Article

Louisiana's special session results in significant tax changes

Jan. 8, 2025 · Authored by Shannon Bonner, Kristina Stibrich

Louisiana’s recent special session passed a series of related bills in December 2024, which contained many tax changes including implementing a flat individual and corporate income tax rate, repealing the corporate franchise tax and increasing the sales tax rate, among other changes.

In detail

Franchise tax

HB3 repeals the corporate franchise tax for tax periods beginning on or after Jan. 1, 2026.

Sales and use tax

HB8 and HB10 make multiple changes to Louisiana's sales tax provisions including:

Sales tax on digital products

HB8 expands the sales and use tax base to include digital products effective Jan. 1, 2025.

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.”

In relation to “digital products,” the legislation further defines “digital audiovisual works,” “digital audio works,” “digital books,” “digital code,” “digital applications and games” and “digital periodical and discussion forum.”

Additionally, the legislation specifically excludes the following as a “digital product”:

• Any intangible such as a patent, stock, bond, goodwill, trademark, franchise or copyright
• Telecommunications services
• Internet access service charges
• The representation of a work product resulting from a professional service in an electronic form
• A product having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities where the purchaser holds a copyright or other intellectual property interest in the product, in whole or part, if the purchaser uses the product solely for commercial purposes, including advertising or other marketing activities
• Cable television services, direct-to-home satellite services, video programming services or satellite digital audio radio services

The term "sale at retail" does not include consuming 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. Additionally, the term "sale at retail" does not include making any digital product available free of charge for the use or enjoyment of others.

The legislation also provides guidance on nexus and bundled transactions involving digital products.

Sales tax rate & taxable services

HB10 includes sales tax rate changes in addition to adjustments to taxable services, including:

Effective Jan. 1, 2025, the sales and use tax rate increases from 4.45% to 5% and on Jan. 1, 2030, the sales and use tax rate will decrease to 4.75%.

Additionally, the legislation recodifies and expands taxable services to include computer software and information services. Specifically, taxable services now include:

• The rental, including associated fees, of multiple sleeping accommodations (e.g. rooms, cottages, rental houses)
• Sales of tickets and associated fees for admission to places of amusement, recreational events, entertainment, athletic entertainment, among others
• Parking, storing or keeping of motor vehicles (e.g. valet services)
• Printing and copying services
• Laundry services including pressing, alterations, repair and dyeing services
• Cold storage space
• Repairs and maintenance of tangible personal property
• Providing of prewritten computer software access services
• Providing of information services

Prewritten computer software services & information services

Prewritten computer software is defined as “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 is defined as “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 subscriptions.”

The legislation provides examples of information services including furnishing newsletters; tax guides; financial, investment, circulation, credit, stock market or bond rating reports; mailing lists; scouting reports; surveys; subscriptions to financial or similar databases, among others.

Excluded from taxable information services is:

• Information sold to a newspaper, or a radio or television station licensed by the Federal Communications Commission, if the information is gathered or purchased for direct use in newspapers or radio or television broadcasts
• Charges to a person by a financial institution for account balance information; or information gathered or compiled on behalf of a particular client, if the information is of a proprietary nature to that client and may not be sold to others by the person who compiled the information
• Internet access service or information services that are provided in conjunction with and merely incidental to the provision of Internet access service when provided for a single charge
• Data processing, including but not limited to check or payment processing services

HB 10 establishes sourcing rules for sales of tangible personal property, digital products and services. For sourcing purposes, HB 10 includes a hierarchy of rules, generally based on the location of the purchaser and seller in specific scenarios, to determine where a sale should be sourced for purposes of collecting and remitting sales tax. Additionally, HB 10 includes guidance on the sourcing for leases or rentals of tangible personal property, excluding motor vehicles. Specifically, for a lease or rental with recurring periodic payments, payments are generally sourced to the primary location of the property covered by the payment. Exceptions to the general sourcing rules apply to sales of vehicles, telecommunication services, repairs to tangible personal property and sales and use taxes levied by political subdivisions. As such, each sale should be evaluated based on the detailed rules to determine the appropriate sourcing.

Further, HB 10 includes guidance on the definition and taxation of bundled transactions including exceptions (e.g. true object exception).

Corporate income tax

Effective for tax periods beginning on or after Jan. 1, 2025, HB2 reduces the corporate income tax rate and eliminates certain corporate deductions and credits including:

• Establishes a flat tax rate for corporations of 5.5%, eliminating the existing tiered rate system
• Establishes a $20,000 standard business deduction
• Starting Jan. 1, 2025, a deduction, at the election of the taxpayer, shall be allowed from federal gross income for costs of qualified property, qualified improvement property, and research and experimental expenditures
• Repeal of the inventory tax credit for corporate taxpayers for tax periods beginning on or after July 1, 2026. However, a taxpayer may carry forward any remaining credits for 5 years.
• The legislation also eliminates and/or repeals many additional credits

Individual income tax

HB10 includes individual income tax changes effective for tax periods beginning on or after Jan. 1, 2025, unless otherwise noted, including:

• Establishes a flat tax rate for individuals of 3%. This flat tax replaces the previous three-tiered system
• Increases the standard deduction for a single person and those married-filing separate from $4,500 to $12,500
• Allows for full expensing of qualified property under IRC Sec. 168(k), qualified improvement property under IRC Sec. 168(e)(6) and research and experimental expenditures as defined in IRC Sec. 174
• Retains the inventory tax credit for individuals and pass-through entities
• Repeals capital gains deduction and the deduction for expenses disallowed by IRC 280C for nonresident individuals

Constitutional tax provisions

HB7 contains several state constitutional amendments to budget and tax provisions. These amendments will be voted on by a special statewide election on March 29, 2025.

What’s next?

As most of these changes took effect on Jan. 1, 2025, businesses with operations in Louisiana should review the changes in detail, including the rate adjustments, credit eliminations and sales tax revisions as they may have a significant impact on your business.

If your business has any questions, please reach out to your Baker Tilly state tax advisor.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.