Louisiana’s 2024 Third Extraordinary Session has officially adjourned sine die, concluding a 17-day legislative effort focused on two primary objectives: improving Louisiana’s national economic competitiveness through tax reform and bringing stability to the state’s budgetary processes to address projected deficits. Governor Jeff Landry championed these efforts with a tax reform package known as Louisiana Forward. Ultimately, the legislature passed several key measures included in the package, effectively overhauling the state’s tax code. Below is an overview of the key reforms and the changes taxpayers can anticipate moving forward.
Key Tax Reform Measures
HB 2 (Emerson) – Reduces the corporate income tax rate to a flat 5.5% and terminates certain tax credits and incentives. (Effective January 1, 2025; Applicable to income tax periods beginning on or after January 1, 2025, and franchise tax periods beginning on or after January 1, 2026)
HB 3 (Emerson) – Repeals the corporate franchise tax. (Effective January 1, 2026; Applicable to corporate franchise tax periods beginning on or after January 1, 2026)
HB 7 (Emerson) – (Constitutional Amendment) Revises Article VII of the Louisiana Constitution. (Statewide election to be held on March 29, 2025)
HB 8 (Brass) – Levies sales and use tax on certain digital products and services. (Effective upon signature of the Governor; Applicable to taxable periods beginning on or after January 1, 2025).
HB 10 (Wright) – Increases the state sales and use tax rate to 5% and reduces the individual income tax rate to a flat 3%. Provides for certain exemptions, exclusions, deductions, credits, and rebates claimed against sales and use tax and individual income tax. (Effective upon signature of the Governor; Applicable to taxable periods beginning on or after January 1, 2025)
HB 11 (Deshotel) – Moves certain property tax provisions to statute and enacts an optional local inventory tax exemption. (Effective upon passage of HB 7 Constitutional Amendment)
What Taxpayers Can Expect
Article VII Rewrite
Louisiana Forward proposes a constitutional amendment to rewrite Article VII of the state constitution, which governs the state’s budget and tax laws. This amendment will appear on the March 29, 2025, ballot and aims to streamline reforms through a single measure rather than multiple amendments. If approved, it will restructure the state’s budget framework, raise vote thresholds for certain tax measures, and move specific property tax provisions from the constitution to statute.
Specifically, the amendment will merge the Budget Stabilization Fund (commonly referred to as the Rainy Day Fund) and the Revenue Stabilization Fund, effectively eliminating the Revenue Stabilization Fund. Additionally, money from the Revenue Stabilization Fund will be redirected to a local fund to pay parishes that elect to exempt business inventory from property tax. The amendment also pays off $2 billion of Teachers’ Retirement System debt, allowing for a permanent pay raise for teachers and school support staff.
The only tax proposal included in the Louisiana Forward package that is dependent upon the passage of the Article VII constitutional amendment is a proposal to move certain property tax provisions to statute and enact an optional local inventory tax exemption. Other proposals tied to the amendment include measures addressing reforms to the state budget structure, the permanent teacher pay raise, and other appropriations provisions.
Individual Income Tax, Corporate Income Tax, and Corporate Franchise Tax
Eliminating Louisiana’s individual income tax has long been a priority for state policymakers. Currently, the state’s individual income tax features three brackets with a top rate of 4.25%. While the legislature was not in the position to propose a full repeal during the Special Session, they made significant progress by flattening the tax structure and reducing the overall rate.
Starting January 1, 2025, Louisiana’s individual income tax will shift to a flat 3% rate. The reform package also raises the standard deduction to $12,500 for single filers and married individuals filing separately, doubles the annual retirement income exemption to $12,000, and eliminates the net capital gains deduction.
Additionally, the proposed Article VII constitutional amendment would lower the constitutional cap on the maximum individual income tax rate from 4.75% to 3.75%. If approved, this change will ensure the tax rate established in statute cannot exceed 3.75%.
The legislature additionally enacted significant reforms to the state’s corporate tax structure. Louisiana’s corporate income tax currently uses a three bracket structure with a top rate of 7.5%. Effective January 1, 2025, the reform package reduces the corporate income tax to a flat 5.5% rate. Effective January 1, 2026, the package additionally repeals the highly distortionary corporate franchise tax which directly taxes a corporation’s capital.
