Louisiana to extend its lead with nation's highest local sales tax
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The start of the Legislature's special session on Nov. 6. Photo: Chelsea Brasted/Axios
Louisiana lawmakers ended their third special session of the year on Friday with updates to the state's tax code that hand Gov. Jeff Landry a win while also changing how the state collects revenue to pay its bills.
Why it matters: Louisiana has the highest sales tax in the country, and it's about to get higher when it crosses 10% for many in the state.
Louisiana's tax law saw a flurry of changes from state lawmakers before the end of the special session, according to the Louisiana Illuminator. The changes included:
- Flattening the state's currently tiered income tax brackets to 3% across the board, as of Jan. 1, 2025.
- Expanding the standard deduction for individuals to $12,500 beginning in 2026.
- Ending the corporate franchise tax, and flattening the corporate income tax to a single 5.5% rate.
- Taxing digital products, like streaming services.
- Growing the state sales tax, currently at 4.45%, to 5% for five years before dropping it to 4.75%.
The intrigue: Landry's plan originally sought to make a controversial, soon-to-expire .45-cent sales tax permanent, but lawmakers made the state sales tax code edits in the session's 11th hour.
- "The last-minute decision to increase the state sales tax from 4.45% to 5% was made in closed-door negotiations," according to a statement from Baton Rouge think tank Invest in Louisiana, "without any opportunity for public testimony and without an analysis of the bill's impact on state revenues and on people at different income levels."
- When parish and state taxes are combined, many people in Louisiana will pay more than 10% in local sales tax next year, the Illuminator reports.
Between the lines: Lawmakers also capped the state's tax credits for movie and TV production, digital and software companies, and historic building preservation at lower levels.
Follow the money: Under the new legislation, state revenue from income taxes would drop by $1.3 billion, and the sales tax increase would raise another $845 million in revenue, The Times-Picayune reports.
State of play: Landry entered the session with four goals, he said in a statement Friday. They included a tax cut for all residents, making the state more competitive for businesses, giving teachers a pay raise and simplifying the tax code.
- To those ends, Landry claimed victories Friday, calling the legislation "a win for the people of Louisiana."
- "Today is a huge step in the right direction," he said.
Landry's big picture, he has said, is to eliminate the state income tax altogether.
The other side: The tax bills were not without their detractors, with some — mostly Democrats — voting against various parts of the overall plan, the Times-Picayune reports.
- "The tax changes that head to the governor's desk will likely produce fiscal instability and future budget shortfalls, and saddle low-income Louisianans with higher costs for everyday purchases," reads the Invest in Louisiana statement.
What's next: Because some of the changes lawmakers approved make edits to the state constitution, voters will have to give their OK in a March election.
- That includes a permanent $2,000 pay raise for teachers by paying off teacher pension debt, a doubling of the standard deduction for seniors, and an option for parishes to repeal the business inventory property tax, among other changes.