Alert
Louisiana Enacts Significant Income Tax and Sales Tax Changes
Louisiana governor Jeff Landry signed a series of bills on December 4, 2024, that enacted sweeping changes to Louisiana’s income tax, franchise tax, and sales tax provisions, as well as circumscribing many of the state’s tax credits.
These changes go into effect for tax years beginning on or after January 1, 2025.
These pieces of legislation, which repeal the existing corporate franchise tax, create flat rate income tax regimes for personal income tax and corporate income tax, and broaden the state’s sales and use tax base, were contained within four bills:
Individual Income Rate Tax Changes
HB10 shifts Louisiana’s individual income tax from a marginal rate structure to a 3.0% flat income tax. For tax years beginning on or after January 1, 2025, Louisiana’s personal income tax rate will be 3.0% on all income.
Previously, Louisiana individual income tax was imposed at:
- 1.85% rate on income up to $12,500
- 3.5% on income $12,500–$50,000
- 4.5% on income exceeding $50,000
Corporate Income Rate Tax Changes
HB2 replaces Louisiana’s graduated corporate income tax rate structure with a flat rate of 5.5%. For tax years beginning on or after January 1, 2025, corporations will be subject to a flat income tax rate of 5.5% on their Louisiana-sourced income.
Prior to 2025, Louisiana had a marginal income tax system:
- 3.5% rate was imposed on income up to $50,000
- 5.5% on income $50,000–$150,000
- 7.5% rate on income over $150,000
Modifications to Federal Taxable Income in Computing Louisiana Taxable Income
In addition to the corporate rate changes, HB2 also creates a Louisiana-specific bonus depreciation deduction and permits taxpayers to fully deduct their R&D expenses in the year when they were incurred.
For the 2025 tax year, the federal bonus depreciation deduction is equal to 40% of the taxpayer’s expenditures on qualified property or qualified improvement property. With HB2, however, Louisiana taxpayers can make an election to deduct 100% of expenditures for qualified property and qualified improvement property in the year the property was placed in service.
The terms qualified property and qualified improvement property carry the same meaning as the terms defined in IRC Section 168(k) and Section 168(e)(6) respectively.
For tax years after the year Louisiana bonus depreciation has been elected, taxpayers must make an addition adjustment that disallows the available federal bonus depreciation adjustment on asset expenditures that were fully expensed, for Louisiana tax purposes, in the prior election year. In addition, the basis in assets will be adjusted to reflect the Louisiana-specific bonus depreciation deduction amount, allowing for recapture upon the sale or disposition of the fully depreciated property.
HB2 also permits taxpayers to deduct as an expense any R&D expenditures in the year the expense was incurred. This change decouples from the current federal income tax requirement that such expenditures be amortized over a 5- or 15-year period and allows taxpayers to have a subtraction modification on their Louisiana income tax return to account for the full expensing of R&D expenses in the tax year in which they are incurred.
Conversely, in subsequent years, taxpayers must make a Louisiana addition modification equal to the amortized federal R&D deduction on expenditures that were fully deducted in a prior tax year. Such expenditures that were subject to this 100% deduction will be excluded from the Louisiana basis of the property related to the expenditures upon the sale or disposition of the asset.
Both changes are effective for tax years beginning on or after January 1, 2025.
Apportionment Changes
HB2 revises Louisiana’s single sales factor apportionment rule relating to the sale of tangible personal property into a Foreign Trade Zone (FTZ) located in the state.
Specifically, the legislation repeals Louisiana Revised Statute (LRS) Section 47.287.95(H)—a receipts sourcing provision that deemed sales into a FTZ located in Louisiana to be considered sales attributed outside the state and excluded from the sales factor numerator. With HB2’s repeal of 47:287.95, sales of tangible personal property delivered to a purchaser in an FTZ located in Louisiana are considered Louisiana-sourced sales in the sales factor apportionment calculation.
This change to the Louisiana sales factor is effective for tax years beginning on or after January 1, 2025.
Repeal of Corporate Franchise Tax
HB3 repeals the state’s corporate franchise tax for tax periods beginning on or after January 1, 2026. Since the 2026 franchise tax period is based on the corporate’s accounting period for the prior tax year, the CFT-620 corporate/franchise return filed in 2025 will be the last return that calculates a corporation’s Louisiana franchise tax.