Tax Credits & Incentives
To pay for these tax reductions, the legislature enacted significant reductions to several tax credits and incentives.
The legislature passed legislation to sunset multiple tax incentive programs administered by Louisiana Economic Development (LED) on June 30, 2025, with the goal of developing reimagined and modernized programs during the 2025 Regular (Fiscal) Session. Programs set to expire include: Quality Jobs, Angel Investor Tax Credit Program, and Enterprise Zone Incentives. However, the legislature opted to retain but reduce the following programs: Motion Picture Production Tax Credit, Research and Development Tax Credit, and Rehabilitation of Historic Structures Tax Credit.
The reform package also proposes significant changes to constitutional vote requirements for enacting certain tax legislation. A two-thirds vote of the legislature will be required to enact a tax exemption, exclusion, deduction, credit, or rebate and increase an existing tax deduction, credit, or rebate. Currently, a two-thirds vote is only required to repeal or increase an existing tax.
Finally, the package repeals several tax credits and incentives. Notably, the property tax credit for business inventory utilized by C-corporations will be repealed effective July 1, 2026. However, the credit will be retained for individual income taxpayers. In exchange, the package provides for a process allowing parishes to elect to exempt business inventory from property taxes on a parish-by-parish basis.
Property Tax
For the optional local inventory tax exemption, 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 reform package also introduces notable changes to property tax provisions currently embedded in the state constitution. It establishes “business inventory” as a distinct property classification in the constitution, with a 15% assessment ratio. Furthermore, several property tax provisions will be removed from the constitution and transferred to statute. Specifically, the Article VII constitutional amendment relocates all property tax exemptions—except for the homestead exemption and the exemption for property owned by nonprofits operating exclusively for religious purposes—into statute. The package also raises the legislative vote requirements for property tax exemptions, requiring a three-fourths vote to enact new property tax exemptions and a two-thirds vote to modify existing ones.
Sales & Use Tax
Leading up to the session, a key point of discussion was Louisiana’s temporary 4.45% state sales tax rate, which was scheduled to decrease to 4% on June 30, 2025. Concerns arose that allowing this tax to expire would exacerbate the state’s budget deficit, potentially increasing it to upwards of $800 million. To address this, the initial reform package proposed making the 4.45% rate permanent and significantly broadening the sales tax base by expanding the number of taxable services from 8 to 48. However, this proposal did not garner sufficient support and stalled in the House.
Ultimately, the legislature opted to increase the state sales tax rate to 5% starting January 1, 2025 until December 31, 2029. Beginning January 1, 2030, the rate will permanently decrease to 4.75%.
Although the broader expansion of taxable services did not pass, the legislature was able to expand the tax base by eliminating certain sales tax exemptions and exclusions. They additionally passed legislation to levy sales tax on certain digital products and services. This move reflects a growing national trend of taxing digital products that were traditionally purchased as tangible goods but are now consumed digitally. The legislation treats digital products similarly to tangible personal property for tax purposes while providing exemptions for certain digital products used for business and healthcare purposes.
Initially, there was also a proposal to extend the state sales tax exemptions for prescription drugs and manufacturing machinery and equipment to the local level. However, concerns about the potential impact on local government revenues led to the final package preserving local governments’ authority to tax prescription drugs and retaining the optional local exemption for manufacturing machinery and equipment allowed under existing law.
Looking Ahead
Overall, the legislature successfully enacted an ambitious package of tax reform proposals in just 17 days. The next critical step will be the statewide vote on the Article VII constitutional amendment scheduled for March 29, 2025. Following this, the 2025 Regular (fiscal) Session will convene on April 14 and adjourn no later than June 12.
Looking ahead to the 2025 Regular Session, we anticipate legislation to be filed to address any unintended consequences to the state’s tax structure. Additionally, depending on the outcome of the Article VII constitutional amendment election on March 29, there will likely be proposals filed that continue efforts to reform the state’s tax code. We expect these proposals to include phasing out the inventory tax, broadening the sales tax base to cover additional services, and centralizing the state’s sales tax collection system. Furthermore, Louisiana Economic Development (LED) is expected to introduce legislation aimed at creating new programs to attract businesses to the state.
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For more information on Louisiana’s 2024 Third Extraordinary Session or Advantous’ tax policy and legislative affairs services, please email mary.robinson@advantous.com and jason.decuir@advantous.com.
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