CABL Louisiana Special Session commentary

Legislature Passes Major Tax Reforms November 25, 2024 CABL Commentary It was a shorter session than many expected, the administration’s tax proposal underwent some significant changes during the legislative process, but on the whole lawmakers approved a fiscal reform plan that makes major improvements in the state’s tax structure. The reductions in the state personal and corporate income tax rates and elimination of the franchise tax will do much to make Louisiana’s tax structure more competitive and position the state as a desirable place for businesses and people to invest and live. In reducing the individual income tax to a flat rate of 3%, Louisiana’s rate will be among the lowest in the country and the lowest in the South of states that levy an income tax. That impact is further enhanced by the fact that the standard deduction for individuals is almost tripled, the exemption for senior citizens is doubled, and those at lower income tax levels will pay no income tax at all. On the corporate side, the changes are a definite improvement, though not quite as profound. Louisiana’s corporate income tax will change from a tiered system with a top rate of 7.5% to a flat rate of 5.5%. That would generally put Louisiana in the middle of the pack of Southern states with a corporate income tax. That position is bolstered by the elimination of the corporate franchise tax, a levy that is widely seen as antiquated and a disincentive for corporations to invest. Despite the major reductions in income tax rates, lawmakers say the tax package as a whole is generally revenue neutral for the state. That’s because it largely pays for the cuts through an increase in state sales taxes. The current state rate is 4.45% and was slated to go down to 4% at the end of the fiscal year. This legislation increases the rate to 5%. It also extends the state sales tax to include more digital products such as entertainment downloads and subscriptions to streaming services. If there is a downside to the legislation in this package it is that Louisiana’s already highestin-nation combined state and local sales tax rate will go even higher. The legislation does