions, sourcing, first use, and multiple points of use. In addition to "digital products," HB 8 also defines "end user," "permanent use" and "transferred electronically." HB 10 establishes general sourcing rules for sales of tangible personal property and digital products and services, as well as leases or rentals of tangible personal property, excluding motor vehicles. Specific sourcing rules apply for sales and leases of vehicles, sales of telecommunications services, and repairs to tangible personal property. Additional exceptions to the general sourcing rule are also established for purposes of sales and use taxes imposed by political subdivisions. HB 10 also establishes rules for taxing bundled transactions. The law provides exceptions to transactions that otherwise meet the definition of a "bundled transaction," including the true object exception, the de minimis exception, and the exception for food, drugs and medical items. (The true object exception applies only to transactions that include a service component and does not apply if the transaction only includes sales of tangible personal property or digital products.) The law includes specific rules for bundled transactions that include digital products that provide purchasers with the right to obtain multiple digital products. For periods beginning on and after January 1, 2025, parishes must include separate line items on their sales tax returns for sales of prescription drugs and manufacturing, machinery, and equipment. HB 10 makes several changes to the state's individual income tax. Like the corporate income tax rate, Louisiana's current individual income tax rate applies on a graduated schedule of 1.85% on the first $12,500, 3.5% on the next $37,500, and 4.25% on amounts over $50,000. (Similar tax rates apply to income of trusts and estates, but with slightly different brackets.) Beginning in 2025, the graduated income tax rates for individuals, trusts and estates collapse and a flat 3% rate applies to net income; the rate of the elective pass-through entity tax shifts from a graduated rate to the 3% rate for individuals. Previously enacted contingent, automatic individual income tax rate reductions scheduled through 2034 are repealed. In 2025, the standard deduction increases to $12,500 (from $4,500) for single taxpayers and those who are married but filing separately. For taxpayers who are married filing jointly or filing as a qualified surviving spouse, the standard deduction is 200% of the deduction for single filers (i.e., $25,000 for the 2025 tax year). Annual inflation adjustments for the standard deduction will begin in 2026. For nonresidents computing tax-table income, HB 10 repeals deductions for (1) expenses disallowed by IRC Section 280C, and (2) net capital gains. HB 10, like HB 2, adopts full expensing under IRC Section 168(k) and (e)(6) and IRC Section 174 for individual income tax purposes, repeals many business tax credits, and retains other specified credits. A similar deduction is allowed for trusts and estates. Further, as noted previously, the inventory tax credit in its current form remains intact for individuals and pass-through entities. HB 259 amends the state's severance tax, defining key terms regarding orphan well qualification, including "payout of well cost," "qualified accountant," and "well cost statement." The final version of the bill does not include rate changes that were originally proposed. HB 25 took effect upon the governor's signature. HB 7, which became law on November 25, 2024, proposes various amendments to the Louisiana Constitution. In conjunction with statutory companion HB 11,10 the tax-related amendments, if approved, would do the following:
Louisiana will vote on these proposed Constitutional amendments during a statewide election on March 29, 2025. This broad tax reform package touches nearly all corners of Louisiana tax law, affecting nearly all Louisiana taxpayers. The implementation of most provisions on January 1, 2025, also creates a compressed time in which to review the impact of these changes. Technical corrections, as well as administrative guidance, may not come until well into calendar year 2025. Taxpayers required to collect and remit sales and use tax should review the changes made by HB 8 and HB 10 and update their systems and processes to account for these tax changes.
Document ID: 2024-2266 | ||||||
