Louisiana Aims to Empower Parishes to Set Business Inventory Tax

The Louisiana legislature last year amended almost every aspect of state taxation, but voters will decide March 29 whether to approve more than 100 pages of tax revisions in the state constitution. C corporations in particular should be aware of the changes that the voter measure would bring in empowering local parishes to decide whether and how much to tax business inventory.

The measure, known as HB 7, proposes wide-ranging amendments that would affect both individuals and businesses, including power to tax, revenue collections, and uniformity with respect to certain local and state tax measures. The sweeping legislation approved last year will only become effective if the constitutional amendment passes.

HB 7 also proposes to move all ad valorem tax exemptions—those based on the value of the item being taxed—from the constitution to statute. Relocating the exemptions into statute provides the legislature greater flexibility for amending the exemptions rather than amending the state constitution. Those exemptions include several relied on by industry, including the industrial tax exemption for manufacturing facilities, several “freeport” exemptions for imported goods, and the exemption for construction materials.

Gov. Jeff Landry (R) and other proponents of the tax reform legislation say much of the legislation aims to encourage business investment in Louisiana. Unlike most jurisdictions, current law levies ad valorem taxes on business inventory. Historically, these taxes have been important to parish revenue.

HB 7 seeks to strike a balance between providing parishes with revenue and giving businesses incentive to keep inventory in Louisiana. Specifically, it proposes to add a special assessment classification for business inventory, as its own class of property subject to tax at 15% of the inventory’s fair market value.

However, another proposed section also allows parish authorities to elect to reduce the percentage of fair market value applicable to business inventory. Theoretically, that means parishes could reduce the assessed value of business inventory to 0%, which would encourage competition among parishes when seeking to attract new business investment.

HB 7 also allows parishes to irrevocably exempt business inventory from ad valorem taxation in exchange for payment from the State Revenue Stabilization Trust Fund.

HB 11, the bill that statutorily implements HB 7, provides that any parish electing to exempt 100% of business inventory from ad valorem tax—and implements the exemption immediately—would receive a payment equal to the greater of three times the amount of ad valorem property taxes collected on business inventory within the parish for the 2023 tax year (limited to $15 million) or $1 million.

HB 11 also specifies payment amounts if the business inventory exemption is phased in over the next five years.

Another section of HB 7 prohibits the legislature from requiring any taxing authority to exempt business inventory from ad valorem taxation. As a result, the parish will have the final say on whether to take the one-time payment which, again, appears to be consistent with the theme of giving autonomy to the local governing parishes.

C corporations should understand how HB 7 interacts with HB 2, the corporate income tax piece of the 2024 Third Extraordinary Session. HB 2 repealed the business inventory tax credit for C corporations beginning July 1, 2026, but left the credit in place for individuals and pass-through entities.

When reading HB 7 together with HB 2, C corporations paying a local ad valorem tax on business inventory and claiming the inventory tax credit against Louisiana state corporate income tax should pay careful attention to how parishes address business inventory after the upcoming election.

Because parishes are provided different options, C corporations should be aware of whether the parishes opt in to the exemption or whether the parishes decide to tax business inventory at the 15% assessed value rate or some currently undetermined lower assessed value rate.

If HB 7 is enacted, and parishes don’t opt in to the business inventory exemption, C corporations could face a scenario where they must pay ad valorem tax on their inventory to parishes but are unable to claim a credit against their corporate income tax.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jesse R. Adams III is partner in Jones Walker’s tax practice group and leader of its state and local tax team.

Joshua M. Sanchez-Secor is an associate in Jones Walker’s tax practice group.

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