In November 2024, the Louisiana Legislature held a special session on tax reform. Several changes were made to sales and use tax laws, including an increase to the state tax rate, adding additional taxable services, changing exclusions and exemptions, adding taxation of “digital products” and other issues.
The highlights of these changes are as follows:
New Louisiana State Sales Tax Rate.
Effective January 1, 2025, the Louisiana state sales tax rate was increased to 5%.
2 New Taxable Services / Taxation of “Digital Products”
Effective January 1, 2025, there are 2 new taxable services in Louisiana (in addition to the eight already in existence):
- Prewritten computer software access services
- information services
In addition, a new class of property called “digital products” was defined and made subject to sales/use tax, generally in the same manner that tangible personal property has been subject to tax. “Digital products” are broadly defined to include any “taxable tangible personal property transferred electronically, whether digitally delivered, streamed or accessed, or whether purchased singly, by subscription, or in any other manner, including maintenance, updates, and support.”
This means that selling, purchasing, or accessing software or information, even if in the cloud, is now taxable. There is an exemption available for businesses who use software or software services to produce a service or good (and that service or good or service is subject to tax). There are also exemptions for certain banking software and certain software used by licensed healthcare facilities. Our tax professionals can help your business determine whether you may qualify for one of the exemptions.
Rental with an Operator
The repeal of the statute specifically excluding crane rental with an operator from taxation has caused some confusion about whether or not to tax rentals when an operator is also provided. The Louisiana Department of Revenue has given informal guidance on the subject which boils down to one question: “What is the essence of this transaction?”.
Renting a piece of equipment with an operator will often still be a non-taxable service rather than a taxable rental. To illustrate, if a vendor invoices for a crane rental and an operator to move a heavy piece of equipment and the operator maintained care, custody and control of the crane, then the transaction is not a rental of a crane. Instead, it is a service to move a piece of equipment, which is a non-taxable service.
While many, if not most, rental with operator transactions will likely remain non-taxable services, proper contract terms and/or invoicing can make life easier when trying to document and prove that you are purchasing a nontaxable service.
Tax on Freight, Delivery and Transportation
Under the old law, freight / delivery / transportation services were not taxable. Under the new law, those same charges are now taxable when made by a vendor in conjunction with a taxable sale. If a vendor includes delivery, freight, or shipping charges on an invoice for a taxable item, those charges are also considered taxable and must be included in the total sales price. This law change applies to both state and local sales tax. If an item is subject to state tax, the freight charges will be as well. Similarly, if only local parish tax applies to the sale, then only the parish tax will apply to the freight charges. If a sale is exempt from state sales tax, then no state tax will be charged on the associated freight.
Certain freight and transportation services remain non-taxable. Standalone transportation services, where a customer hires a transportation company to move something from one place to another are not taxable. Freight charges associated with transactions that are exempt from sales tax, such as resale transactions, sales of manufacturing machinery and equipment (for state tax purposes), and sales to government entities, are also not subject to tax. Additionally, transportation charges connected to the lease or rental of equipment are not taxable (although the lease or rental itself is generally subject to tax).
Local Vendor’s Compensation and Reporting
There is some confusion regarding whether the local parish collectors still have an option to offer vendor’s compensation credits when filing returns. Some parishes have interpreted that they cannot offer this credit under the new law. In some cases, a review of the updated parish sales/use tax return may provide clarity for a given parish’s view on the issue. In others, it may be necessary to contact the parish for further information.
In addition to the changes in vendor’s compensation, businesses may have also noticed a new reporting requirement on local sales tax returns. Effective in 2025, businesses must now report sales of prescription drugs and manufacturing machinery and equipment on their local sales tax returns. While these items may be exempt from tax at the state level only, their sales must still be documented in local filings. Businesses should ensure their accounting and reporting processes are updated to comply with this new requirement.
The Louisiana Department of Revenue is continuously updating its tax reform page located on the website. The FAQ section is a great resource for general questions. If you need additional help, please reach out to our Advantous experts.
Louisiana 2025 Fiscal Session Update
The 2025 Louisiana Fiscal Session starts April 14, 2025. As of now, there have been no sales tax bills filed. Don’t let this fool you! We are expecting a number of bills related to sales tax to be filed to build upon the laws passed in November’s tax reform session. Will we see more services taxed, centralization, certain clean-up of unintended consequences, or something out of left field? Stay tuned, our Advantous team will be tracking all tax bills.