Louisiana Passes Major Tax Reform With Flat Individual and Corporate Rates

Following an extraordinary session of the legislature, Louisiana Gov. Jeff Landry on December 5 signed into law sweeping tax reform. The package includes bills related to individual (H.B. 1), corporate (H.B. 2), franchise (H.B. 3), and sales taxes (H.B. 8, H.B. 10).

Individual Income Tax

The individual reform removes the graduated tax rate and replaces it with a flat 3% tax on net income, resulting in a tax cut for most Louisiana taxpayers. Before the change, the rates for a single filer were 1.85% on the first $12,500 of income; 3.5% on the next $37,500; and 4.25% on income over $50,000.

The legislature has indicated that the reform is part of a goal to ultimately eliminate the income tax. The changes apply to tax years beginning on and after January 1, 2025.

Corporate Income and Franchise Tax

The tax reform also flattens the corporate income tax rate. Before the flat 5.5% rate was enacted, the graduated rate was 3.5% on the first $50,000 of income; 5.5% on the next $100,000; and 7.5% on income over $150,000.

Louisiana is allowing full expensing of bonus assets, including qualified improvement property, for federal income tax purposes. It is also allowing full expensing of IRC Sections 174 and 179 property. Before the reform, Louisiana conformed to the federal rules on a rolling basis,¹ meaning the expensing of assets and federal bonus depreciation rules would have phased out by 2027. The state’s changes ensure those rules will not phase out according to the federal schedule.

The changes are effective for tax years beginning on and after January 1, 2025.Finally, the state has eliminated the .275% corporate franchise tax, which applied to apportioned capital stock, surplus, and undivided profits over $300,000. That change is effective for tax years beginning on and after January 1, 2026.

Sales and Use Tax

The Louisiana reform adds the term “digital products” to the sales and use tax code, making them taxable in the state. It 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.” The new rules also subject software as a service and information services to sales and use tax.

The changes increase the sales tax rate from 4.45% to 5%. It will decrease to 4.75% in 2030.

The state increased the sales and use tax base and rate to offset the income tax reductions. The changes take effect January 1, 2025.

Reference
1. La. Rev. Stat. 47:287.701(A)