Rejection of Louisiana Tax Overhaul Is a Mixed Bag for Business

Louisiana voters’ rejection of a constitutional amendment that would have brought sweeping changes to the state’s tax laws will have a decidedly mixed effect on businesses that may prompt state lawmakers to act when they meet this week.

Taxpayers likely will benefit from voters rejecting changes that would have increased the number of legislators required to vote for taxpayer-favorable provisions, such as new or increased (non-property tax) exemptions, exclusions, deductions, credits, or rebates.

Without the amendment, a simple majority of each house of the state legislature can enact tax preferences, rather than the proposed two-thirds. Stricter requirements to enact new property tax exemptions—or make changes to existing ones—were rejected, as was removing most property tax exemptions from the constitution, protecting them from future legislatures to the relief of nonprofit organizations.

More problematic for taxpayers, however, is the rejection of constitutionally mandated uniformity of the state and local sales and use tax base. The lack of uniformity and overly complex compliance burdens that current vex taxpayers will continue, particularly over conflicting rules relating to manufacturing exemptions and prescription drugs.

Taxpayers will continue to find inconsistencies when determining whether the parishes or a particular parish offer an exemption that is available at the state level.

Of particular concern to C corporations operating in the state is the failure to offer parishes incentive to repeal personal property taxes on business inventory because the legislature, in the recent special session, eliminated corresponding state-level credits against these local taxes.

For the foreseeable future, C corporations in Louisiana will pay property taxes on business inventory. This can’t be good for economic development in the state.

Louisiana is an outlier in terms of allowing parishes to impose personal property taxes on business inventory. As part of the proposals, “business inventory” was defined to include tangible personal property held for sale in the ordinary course of business, in the process of production for subsequent sale, or to physically become part of the production of such goods.

To ameliorate some of the financial and compliance burden imposed on business interests, and to maintain economic competitiveness, Louisiana historically has offered a credit against state income and franchise taxes to offset timely paid local inventory taxes. This structure had operated effectively as a state subsidy to local governments and a drain on the state fisc to the extent the state was reimbursing businesses for taxes levied by local jurisdictions.

However, Act 11 of the special session eliminated the state-level inventory tax credit effective for C corporations, effective July 1, 2026, and eliminated any refund on account of these tax credits from Jan. 1, 2025, in the hopes that the constitutional amendment would pass.

The proposed amendment encouraged parishes to reduce or eliminate the local taxes themselves in exchange for a one-time financial incentive. While the amount of the incentive may not have compensated larger parishes for the loss in corporate inventory tax revenues, the rationale was that parishes that took advantage of the opportunity would benefit from a more business-friendly environment after forgoing a tax that arguably was detrimental to economic growth.

The fact that voters rejected the proposed amendments means that the existing inventory tax on corporations still applies without the benefit of the corresponding state tax credit.

The news gets worse with respect to taxing certain inventory held in the state. A proposed ban on inventory taxes on prescription drugs, which would have benefited businesses in parishes that didn’t remove the inventory tax, failed to pass.

For income tax purposes, the legislature changed the foreign trade zone provisions, removing preferential apportionment for taxpayers with inventory (and sales) in the zones. When apportioning income to the state, taxpayers now must include inventory in the numerator of the corporate income tax apportionment property factor when computing Louisiana state income tax, as well as sales from property located in a foreign trade zone.

Corporations operating in Louisiana now must continue navigating the complexities and financial implications of the local inventory tax, potentially affecting economic development in the state.

Certain “clean-up” items, including those related to the inventory tax credit, likely will be introduced in the 2025 regular session. But it doesn’t appear that the inventory tax credit for C corporations will be reinstated, the rationale being that since they no longer will pay franchise tax after Jan. 1, 2026, allowing a credit against the lowered income tax would be a double benefit.

Businesses nevertheless should keep an eye out for any changes to the tax reform amendments emerging from the upcoming legislative session.

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 full service representation on tax matters.

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