Louisiana Tax Reform Calls for Business Inventory Tax Strategies

House Bill 7, introduced during Louisiana’s 2024 Third Extraordinary Session on tax reform, would have a mixed tax impact on businesses.

It proposes a slew of changes to Article VII (Revenue and Finance) of the Louisiana Constitution, which governs state and local taxes. The amendments take effect only if approved by voters at a statewide election on March 29.

The official ballot’s proposition is set to frame the bill as lowering taxes, retaining the state’s generous homestead exemption, protecting religious organizations, and providing a raise for teachers. Such drafting language likely will earn voters’ approval, but HB 7 includes several changes that have important implications for businesses.

First, HB 7 increases the voting requirement from a majority to two-thirds of each chamber for taxpayer-friendly amendments, such as introducing or increasing the number of available exemptions, exclusions, deductions, credits, or rebates. This would make it harder for state lawmakers to approve such changes in the future. The requirement applies to all taxes except new property tax exemptions, where HB 7 requires a three-fourths vote instead, though later changes to those exemptions would require only a two-thirds vote.

HB 7 also removes the bulk of the property tax exemptions (other than the homestead exemption) previously housed in the Louisiana Constitution to the statute, allowing state legislators to more easily amend them if the state needs money.

On a more positive note, any sales and use tax changes from 2026 onward would have to apply at both the state and local level. Louisiana is one of only four states that have a decentralized sales tax system, either in the form of a nonuniform tax base or dual collection system—or in Louisiana’s case, both. This proposal means that businesses wouldn’t be forced to navigate new exemptions that are only available at the state but not local level, or vice-versa.

But some of the most troubling discrepancies are still intact. For instance, the manufacturing machinery and equipment exemption and prescription drugs exemption would remain optional at the local level. The bill throws a sop to taxpayers, requiring local governments to include a separate line on local sales and use tax returns for the manufacturing machinery and equipment exemption and prescription drug taxation to provide data on the revenue impact of a mandatory local exemption for either of them.

While HB 10 (Act 11) of the special session eliminated the state’s inventory tax credit for C corporations starting Jan. 1, 2026, it didn’t repeal the local inventory taxes themselves. It did, however, offer an incentive to local governments to consider eliminating these taxes.

One of the biggest changes HB 7 introduces is the optional repeal by local governments of property taxes on business inventory for taxable periods on or after Jan. 1, 2026, while also prohibiting the legislature from enacting a mandatory repeal. Business inventory covers tangible personal property held for sale in the ordinary course of business, currently in the process of production for subsequent sale, or to physically become part of the production of such goods.

Local governments that opt in to the repeal can receive a one-time payment from the Revenue Stabilization Fund. Some of the larger local jurisdictions that collect higher revenue from inventory taxes may forego this option.

In such cases, HB 7 authorizes a local government to reduce the assessed value—calculated as a percentage of fair market value—of business inventory. Businesses will want to track these changes at the local level to minimize their inventory tax footprint.

A local sales and use tax exemption for prescription drugs was one of the key proposals in HB 7, but it didn’t pass the state senate, as local governments were concerned with the resulting revenue loss inherent in this change combined with the possibility of inventory tax repeal.

However, a constitutional ban on inventory taxes on prescription drugs did pass as part of HB 7. This would have a positive impact for businesses dealing in prescription drugs where local governments don’t opt to remove the inventory tax altogether.

When it comes to businesses, the constitutional amendments are a mixed bag, and none of them are outlined in the ballot language. Given the expected voter approval for HB 7, businesses and their tax advisers should gear up for these short-term and long-term changes to Louisiana state and local taxes—with the most significant being the business inventory tax changes.

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

Jaye A. Calhoun is partner with Kean Miller, where she provides clients with full service representation on tax matters.

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