Key Takeaways:
- Louisiana adopted a 5.5% flat corporate income tax rate and a 3% flat individual income tax rate, replacing graduated rates.
- The corporate franchise tax will be repealed starting in 2026.
- The sales and use tax rate increased to 5% in 2025, with new rules clarifying taxation and exemptions for digital products, software, and services.
- Businesses and individuals can claim bonus depreciation and amortization deductions, but several tax credits will sunset in 2025. Voters will decide on further tax reforms in a March 2025 election.
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After completion of a special legislative session focused on tax reform initiated by Louisiana Governor Jeff Landry, he signed multiple tax bills leading to significant reforms in corporate franchise tax, corporate income tax, personal income tax, and sales tax. Governor Landry predicts these tax changes will make Louisiana more attractive to businesses and enable Louisianans to keep more of their income.
Corporate Franchise Tax
Corporate Franchise Tax is repealed for taxable periods beginning on or after January 1, 2026.
Corporate Income Tax
The graduated corporate tax rate was eliminated and a flat rate of 5.5% was imposed beginning January 1, 2025. The law also provides for a $20,000 corporate standard deduction, which corporations can deduct from their federal gross income. Corporate taxpayers can elect to immediately expense the cost of qualified property, qualified improvement property, and research and experimental expenditures in the tax year in which the property is placed in service, or the expenditure is paid or incurred.
Individual Income Tax
Similarly, the graduated rates for individual income tax were replaced with a flat 3% rate beginning January 1, 2025. The standard deduction for single individuals and taxpayers who are married and filing separately increased from $4,500 to $12,500. The standard deduction for those married and filing jointly or a qualified surviving spouse and head of household increased to $25,000. The standard deduction will be adjusted for annual inflation starting in 2026.
The annual retirement income exemption was increased from $6,000 to $12,000 and will be adjusted annually.
The graduated rates for pass-through entities that elect to be taxed as a corporation were repealed and the flat 3% individual income tax rate will apply beginning January 1, 2025. In addition, the income of an estate or trust will be taxed at 3%.
Individuals, S corporations and other pass-through entities, and trusts and estates will be permitted to take a bonus depreciation deduction and bonus amortization for research and experimental expenditures, similar to those permitted by corporations.
Sales and Use Tax
The sales and use tax (SUT) rate was increased to 5% effective January 1, 2025 — accomplished by imposing an additional levy of 0.55% and making permanent the temporary increase of 0.45%. The combined SUT rate will reduce to 4.75% effective January 1, 2030. The law also updated the definition of “sales price” to include delivery and transportation charges in the sales tax base.
The new law formalized the definition of “digital products” and provided clarification on the taxability and exemption of various digital products for the taxable periods beginning on or after January 1, 2025. Previously, the Louisiana statutes did not reference “digital products.” However, citing precedent from the Louisiana Supreme Court, the taxing authority provided administrative guidance that digital products were taxable tangible personal property.
The new legislation provides digital audiovisual works, digital audio works, digital books, digital codes, digital application and games, and digital periodicals and discussion forums are subject to SUT. Computer software, prewritten computer software access services, and information services are exempt from SUT provided these products are (1) purchased exclusively for commercial purposes, (2) used directly in the production of goods and services for sale to customers, and (3) the goods or services produced and sold are subject to SUT or insurance premium tax.
Licensed healthcare facilities and FDIC-insured financial institutions using digital products for storing or transmitting information are exempt from SUT. The new law eliminated the definition of “custom software” and subjects all software to SUT.
Recently, the Louisiana Department of Revenue clarified that certain exemptions of the SUT would continue to be recognized despite being repealed by the new legislation. These exemptions include certain sales by nonprofit organizations and admissions to athletic or entertainment events of educational institutions.
The vendor’s compensation, which is allowed if the SUT return is filed and paid on time, was reduced to a maximum monthly amount of $750 from $1,500.
Miscellaneous Taxes
The law established a sunset of June 30, 2025, for multiple incentive programs, including Louisiana Work Opportunity Tax Credit, Louisiana Quality Jobs Program, Angel Investor Tax Credit Program, Sound Recording Investor Tax Credit, and Enterprise Zone program. New applications for these credits cannot be submitted after the sunset date.
Constitutional Amendment
In addition, several tax changes require approval by the voters through a statewide election which will be held on March 29, 2025. Louisianans are being asked to vote for a state constitutional amendment modifying the income tax, property tax, severance tax, cigarette tax, motor vehicle license tax, and the power to tax. Specifically, the amendment would make the following changes:
- Reduce further the individual income tax rate.
- Increase the standard deduction for senior citizens.
- Amend provisions for property tax.
- Repeal the authorization and prohibition for levy of severance taxes.
- Abolish the minimum rate for cigarette tax.
- Change the authority, requirement and restrictions involving motor vehicles license tax.
How MGO Can Help
Decreases in the tax base created by an appreciative reduction in the corporate and individual income tax rates, repeal of the corporate franchise tax, and increase in the standard deduction are offset by the increase in combined sales and use tax rate and enlarging the sales tax base to include numerous services. These extensive changes will have a significant impact on businesses and individuals.
More guidance and clarifications are expected from the state to assist taxpayers in properly applying these modifications. We can help you evaluate these changes, take advantage of the new tax benefits, and assist in compliance with the expanded tax obligations. Reach out to our State and Local Tax team today to learn more.