Louisiana Legislature passes income tax cut, sales tax raise: What to know

BATON ROUGE, La. (BRPROUD) -- The Louisiana Legislature has passed a slew of bills to restructure the state’s tax system. The key changes are cuts to the individual and corporate income tax, a raise in the state sales tax among cuts to corporate income and eliminating the franchise tax.

“Louisiana is open for business. We're more competitive now. We've lowered our rates to stay in line with our southeastern neighboring states,” said state Rep. Julie Emerson, R-Carencro. “And we're just excited to hopefully bring our people home and bring more business to the state.”

After the governor signs the legislation into law, Louisianans will see their income tax rate drop to 3% for all tax brackets making over $12,500 annually. This will lead to a $1.3 billion reduction in revenue. Seniors will have an increased retirement income tax exemption of $12,000, which is double what it used to be.

There are a few ways the state has passed to offset that loss. The statewide sales tax is being raised to 5% for five years. In 2030, the sales tax will drop down to 4.75%. 

“The temporary tax for five years gives the state the opportunity to look into the forecast and to see how we could continue to make additional adjustments,” said state Sen. Gerald Boudreaux, D-Lafayette. 

A number of digital goods and services will now be subject to sales tax. A bill looking to add dozens of more physical services to the sales tax did not pass, but the governor has shown interest in bringing legislation in the regular session to look at it again, according to legislators.

“This is the first step of where we're going. I'm proud to say that we have listened. And for those who are out there, read the document before you start to not understand what has been incorporated into this,” Boudreaux said.

Corporations will see an income tax cut with a bill passing to reduce the rate to a flat 5.5%. The state is also doing away with the franchise tax altogether. 

Also to offset the budget gap the state will redirect money from the vehicle sales tax that is currently going to mega projects such as the new Mississippi River Bridge for two years. That will garner up to approximately $280 million.

A number of tax credits were saved through amendments due to harsh pushback from industry and some lawmakers. The film tax credit has been maintained at a lower cap of $125 million. The historical preservation tax credit is lowered to $85 million. 

Voters will decide on a constitutional amendment that will be on the March ballot regarding closing up multiple funds and using the money to pay down teacher retirement debt. That debt payment would lead to a school district’s savings being used to make the teacher pay stipend a permanent part of their salary. If the amendment fails at the ballot box, the legislature will have to find a way to pay for those promised pay raises in the regular session. 

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