Broadening the Sales & Use Tax Base to Include Sales of Digital Products, Software as a Service, and Information Services
HB 8 expands Louisiana’s sales and use tax base to include, in addition to sales of tangible property, the sale of digital products.
The term digital product is defined in the legislation to mean: “digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, digital periodicals and discussion forms, and any other otherwise taxable tangible personal property transferred electronically, whether digitally delivered, streamed, or accessed … by subscription, or in any other manner, including maintenance, updates, and support.”
A digital product, however, does not include telecommunications services, internet access service charges, professional services delivered electronically, cable or satellite television services, or intangibles. The law also provides for a business-to-business exemption when certain conditions are met.
HB10 expands the state’s sales and use tax provisions to include the sale of prewritten computer software access services and information services.
Prewritten computer software access services means those charges made to customers for the right to access and use prewritten computer software, where the possession of the software is maintained by the seller or a third party and regardless of whether the service charge is on a per use, per license, subscription, or some other basis.
Information services means electronic data retrieval or research, as well as the collecting, compiling, analyzing, or furnishing of information of any kind that includes delivering or providing access to the information through databases or subscriptions.
Eliminating Sales Tax Exemptions and Exclusions
HB10 eliminates numerous exemptions and exclusions from the Louisiana sales and use tax base.
Notable exemptions and exclusions that were repealed include:
- Separately stated labor charges on property repaired outside of Louisiana
- Manufacturer rebates paid directly to a dealer
- Purchases of property for lease or rental
- Pollution control devices and systems
- Sales of cellular phones and electronic accessories
- Labor, materials, and supplies used for the repair, renovation, or conversion of certain drilling rig machinery and equipment
- Cable television installation and repair services
- The annual state sales tax holiday
The removal of these exemptions and exclusions is for tax periods beginning on or after January 1, 2025.
Changes to Sales & Use Tax Rate and Reduced Vendor Compensation
HB10 increases the state sales and use tax rate from 4.45% to 5.0% through December 31, 2029. Beginning January 1, 2030, the state sales tax rate is scheduled to decrease from 5.0% to 4.75%.
Sellers that collect and remit Louisiana sales tax are permitted compensation equal to 1.5% of the monthly sales tax collected and remitted in consideration for their efforts of state sales tax compliance. HB10 reduces the cap on this compensation amount from $1,500 per month to $750 per month.
These changes to Louisiana’s sales and use tax provisions are effective for tax periods beginning on or after January 1, 2025.
Limiting Louisiana’s Income Tax Credits and Incentives
HB2 ends certain income tax credits and accelerates the sunset of others. Among other changes, it:
- Repeals the inventory tax credit for corporate income and franchise tax. The legislation repeals the credit for state property tax paid on inventory that can be applied on a taxpayer’s corporate income and franchise tax for tax periods beginning on or after July 1, 2026. Taxpayers are permitted to carry forward unused inventory credit for a period of up to five years, but this additional carryover period does not apply to credits where the carryover period expired prior to 2025. The credit will still be available for individual income taxpayers.
- Accelerates the termination of Louisiana’s Work Opportunity Tax Credit program by terminating the application window after June 30, 2025, rather than the previous deadline of June 30, 2027.
- Limits the state’s Research and Development Tax Credit to $12 million annually for tax periods beginning on or after July 1, 2025. These credits will be allowed on a first-come, first-serve basis—though applicants who are unsuccessful due to the cap will be given priority in the subsequent year.
- Terminates the Modernization Tax Credit program, a program intended to induce Louisiana businesses to modernize their facilities in the state in lieu of moving outside the state, for applications received after June 30, 2025.
- Terminates the Angel Investor Tax Credit, a program intended to encourage third parties to invest in early-stage businesses in the state for applications received after June 30, 2025.
- Accelerates the termination for advanced notification enterprise zone incentives by not accepting applications after June 30, 2025—moved up from June 30, 2026.
We’re Here to Help
For help navigating these changes in Louisiana tax code, please contact your Moss Adams professional.