Louisiana Tax Reforms Would Be Win for Personal Income Tax Repeal

Louisiana Gov. Jeff Landry (R) kicked off the state’s third extraordinary session last week to address the state’s projected $700 million budget shortfall.

The legislature faces a big challenge: passing comprehensive tax reform in a short time frame. State lawmakers over the next three weeks will see if they can achieve the large-scale tax reform outlined in Landry’s package—or if they choose to prioritize immediate budgetary concerns and defer comprehensive reforms to next year’s fiscal session.

Landry’s tax reform package, dubbed Louisiana Forward, includes a rewrite of Article VII in the state constitution, which contains many of the fundamental provisions of Louisiana’s tax code. Lawmakers have long viewed provisions in this area of law as barriers to achieving comprehensive tax reform because constitutional amendments are required to address many of the state’s fiscal concerns. This proposal would allow the opportunity to holistically pass several constitutional reforms through a single ballot measure rather than multiple stand-alone amendments.

Many of the proposed changes in the constitutional amendment pertain to moving certain property tax laws out of the constitution into statute, which appears to be an effort to reform Louisiana’s current state-to-local funding structure. Moving these property tax provisions into statute would give the legislature more flexibility to enact property tax changes.

The proposal also would provide local government with more autonomy over their property tax revenue in exchange for alleviating the state from funding as many local government initiatives in the future. This would allow the state to use this new revenue source to eventually repeal the personal income tax.

A statutory companion bill establishing a new property tax framework is tied to the Article VII constitutional amendment. The bill introduces an optional local inventory tax exemption—a topic of significant debate leading into the session.

The current proposal outlines a process allowing parishes to exempt business inventory from property taxes on a parish-by-parish basis. Parishes opting to exempt inventory can choose either a one-time state monetary incentive for a full, immediate exemption or a phased-in exemption over five years with the incentive spread over that period.

Local governments must make their election by July 1, 2026. Once enacted, the exemption would be irrevocable. If a parish doesn’t make an election by the deadline, it will retain the authority to fully tax inventory.

The proposed package also eliminates the existing inventory tax credit that businesses use to offset property tax costs. This change could increase the property tax burden for businesses with large inventory holdings in parishes that don’t adopt the exemption.

The proposed reforms also aim to replace the current three-tiered corporate income tax structure and repeal the corporate franchise tax. To offset these reductions, several existing income and franchise tax credits will be repealed or terminated, including the inventory tax credit.

The administration plans to sunset programs such as the Motion Picture Production Program, Enterprise Zone, Quality Jobs, and Restoration Tax Abatement, and use the 2025 regular session to modernize and reinvent these programs in a way that would better serve Louisiana Economic Development as tools to attract business to the state.

The current proposal looks to achieve the Louisiana legislature’s eventual goal of repealing the personal income tax by moving to a flat 3% rate. To offset the revenue impact of these reductions, several revenue-raising measures focus on expanding the sales tax base through three major reforms: repealing several sales tax exemptions and exclusions, defining and taxing digital goods, and adding 40 new taxable services.

These measures would help expand the sales tax base—specifically with the 40 new services—and would now require businesses to collect and remit sales tax on services provided by small businesses such as pet groomers, all the way to services impacting large manufacturers such as repairs and maintenance to immovable property.

Notably missing from the package is a proposal to streamline the state’s sales tax collection system—an issue that will only become more pressing as the sales tax base expands to include more services. As these proposals move through the legislative process, the legislature must establish precise definitions to minimize interpretation differences among state and local sales tax collectors.

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

Jason DeCuir is co-owner and partner of Advantous Consulting, a multistate tax consulting firm based in Baton Rouge, La., and a founding partner of Advantous Law.

Mary Robinson is a policy and legislative affairs specialist at Advantous Consulting.

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